Recessions are inevitable—but the complete economic catastrophe that we’ve experienced for the last five months was not. Professor Trevon Logan explains where we went wrong, debunks myths about the federal unemployment benefit (no, it doesn’t disincentivize people from returning to work!), and calls on Congress to steer us away from this economic cliff.
Trevon Logan is a Professor of Economics and Associate Dean at Ohio State University, and Director of the American Economic Association Mentoring Program. He is also a Research Associate at the National Bureau of Economic Research. He specializes in economic history, economic demography, and applied microeconomics.
Twitter: @TrevonDLogan
Further reading:
Vox: We are sleepwalking toward economic catastrophe
Wall Street Journal: Lapse in Extra Unemployment Benefits to Hurt U.S. Recovery, Economists Say
PBS NewsHour: The economics behind racial coronavirus disparities
Website: https://pitchforkeconomics.com/
Twitter: @PitchforkEcon
Instagram: @pitchforkeconomics
Nick’s twitter: @NickHanauer
Jessyn Farrell:
So here we are still in the midst of the pandemic, and the economic impacts to Americans are still staggering.
Dr. Trevon Logan:
We are essentially treading water in the Coronavirus pandemic, whereas many of our peers are certainly on the downside of their peaks.
Nick Hanauer:
We are, in the words of our guest today, driving in slow motion towards an economic cliff.
Speaker 4:
From the offices of Civic Ventures in downtown Seattle, this is Pitchfork Economics with Nick Hanauer, where we explore everything they forgot to teach you in Econ 101.
Nick Hanauer:
I’m Nick Hanauer, Founder of Civic Ventures.
Jessyn Farrell:
I’m Jessyn Farrell, and I’m the Senior Vice President at Civic Ventures and a former state legislator.
Nick Hanauer:
Yeah. So Jessyn here, we are in August and Congress continues to dither about what to do with the continuing Coronavirus pandemic and the economic response. And we are, in the words of our guest today, driving in slow motion towards an economic cliff. And it feels like it’s really time to get some more stuff done.
Jessyn Farrell:
The national Coronavirus numbers are really high. That so-called V-shaped recovery that was promoted quite a bit in April and May never happened. And the policy response on both the public health side and the economic side are really, really inadequate. So here we are.
Nick Hanauer:
Yeah. Well, today we have a really interesting guest, Dr. Trevon Logan, who’s an Economics Professor at Ohio State University and Director of Economic Association Mentoring Program. he caught our eye in a variety of interviews and writings, and I think has a great way of characterizing the current problem. It should be an interesting chat.
Dr. Trevon Logan:
I’m Trevon Logan, Professor of Economics and Associate Dean in the College of Arts and Sciences at the Ohio State University and a Research Associate at the National Bureau of Economic Research.
Nick Hanauer:
Well, thank you so much for joining us today. We just want to explore your views on America’s response to the COVID crisis. And in particular, we were really struck by one of your quotes in a recent issue of Vox, which is that we have designed an economic response that was predicated on a public response that did not materialize, which I think just about perfectly sums up the current situation. But talk to us a little bit about where we are and where you think we need to go.
Dr. Trevon Logan:
Right now, we’re in a very dangerous place with the crisis because we are essentially treading water in the Coronavirus pandemic, whereas many of our peers are certainly on the downside of their peaks. We had a brief plateau at a slightly lower level, and we have been accelerating now and perhaps are plateauing to a new higher level in the past several weeks. This means that the virus is continuing to spread and it has not been contained. And therefore, many of the things that we would like to do once the virus is under control, we’re unable to do. Or our ability to do so is certainly controversial and comes with a higher level of health risk than existed before when we had this presumption that we would be on the downside of the pandemic.
Jessyn Farrell:
One of the things that’s really interesting is that the policy response was predicated on two things as you put it that did not happen. One was that the COVID-19 numbers would go down, but also some policymakers called it a V-shaped recovery, right? We would have this pretty extreme economic dislocation and April and May, and then things were going to bounce right back. And that the CARES Act was designed with this V-shaped recovery in mind. Can you talk to us a little bit about what specifically in the CARES Act that really worked, and maybe what was insufficient even then in April and May?
Dr. Trevon Logan:
So the things that worked in the CARES Act and… And to reiterate, the CARES Act was predicated on this belief that there would be a significant public health response that would encourage businesses essentially to suspend operations to a large scale, which would allow us, from the public health perspective, to do contact tracing to isolate those who had been exposed to the virus and to bring the rate of new infections down significantly over a series of weeks or perhaps months. But certainly, by the end of July, the belief was that we would be well past the peak.
If you look at our economic peers, that is where they are in the pandemic and we are not there. So what this V-shaped recovery was designed to do, and it’s interesting now, hindsight of course being 2020 is that perhaps, it should have been extended longer. But the idea was two things. To the extent that the disruption caused by the pandemic would be temporary, our solutions should also continue keep workers attached to their jobs. So what you would like to do is you would like to, in the Paycheck Protection Program for example, allow businesses to continue to pay their workers even though they would be unemployed or underemployed to keep them attached to their employer, so that when the economy rebounded and things opened up, they will be able to very quickly return to work.
So you would want to minimize friction in the labor market so that when you reopened, you could reopen very quickly. So that is one particular program it didn’t necessarily in its operation work well. But the thought behind it was to keep workers attached to their employers instead of being laid off and dismissed, or fired from their jobs, or to have businesses close, which would only be closing because of the very temporary closure required to deal with the pandemic. The second piece that we wanted to have was of course protection for workers, and more importantly consumption protection.
