Congressional Republicans Rally to Herbert Hooverism: Starve the Poor, Crush the Economy!

Stephen Herzenberg |

News flash: extending enhanced federal unemployment benefits, due to expire today, won’t discourage workers from returning to their jobs, according to a new study by Yale University economists. Failing to extend them, as congressional Republicans favor, could plunge the nation more deeply into a self-reinforcing downward spiral. Pennsylvanians would suffer more than most Americans—since we smartly and quickly froze our economy to stem the spread of the virus, more Pennsylvanians depend on federal unemployment benefits.

We learned yesterday that our nation’s real (inflation-adjusted) economic output (GDP) declined in the second quarter at an annual rate of 32.9 percent. Apparently, that wasn’t fast enough. After four months of sensible policies that cushioned tens of millions from the economic impacts of the pandemic, congressional Republicans want to return to the Grand (Old Party) tradition of driving the economy into a ditch, Herbert Hoover-style.

The leading argument against extending the $600 per week provided by the federal CARES Act above state unemployment insurance payments is a thinly disguised version of “we need to threaten families with starvation to force them to go back to work, safe or not.” In the bloodless language of the economist, the argument against extension is that unemployment insurance payments would “disincentivize work.”

But the Yale economists in their new report show that, in fact (remember those?), the $600-per-week payments did not discourage work. Using data on small businesses concentrated in restaurants, bars, and retail—i.e., in sectors hammered by the pandemic—the researchers found that the expanded benefits neither increased layoffs at the start of the pandemic nor deterred people from returning to work once businesses began reopening. The obvious interpretation: people do want to work. They particularly want to hold onto their jobs (and their employers) because finding a new job and employer in the next several years could prove difficult. There’s also the nagging little problem that many people can’t return to work because there old job went away and they can’t find a new one. Oh, heck, let’s starve ’em anyway.

Pennsylvania benefited more than most states from the more generous unemployment benefits available through the CARES Act. We did so partly because our unemployment rate shot up quickly as many people socially distanced by staying away from work. In addition, PA—unlike NY, NY, CA, WA, etc.—does not have paid sick leave or paid family and medical leave; unemployment benefits were many Pennsylvanians’ only route to maintaining their incomes.

Over the 12 weeks from April 4 to June 27, USDOL data indicate, Pennsylvanians received $10.05 billion in pandemic unemployment benefits out of $151.6 billion in relief distributed nationally. In other words, we received 6.6% of the national pot of unemployment benefits even though Pennsylvania accounts for less than 4% of the nation’s employment. Not having those benefits would have cut Pennsylvania income by more than $800 million per week.

Looking forward, failing to extend these benefits threatens Pennsylvanians’ income by not far off a billion dollars per week. (Table 2 in this analysis projects we would lose $1.5 billion per week from a cutoff of the federal benefits; we think that figure may double count some people and their benefits so we’re using the more conservative figure.) To put this in a Pennsylvania context, remember what happened to the state economy when Governor Corbett cut one billion dollars in education spending over an entire year from 2011 to 2014? That cut dragged Pennsylvania’s state job growth ranking to 50th place—dead last.

So now, with GDP already shrinking at an annual rate of more than a third, congressional Republicans want to reduce consumer buying power in Pennsylvania by about 50 times as much as the Corbett cuts that extended suffering for tens of thousands of Pennsylvanians over several years—not that hard to envision how that’s going to work out.