Perhaps this should best be understood in terms of a vicious cycle of government interference in markets. When Congress first grappled with the nightmare economics of forcing a shutdown in commerce, arguably necessary for the COVID-19 pandemic, they passed the CARES Act in an attempt to rescue businesses from obliteration and workers from poverty. The package contained – among lots of other helicopter-money programs — an enhanced unemployment benefit that paid an extra $600 a week, through the end of July.
As Senate Republicans warned at the time, that bonus created an incentive to remain unemployed. If people made more on unemployment than their regular job paid, they’d remain unemployed until those benefits ran out. Congress passed the bill anyway, only to discover that businesses that wanted to remain open couldn’t keep their employees from leaving. That complicated the Paycheck Protection Program’s ability to rescue small businesses, since the forgiveness was dependent on maintaining payroll.
Rather than fix this by removing the perverse incentive Congress created, however, Congress and the White House are mulling a new idea. Why not just add another perverse incentive to undo the first?