Just to set the context of this position from yesterday’s Senate Republican conference call, let’s take a look at this morning’s news on job losses. More than 2.4 million Americans filed new jobless claims last week, a sharp drop from the week before but still far above anything seen in the Great Recession:
In the week ending May 16, the advance figure for seasonally adjusted initial claims was 2,438,000, a decrease of 249,000 from the previous week’s revised level. The previous week’s level was revised down by 294,000 from 2,981,000 to 2,687,000. The 4-week moving average was 3,042,000, a decrease of 501,000 from the previous week’s revised average. The previous week’s average was revised down by 73,500 from 3,616,500 to 3,543,000.
The advance seasonally adjusted insured unemployment rate was 17.2 percent for the week ending May 9, an increase of 1.7 percentage points from the previous week’s revised rate. The previous week’s rate was revised down by 0.2 from 15.7 to 15.5 percent. The advance number for seasonally adjusted insured unemployment during the week ending May 9 was 25,073,000, an increase of 2,525,000 from the previous week’s revised level. The previous week’s level was revised down by 285,000 from 22,833,000 to 22,548,000. The 4-week moving average was 22,002,250, an increase of 2,313,500 from the previous week’s revised average. The previous week’s average was revised down by 71,250 from 19,760,000 to 19,688,750.
There is actually a couple of glimmers of good news in this report, albeit tough to see amid the unending destruction of jobs. The trend is at least going in the right way, obviously, but the revision downward last week is (I believe) the first significant revision in that direction from a previous week since the crisis began. That suggests — suggests, mind you — that the backlog of claimants has abated significantly. We may have a more reliable number as a result, so that at least we can say that the situation is likely no worse than 2.4 million jobs getting vaporized in a week.
Small comfort, eh?
With the bleeding slowing down somewhat but hardly abating, pressure will continue on Congress to expand and extend relief, especially that aimed at the unemployed. However, Mitch McConnell told Senate Republicans yesterday that he wants to wait to see what impact the spending already authorized has on the crisis before spending more money. And either way, the expanded unemployment benefits that pay better than jobs opening up won’t get extended no matter what:
The Senate majority leader told the House GOP minority in an afternoon phone call that he is comfortable waiting to see how the nearly $3 trillion in coronavirus spending previously approved plays out before moving forward on the next relief legislation. And he told them the ultimate end-product won’t look anything like House Democrats’ $3 trillion package passed last week, according to a person briefed on the call.
While McConnell conceded more aid may be necessary in the coming weeks, he also repeated his insistence that liability reform be included in the next round of legislation to minimize lawsuits. And he said the $600 weekly boost in unemployment benefits won’t continue — a vow he hadn’t previously made.
McConnell warned against trial lawyer “vultures” ready to file lawsuits and said Republicans are “going to have to clean up the Democrats’ crazy policy that is paying people more to remain unemployed than they would earn if they went back to work,” McConnell said.
We’ve noted that perverse incentive a number of times, including before the CARES Act passed in the first place. An attempt to fix the problem at that time failed in the Senate, and Democrats have resisted fixing it ever since. A month ago, restaurateurs warned that Congress had stuck them in a catch-22 with PPP loans by making unemployment more lucrative than staying on the payroll, which might end up disqualifying them from loan forgiveness through no fault of their own. It’s a classic demonstration about how government policies can distort markets and produce incentives that create unexpected negative outcomes — like small business owners going under because they can’t afford an aid program aimed specifically at them.
That may not be the last time Congress intervenes, regardless of what McConnell says at the moment. Job loss figures like today’s will create its own political momentum for action of some kind on Capitol Hill, and McConnell may be forced to simply limit the damage from whatever comes next. Nor will it just be job losses that create that pressure, but a growing mountain of unaddressed consumer debt, as the Wall Street Journal reported today:
Lenders in April had nearly 15 million credit cards in “financial hardship” programs, such as deferral programs that let borrowers temporarily stop making payments, according to estimates by credit-reporting firm TransUnion. That accounts for about 3% of the credit-card accounts the company tracks, TransUnion said Wednesday.
Nearly three million auto loans were in these hardship programs, accounting for about 3.5% of those tracked.
The numbers have surged from a year ago, when 0.03% of credit cards and about 0.5% of auto loans were in financial-hardship programs.
The spike in unemployment caused by the coronavirus has strained people’s ability to make their monthly debt payments. To make matters worse, Americans were tapping credit cards and auto loans at record levels even before the pandemic to deal with rising costs and stagnant incomes.
Consumer debt was one of the reasons Congress tried crafting aid around protecting jobs in the first place. The US has record amount of debt as it is, both public and private, and our economy barely kept pace with it before COVID-19. The massive job losses we have already seen will put enormous stress on our fiscal structure unless we can get people back to work ASAP. Not only do we need to get them back to work, but we also have to restore demand for their services in the marketplace. That requires a big increase in confidence in public health measures that will limit the spread and impact of the virus.
McConnell’s right to want to eliminate as many perverse incentives as he can. Whether he can stand up to popular demand for action remains to be seen, especially if the debt crisis gets much more acute than it is at the moment.