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How to rebuild the economy so it works for everyone
The streets of Manhattan stand nearly empty during the coronavirus pandemic on April 10. | Photo by Spencer Platt/Getty Images “This crisis is far worse than the one that we faced in 2008.” The United States is in the midst of its second major economic decline in the span of just over a decade, and this one is, in many ways, bigger and scarier. “This crisis is far worse than the one that we faced in 2008,” Sen. Elizabeth Warren, who was in the trenches of the last downturn, told me. “It started with a pandemic, and the economic fallout can’t be arrested until the pandemic is under control.” Millions of people are currently unemployed, with hundreds of thousands of workers newly reporting they’ve lost their jobs nearly every week. States and cities are facing enormous budget shortfalls, and thousands of small businesses are going under. Families across the country are facing the prospect of losing their homes. Women and people of color are experiencing particularly acute economic harm. This decline is going to take time and effort to dig out of, in part because many Americans are still trying to get back on their feet from the last time around. The recovery from the Great Recession was experienced in deeply unequal ways across the US. The stock market recovered much quicker than the job market, let alone wages. Years after the recession ended, workers in the hardest-hit areas were still behind, and Black households in particular were still working to rebuild lost wealth. The result: a rebound that not only failed to fix inequality but that in many cases actually made it worse. Policymakers stepped in to save the financial system and banks that had caused much of the crisis in the first place and did much less when it came to helping the individual victims of the crisis, such as people who lost their homes and jobs. In an effort to avoid doing even slightly too much to spur the recovery, lawmakers ultimately did too little. “We’re making the same major mistake this time as we did last time, which is we’re assuming an economy that rebounds quicker than it will,” Aaron Klein, a fellow at the Brookings Institution who worked on Dodd-Frank, told me. “Job recoveries and the impact on working people lasts so much longer, and markets rebound so much faster than jobs, particularly jobs for people without college degrees.” Mario Tama/Getty Images People demonstrate outside the New York Stock Exchange on April 4, 2009. Now, Congress is dragging its feet on more stimulus, even as state and city governments continue to sound the alarm and workers of color disproportionately continue to struggle. The worse the economy is allowed to become, the longer and harder it takes for it to get better, and those already at a disadvantage ultimately are the ones who suffer most. “The slower we are to provide the help that families need, the greater the chance that a recovery stalls out and that people’s lives are altered permanently,” Warren said. Temporary job losses become permanent, missed mortgage payments become foreclosures, and piling-up bills become bankruptcy. “All of those pieces start to cascade in the wrong direction.” But this isn’t inevitable. America could do things differently. The current crisis brings with it an opportunity to rethink what the economy should look like and try to rebuild in a way that is beneficial to everyone, not only those at the top. And if Joe Biden wins the White House and Democrats manage to take a majority in the Senate, they will have a real chance at making it a reality. It’s a difficult task, but not necessarily an impossible one. I spoke with nearly a dozen economists and experts about what an equitable way of rebuilding the economy might look like. There are already plenty of policy proposals that are meant to do this, but what ties them together is an overhaul in how we think about the role of government, how it sets priorities, and who it works for. This new paradigm entails a government that takes a more active role in shaping the economy and sees beyond top-line indicators to look at what different groups are really experiencing in their everyday lives. If you want a fairer economy, you’ve got to focus on the people for whom it is most unfair and make sure they’re not being left behind, especially while those who already have advantages prosper. “The coronavirus pandemic and the following economic crisis have hit economically vulnerable Americans and communities of color the hardest,” Warren said. “We must ensure that our response matches the scale of this massive crisis so that workers, families, and state, local, and tribal governments don’t pay the price for years and years to come.” Or, as Rakeen Mabud, director of research and strategy at Time’s Up, put it: “We need a fundamental rethinking about the way we approach our social contracts, and that’s a very, very long-term project. But it needs to start at some point, so why not now?” It’s always better to be rich in America than it is poor, especially in times of crisis Already, the current downturn is turning out to be less traumatic for wealthy and well-established people than it is marginalized groups and the poor. “The rich experience these recessions much differently than