One in Three Kentuckians Say They Are Struggling to Pay Their Bills Amid the COVID-19-Related Economic Downturn. Here’s How A Biden Administration Could Help Them.

There is a health crisis stemming from COVID-19, as more than 270,000 people have died from the virus and hospitals across the country are struggling to accommodate all of the people ill from it. There is also an economic crisis--and it’s a real crisis too.

“More Americans are going hungry now than at any point during the deadly coronavirus pandemic, according to a Post analysis of new federal data — a problem created by an economic downturn that has tightened its grip on millions of Americans and compounded by government relief programs that expired or will terminate at the end of the year,” the Washington Post’s Todd C. Frankel, Brittney Martin, Andrew Van Dam and Alyssa Fowers wrote in a recent story. “Experts say it is likely that there’s more hunger in the United States today than at any point since 1998, when the Census Bureau began collecting comparable data about households’ ability to get enough food.”  

“One in 8 Americans reported they sometimes or often didn’t have enough food to eat in the past week, hitting nearly 26 million American adults, an increase several times greater than the most comparable pre-pandemic figure, according to Census Bureau survey data collected in late October and early November,” the Post reporters continued. “That number climbed to more than 1 in 6 adults in households with children.” 

But unlike the 2008-09 recession, which affected Americans across class lines, the economic pain from the COVID-19 downturn is hitting lower-income Americans, particularly people who work in service industries, really hard, while barely affecting many upper-income Americans at all. 

“Economic crisis typically hits the poor the hardest, and the pandemic is no different. But even in the 2008 financial crisis, the wealthy sustained some damage in stock and bond losses. By contrast, five months after the pandemic hit the U.S., high-wage employment had almost fully recovered,” The American Prospect’s David Dayen wrote recently.

“At the same time, employment for those in the bottom quarter of wage earners fell by 20 percent. Key economic indicators correlated with wealthy people, like home sales and stock prices and even bidet sales, have skyrocketed. U.S. billionaires are nearly a trillion dollars richer than they were before the virus began. The self-protection has gone well beyond masks and face shields, as the elite retreated into opulent emergency shelters, for their families and their money,” he added. 

These dynamics are playing out locally too. I talked recently to Jason Bailey, the executive director of the Kentucky Center for Economic Policy. Bailey has long been warning that without more federal dollars from Washington, states, localities and everyday people would struggle to recover from the COVID-19-caused economic downturn. He has unfortunately been proven right. 

So here is a lightly-edited transcript of our conversation, with his thoughts on what has gone right in terms of economic policy amid COVID-19, what has gone wrong and what the Biden administration could fix once it gets into office. 

Starting at the broadest level. How are Kentucky 1. individuals 2. businesses and 3. towns/cities/the state doing in terms of the economic fallout from COVID?

This spring the coronavirus cut a bigger hole in our economy than we have seen since the Great Depression. Jobs bounced back some over the summer thanks to the stimulus provided by the CARES Act, but growth has slowed down substantially in the past few months. Real unemployment remains at historically high levels, and 32% of Kentucky adults are telling the Census Bureau they "have difficulty covering basic expenses." [That number is not unique to Kentucky---about a third of households in the country overall are telling the Census Bureau they are struggling to pay household expenses.] The outlook is very bleak over the coming months, as the economy is weakening due to rapidly spiking coronavirus cases and the expiration of CARES Act aid--and we'll see another cliff of benefit losses in December.

 As people lose unemployment and cut back on their spending, it is forcing businesses to close down as well. And all the reduced economic activity will hit the budgets of the state and local governments. That was delayed some because the CARES Act really helped budgets, but with that ending governments are in trouble. The crises they face without additional aid will mean more job loss and will greatly hamper our ability to fight the virus and help people in need.

What is the actual unemployment rate? And what is the real unemployment rate? Define those two terms a bit. 

The official unemployment rate in Kentucky was 7.4% in October, an increase from 4.2% in February before the crisis hit. That's a huge increase, but understates the job loss because a person is counted as unemployed only if they report they are currently looking for work. But more people have temporarily left the labor force in this crisis because of care responsibilities due to closed schools, especially women, and because there are a lack of adequate job opportunities (there are currently more than two job seekers for every job nationwide, and it's much worse than that in certain localities). 

If you take into account the decline in the labor force since February, we estimate unemployment in October [in Kentucky] at 12.7%--or three times what it was before COVID-19.

Was the Cares Act one of the more effective policy moves in recent years, particularly the $1,200 payment to most Americans and the $600 per week increase in unemployment benefits? How damaging has it been that those policies went away? 

