The High Stakes of Our Next Stimulus Bill
As uprisings blaze across the country, much of our economic future is being quietly negotiated in the Capitol. The key question in the next, and possibly final, round of COVID-era stimulus is contentious: Will the federal government bail out states whose budgets are in crisis. If not, expect a more painful recession and deepening inequality. If the states are bailed out, thousands of jobs could be saved and investments in public programs could ease the downturn. I spoke with Mike Konczal (@rortybomb), author of the forthcoming Freedom from the Market, about the shape and stakes of the new legislation. Here’s what you need to know.
States are screwed without a bailout – and so is the country
During an economic recession, federal government spending can reverse the downward economic cycle, explains Konczal, and fund programs to employ people or provide them with money to spend (which stimulates business activity), put them in school, and so forth. States can’t do this because they’re required to balance their budgets, which is harder when they’re spending more on unemployment and other crisis services at the same time that their tax revenues are declining.
Right now, the gap between states’ revenue and spending is about $1 trillion, and the states cannot maneuver their way out of this. “The social collapse in our lives is reflected in these budgets,” says Konczal, “and it needs to be addressed.”
The GOP is using this moment to break blue states.
Activists on the right, like Grover Norquist, are laser-focused on cutting taxes and shrinking the social safety net. It may seem crazy not to bail out states, but the right sees an opportunity to break the blue-state governance model of taxing the rich to fund a robust public sector, and also to hobble public-sector unions. “Strategists on the right believe that if you can break the public sector unions, you can take over the states,” says Konczal. “So [they find] the chance to do that, even though it would cause mass economic damage and suffering, very appealing.”
The right is preparing for deep privatization.
At the state and city levels there are a ton of public services still – schools, health care, roads, infrastructure - “a lot of that stuff could come far more under the control of private capital, such that private capital runs it and tries to collect capital off it,” says Konczal. “You want to look particularly at education, which could be defunded and privatized and rolled back in such a way that would have very severe consequences.”
Election politics hang over everything – but maybe not how you’d think.
The path to the presidency runs through Midwestern states like Pennsylvania, Ohio and Michigan, which are all going to get hit pretty hard by this recession. “So, you’d think the right would want to avoid massive unemployment and bank closures and so forth, and maybe that will prevail.”
There’s another argument, says Konczal, “that Trump can just ramp up the culture war. He can be racist and amp up his base in the hopes that it’ll get him over the finish line, because he doesn’t have to win the popular vote to win the election. But that’s harder if the Great Lakes states don’t have a strong economy. He might want to hope that the recovery is fast. Maybe he thinks it’s all a hoax. Who knows?”
Things can definitely get worse.
It’s easy to think that this is as bad as the economy could get. But right now, says Konczal, there’s a trillion dollars of public money holding up the economy through the end of June. “People may eyeroll about the insufficient $1,200 checks, but that was $300 billion into the economy,” he says. Expanded unemployment insurance eventually got online, but ends at the end of July. There are grants to businesses that are being run down. “So even though unemployment numbers may be coming down dramatically because people are going back to work, there’s less money in the economy. July is going to feel like a very precarious month because the first wave of spending will have run out.”
Republicans are inclined to believe a turnaround is imminent, and so, “we might get a stimulus package that’s quite small. Then, if Democrats win, they’re looking next year at a struggling economy with none of the safety net we need put into place. A lot of the policies of the next year, or next four years, will be determined on August 1.”
Look back a decade to see the future.
“The Great Recession of 2008 was defined by a lot of things: the weak initial response, 5 million foreclosures, the bank bailouts. But the key reason it was especially rough from 2010-2013 was that the states pulled back so aggressively because there was not enough federal stimulus,” says Konczal. “Austerity at the state and local level made the recession much deeper and longer than it needed to be. And without a $1 trillion stimulus, this will absolutely happen again at a far greater magnitude.”
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