the rest of us” The stock market is soaring, even though millions of people are out of a job. The Federal Reserve has really stepped up in terms of monetary policy to inject liquidity into the economy and keep markets afloat, while Congress hasn’t really kept up its end of the bargain. It passed the Coronavirus Aid, Relief, and Economic Securities Act, or the CARES Act, in March, but much of the support from it has dried up, and it’s not clear what, if anything, Capitol Hill plans to do next on the economy. “The rich experience these recessions much differently than the rest of us,” Bharat Ramamurti, managing director of the Roosevelt Institute’s corporate power program, told me. “The pain is much more time-limited, it’s not as deep, and as a result, they recover much more quickly, and then they’re in a position to take advantage of the fact that other actors in the economy are still struggling and can use that to further consolidate their control and their power.” Even before the coronavirus, inequality was already rampant across the country. It’s being made worse right now. And whatever happens in relatively short periods of economic downturn ultimately sets the stage for the economy for years to come. In 2017, President Donald Trump signed into law a tax cut bill that disproportionately benefited corporations in the rich, allowing them to hoard more wealth. That basically allowed the economy to “spiral upwards,” explained Heather Boushey, who heads the Washington Center for Equitable Growth and is advising the Biden campaign on the economy. So part of the path to an equitable recovery is increasing taxes for those with more money. But that’s only half of it. “One thing Covid underscores is that we definitely need to shore up our systems to protect workers and families,” Boushey said. In the immediate term, that could mean measures the CARES Act took (some of which have now expired), such as expanded unemployment insurance, eviction moratoriums, and mortgage and student loan forbearance. If people fall less behind, it’s not as hard to catch up. And they need a fair amount of time to do it. “Even when Congress manages to get it together and provide some support to lower-income and middle-income families, it’s time-limited, and the inclination is to turn it off at the slightest hint that things may be getting better,” Ramamurti said. That’s certainly playing out in the current context. After returning from recess in September, Senate Republicans put forth a “skinny” stimulus to counter a much more ambitious package proposed by Democrats in the House in May. But even the GOP’s bill failed in the Senate — as Vox’s Li Zhou explained, in part because it was more of a messaging bill than a sincere effort at helping the American public. The economy isn’t as bad as some of the doomsday predictions, so some lawmakers seem to have decided more assistance isn’t necessary. Alex Wong/Getty Images Senate Majority Leader Mitch McConnell leaving the US Senate chamber on September 10. But it’s important to note that to really rebuild better requires more than combating the immediate problems. It means looking much farther down the horizon. “I don’t think we can turn too quickly to things like building worker power, increasing wages, reducing inequality, and taxing rich people,” Angela Hanks, deputy executive director at the Groundwork Collaborative, told me. Measure Black unemployment, not the stock market If you looked at what was happening on Wall Street right now and knew nothing else about what was happening in the US, you would think things were awesome. Like, truly unicorns and butterflies. But the stock market, which has been fairly consistently climbing since late March, doesn’t reflect the whole of what’s going on in the economy. In fact, there’s been quite a divergence between the stock market and the economy, not only now, but across recent decades. “When we see the stock market so high, that’s money in the hands of people who don’t need to spend it, and it’s not a good situation for the economy in general,” Ken-Hou Lin, a sociologist at the University of Texas at Austin and co-author of Divested: Inequality in the Age of Finance, told me. But it’s not just looking at the stock market as a proxy for how the economy’s doing that’s problematic — a lot of the measures we use to gauge policy decisions could use an upgrade. Building back in a way that really is better means making sure that people who have been structurally excluded are centered in decision-making. When the economy is growing, it’s important to know who is — and isn’t — experiencing that growth. In February, before the pandemic hit, the overall unemployment rate was 3.5 percent, but for Black workers, it was 5.8 percent — the overall unemployment rate in November 2014. “If white unemployment was still at 6 percent [in early 2020], we would have been talking about a real crisis,” Hanks said. Now, the situation is worse. The overall unemployment rate in August was 8.4 percent, but when broken down by race, how different the situation is for different groups becomes apparent: white unemployment was 7.3 percent, while Black unemployment was 13 percent, Hispanic unemployment 10.5 percent, and Asian American unemployment 10.7 percent. As Vox’s Aaron Ross Coleman recently wrote, in this scenario, Republicans