The CARES Act had some critical measures that made a huge positive difference, especially the $600 a week in supplemental unemployment benefits and the $1,200 checks. In the Great Recession, in contrast, Congress only provided $25 extra a week in unemployment benefits. The extra money helped in multiple ways--it obviously helped families make ends meet. But it also kept consumer spending from falling more sharply, which kept businesses open. And it prevented tax revenues from dropping further because many people had income taxes withheld from their unemployment checks and because we collected sales tax revenue as people spent the dollars in the community. It was a win-win-win. 

But the end of the $1,200 checks and the expiration of the $600 a week in July (Governor Beshear and President Trump provided $400 through September, but that is now gone) is a huge problem, because we haven't nearly recovered the lost jobs yet and the virus is now raging. An average unemployment benefit in Kentucky without the extra aid is only $281 a week--not enough to live on. And we'll see over 100,000 Kentuckians lose unemployment benefits *entirely* by the day after Christmas due to the expiration of the program that has provided unemployment benefits for gig workers, the self-employed and independent contractors and the end of the extra 13 weeks of benefits that the CARES Act provided.

What policies should be enacted 1. by cities/localities 2. states 3. By Biden, if he has no help from Congress 4. By Biden, if Congress will go along 5. By the Federal Reserve to address this virus-related economic slowdown? 

Cities and localities have the best understanding of the conditions on the ground, and should be doing what they can locally to support homelessness services, provide rent relief and otherwise coordinating services in the community to the people who are struggling the most. The state has the opportunity through its budget to prioritize aid to Kentuckians hardest hit as its top priority. We should be spending the $466 million now in our rainy day fund--it's not raining, it's a typhoon. The state can do much more to get money out to food banks, continue supplemental unemployment benefits if Congress does not, provide emergency cash assistance, and provide more money for rent and utility relief. 

Obviously that will require that Congress provide the aid to states and localities they need so the state can also protect basic services at the same time. 

If Congress is unwilling to help, President Biden should pull every lever possible to get help out to people. That will include reversing Trump administration decisions to limit access to food assistance, healthcare and other programs. He should also cancel student loan debt--575,000 Kentuckians owe $18.7 billion in federal student loan debt, and a cancellation will free up money going to payments after the suspension is lifted and make it more likely people will buy a home or start a business as we come out of this crisis. 

If Congress will go along, a major coronavirus relief bill should be the first thing out of Congress after inauguration--and the House-passed HEROES Act provides a good guide for how to do that. It should be followed up with another major package to build the economy back post-virus, including investment in climate-related jobs and infrastructure. 

Finally the Federal Reserve should be more aggressive with the programs and funds it received through the CARES Act (assuming it gets to keep the money Secretary Mnuchin is asking to be returned) in supporting state and local governments and small businesses. The terms of the municipal financing programs, for example, were so unfavorable almost no state or locality took it up. 

The Federal Reserve should also avoid putting the brake on the recovery down the road, as it did during the last recovery. It should define full employment by a better measure like the point at which Black unemployment reaches full employment, rather than prematurely cutting off the recovery before everyone is seeing wage growth.

I think the evidence-based view is that 1. people who can afford to go to  restaurants/bars often aren’t going anyway because of the virus but 2. lockdowns/closures do hurt businesses but 3. those measures are necessary to deal with the bigger economic problem--the virus raging. Do you agree with that? In other words, I  assume you are supportive of Beshear’s new restrictions while also understanding that they hurt some businesses? 

It's definitely true that both the virus itself and the restrictions we impose to fight the virus reduce economic activity. However, when it comes to the latter, it's clear that the better you can contain and control the virus, the quicker you can get the economy back on its feet. We're seeing that in other nations that did a better job than the United States did. And it's clear from the evidence that within the country the states that took greater actions to restrict activity have had fewer cases and saved more lives. 

It's critical that we have a two-part solution to the problem. The first is to fight the virus, flatten the curve and limit community spread until we get a vaccine. When cases spike exponentially like they have recently, that unfortunately forces us to do restrictions like the kind the governor recently put back in place. At the same time, we need that critical second part of the solution--the relief that people and businesses must have to get through the crisis. That's where the state's role is limited because it can't deficit spend or print money, but the federal government can. It's on Congress, and especially Majority Leader McConnell, and the President to make people whole economically--they have the responsibility to do so, and have chosen not to. It didn't have to be this way.

Thanks for reading. This is an occasional newsletter on policy and electoral policies in Kentucky. You can subscribe to it here.