and even some Democrats are saying less assistance is necessary for the unemployed, which will ultimately harm communities of color most: But now, as the top-line unemployment numbers have come down, Congress has failed to come to any consensus on aid for its most vulnerable citizens, particularly minorities. And this failure has left these Americans with no aid at all, abandoning them to suffer the effects of high unemployment in this unprecedented recession. And despite past warnings about the difficulty people of color have in recovering from recessions, lawmakers are repeating the mistakes. Historically, the unemployment rate for Black and Hispanic Americans has trended higher than white unemployment — but we shouldn’t just accept that. If the government assesses progress through the lens of those who are most marginalized and targets benefiting them, it would make a difference in how policies are implemented and gauged. In June, Jared Bernstein and Janelle Jones laid out an argument in a paper at the Center for Budget and Policy Priorities that the Federal Reserve should target the Black unemployment rate when setting policies. If a certain unemployment rate isn’t acceptable for white Americans, what would make it acceptable for Black Americans? Instead of focusing on the top-line number when making fiscal stimulus decisions now, why not focus on really improving the number for Black workers? “It is not that radical that we make sure that we center the interests of the vast population of working people — Black and Latin communities, working women — that have so long been left out over the interests of a very small group. Part of that is the way that we assess success,” Mabud said. Spending money and setting rules A lot of big sweeping change requires significant investment from the government, a project on the scale of the $1.5 trillion tax cut the GOP-led Congress passed in 2017. People I spoke with talked about a number of ideas for major spending projects that could have a big impact — an infrastructure package, a federal jobs guarantee, baby bonds. They address near-term problems but also have long-term, widespread benefits. “There’s a lot of things we could do as a society and we’re not, and part of it is we’re viewing the problem as short-term” Infrastructure spending to upgrade transportation, communications, water, and energy would create jobs and also help the surrounding communities. “We need to have a vision that builds something, and that something ought to produce positive returns for society,” Klein said. “There’s a lot of things we could do as a society and we’re not, and part of it is we’re viewing the problem as short-term.” A federal jobs guarantee wouldn’t just give someone something to do for work — it would also create competition with the private sector. “Even for existing workers, by removing the threat of unemployment, they can better bargain without the fear of being destitute because they have limited to no other options,” Darrick Hamilton, the executive director of the Kirwan Institute for the Study of Race and Ethnicity at Ohio State University, told me. And just getting money from the government to ordinary Americans would make a difference. A lot of federal government stimulus has gone to the top in the hope it will trickle down to everyone else. Why not forgo hoping that the middleman approach will work out? “In order to generate wealth, the most critical ingredient is capital itself, irrespective of someone’s desire to save, somebody’s ingenuity,” Hamilton said. Ramamurti also pointed to the idea of canceling student debt. “You can cancel all student loan debt administratively, or cancel a huge chunk of it. That would have an enormous impact, right? It would help close the racial wealth gap, it would help push back on declining rates of homeownership and small business formation among people in their 20s and 30s,” he said. But even in a world where Biden wins the White House, Democrats are in control of the Senate, and there is a real political impulse to put some progressive, inequality-reducing policies in place, there will likely be quite a bit of consternation about spending and the deficit. Without getting into whether the debt really matters, the good news is there are measures that can be taken that don’t require a dime of spending. Instead, they’re about resetting the rules of the road. “You really have to focus on the rules and institutions that continue to produce suboptimal outcomes for the whole economy, and specifically for black workers, immigrants, women, etc.,” Felicia Wong, president and CEO of the Roosevelt Institute, told me. “You need to focus not only on the outcomes but you also have to focus on the rules and the mindset that produces those things in the first place.” Changing rules without spending new money could come in various forms: increased antitrust scrutiny, more robust regulatory oversight, a move toward industrial policy, stronger unions, and more worker power. But the clock is ticking. The longer the country goes without action now, whatever the outcome of the presidential election, the worse this all becomes. “Look how far off we still are from the end of January. It’s not like Joe Biden and Kamala Harris can come in and flick a switch. There’s going to be so much for them to do,” Warren said. Alex Wong/Getty Images Sen. Elizabeth Warren speaks at a news conference on Capitol Hill on September 9 as Senate Minority Leader Chuck Schumer looks on. Olivier Douliery/AFP via Getty Images Joe Biden and Kamala Harris outside the Chase Center in Wilmington, Delaware, at the conclusion of the Democratic National Convention. The Massachusetts Democrat particularly sounded the alarm about state and local government funding. Most states have balanced budget amendments, and they’ve seen their costs skyrocket as revenues fade, meaning if they don’t get federal help, they’ll have to make cuts that will have consequences for years. “The whole business around state and local governments, this is the one that just stuns me, that states and local governments and tribal governments are on the hook for delivering services day by day by day, and they’re all caught in this huge squeeze,” she said. While Senate Majority Leader Mitch McConnell has tried to cast the issue as a blue-state one, it’s being experienced by red states, too. “There are Republican governors, Republican-controlled legislatures, who need that money to keep schools open and to keep public health initiatives operational. The Republicans in Washington simply say, ‘Too bad,’” Warren said. “America can afford what we decide to do together” A January 2021 where Joe Biden is president and Democrats have a majority in the Senate does not guarantee some sweeping progressive economic agenda that really gets at the heart of inequality. For one thing, you’ve got the filibuster, which Democrats would almost have to get rid of to get big pieces of legislation through. But for another thing, while Biden has certainly moved to the left, it’s not like we’re headed toward some progressive utopia, and it’s not clear how committed he will be to progressive economic policies. A Democratic president and Democratic Senate oversaw the recovery from the last recession. “A Democratic government led the jobless recovery [after the Great Recession], let’s be very clear about that,” Demond Drummer, executive director of the progressive policy think tank New Consensus, told me. “I think we are probably closer to making the same mistakes structurally that we did in 2008, 2009, 2010 if we don’t reexamine and really, to quote Lincoln, ‘disenthrall ourselves’ of the thinking that creates jobless recoveries, of the thinking that has created a dematerialized, jobless economy, of the thinking that has heavily constrained the role of the public sector in the life of the country and, more specifically, in the economic life of the recovery.” To inject some optimism, it’s not that broad, structural change isn’t possible — look at the New Deal that, while not perfect, really reshaped much of the country’s economy. “The New Deal was on a scale that completely is so much larger than what our recent stimuluses have been,” said Megan Tobias Neely, a sociologist at the Copenhagen Business School and co-author of Divested: Inequality in the Age of Finance. “The key part of it was not only the scale but also the fact that it was really geared toward bolstering infrastructure and employing people to do that.” And the current crisis has really shown that the government can do big things if it wants to. The Fed has taken extraordinary measures to help support the economy, and to a lesser but still significant extent, so has Congress. The US government sending $1,200 checks to people would have seemed pretty unthinkable pre-Covid-19. The country is at a crossroads right now, and there is a potential path ahead that is fairer and more prosperous for more people. But it really would require an overhaul in what we value, who we design policies for, how we spend, and how we make the rules. There are myriad ideas out there for what this could look like on a specific level, but there’s no silver bullet on economic insecurity. Rebuilding an economy that is equitable means keeping inequality top of mind every step of the way as the federal government charts a path forward. “This economic crash ... hit vulnerable people and communities of color the hardest and is most likely to have long-term effects there if we don’t use this as a moment to make investments in those communities, and that’s what we need to do now,” Warren said. “There is this lie that government intervention is anathema to the American project, when indeed the American project is government intervention in the economy from the beginning,” Drummer said. His takeaway: “America can afford what we decide to do together.” Help keep Vox free for all Millions turn to Vox each month to understand what’s happening in the news, from the coronavirus crisis to a racial reckoning to what is, quite possibly, the most consequential presidential election of our lifetimes. Our mission has never been more vital than it is in this moment: to empower you through understanding. But our distinctive brand of explanatory journalism takes resources. Even when the economy and the news advertising market recovers, your support will be a critical part of sustaining our resource-intensive work. If you have already contributed, thank you. If you haven’t, please consider helping everyone make sense of an increasingly chaotic world: Contribute today from as little as $3.
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