So the extension of the unemployment benefits and the relatively high rate of income support offered with the $600 a week pandemic assistance was designed to keep consumption relatively smooth in the economy while we were seeing this turbulence in the business sector. And it did perform its tasks. We did see that [inaudible 00:07:30] income rose, households were spending their money. It’s one of the things that led to the return of many workers to work in May and in June was the Pandemic Unemployment Assistance.
Nick Hanauer:
So what should Americans expect their government to do now?
Dr. Trevon Logan:
That’s a very [inaudible 00:07:50].
Jessyn Farrell:
In other words, is it too late? Yeah, I think that’s a really good question. What do we do now?
Dr. Trevon Logan:
But the loaded answer is I think Americans would like their government to do something. I think Americans are very frustrated with the fact that there has not been the type of energy in terms of needing a response quickly that those who are in economic peril require. So this is not something where we can sit and wring our hands about when rent payments are already now 10 days late in the month of August, and we’re here, but we have got to move forward in a generative way. I think that people in the United States are looking for something generative. So that’d be my first thing is I think that people want that to be done. Is it too late? It’s never too late. And certainly, we could get action sooner than later.
My hope is that we do get action sooner or later. But the problem with getting action even now is that the delay will lead to some inevitable cost that could have been avoided by earlier action. So everyone knew with the passage of the CARES Act that certain sorts of provisions would expire at specified dates in the CARES Act. We knew that the unemployment assistance, additional unemployment assistance would expire at the end of July. We knew that on May 1st, we knew that on June 1st, and we knew that on July 1st. We also knew that we had not taken control of the pandemic. We knew that we had inadequate testing. We knew that we saw virus rates and hospitalization rates and death rates that were accelerating. So we knew that we would not be able to fully reopen the economy.
And those places that had opened earlier in May were closing again and yet we still did not see action. So the real problem now in doing anything is that there are some costs that are inevitable, but that were very preventable. These will be the cost of evictions, the cost of foregone payments and the fees attached to them. The turbulence created by literally missing income for families, particularly those who are at low income and who have been displaced in the job market, these costs are not going to go away because you pass a retroactive unemployment assistance program in the second or third week of August. Those costs have already been borne by these workers.
Nick Hanauer:
Right.
Jessyn Farrell:
And that really is where the tragedy is, and I think you state that so barely and succinctly. You were talking about the success of the $600 bump in unemployment insurance, and that it helped continue to drive consumer spending. It created a degree of economic security. So if those were two real successes of that boost, there’s been so much criticism as well. And a lot of it I think is some of the myths around unemployment that you’re incentivizing people to not work. It would be really great if you could address that myth a little bit.
Dr. Trevon Logan:
This is a really big conflation of the micro with the macro when we talk about the disincentive to work. So let’s walk through both of those pieces to see why it’s an ecological fallacy. At the individual level, if you are earning more unemployed than you were earning employed, it certainly would appear that that’s a disincentive to work. When you’re working, you’re literally then giving up income that you wouldn’t otherwise receive while being employed. That however does not extend to the macro because of so many jobs missing in the economy.
So our current estimates are that there are about five unemployed individuals for every position that is open in the United States. So even if three of the five people for every position were disincentivized to work, only half of the people looking for work would find it. This is where the individual argument about a disincentive for work doesn’t match up with the macro, which is that there are not enough jobs. So even if a fraction of the labor force is disincentivized to work, there still are not enough jobs for all of those who are not disincentivized to find.
Nick Hanauer:
Yeah. I just feel like it’s necessary to just jump in here and at least push back on this very primitive neoclassical argument about disincentives to work. The truth is that humans are much more complicated than that. And most people want to work and understand that not working is not going to be helpful in the long term. And so, this whole argument that we have created a disincentive to work is mostly nonsense.
Dr. Trevon Logan:
It’s false on two different levels. It’s false even in the abstract, but let’s first start with the empirics. We know that 70% of the people who returned to work were these allegedly disincentivized workers.
Nick Hanauer:
Right.
Dr. Trevon Logan:
They earned more on unemployment than they did working. And part of the reason for this is that we’re thinking about wages and we’re forgetting about the total amount of benefits. Those who are unemployed lose of course health benefits and other sorts of things that are really important to workers. And so total compensation and the additional assistance to unemployment, that calculation has not been competently made in these discussions that people have when they talk about disincentives to work. The second is, even theoretically, these people understand the operation of the unemployment system. If your employer calls you back to work and you refuse, you no longer receive unemployment benefits.
So if you’ve been laid off and now the job is opening, the restaurant’s opened again, and you’re called back to work, you don’t have the option to say, I don’t feel like showing up. Even though you’re employing me again, I’m going to collect this higher amount of money. That is not possible in the unemployment system. So at both levels, this is either a fundamental misunderstanding of how the unemployment system operates with workers who have been furloughed or laid off. And second, it’s not consistent with the empirical evidence which is that the majority of those who did return to work did so even though they were disincentivized to do something.
Nick Hanauer:
Another one of the really pressing problems is the number of food insecure folks is obviously growing. And the Hamilton Project has done some number crunching. And their view is that they’re about 14 million kids aren’t getting enough to eat now in July and August. But the fear is that that may grow dramatically if schools don’t reopen. Do you have any insight around that?
Dr. Trevon Logan:
Yes. We know that many school districts have summer programs that distribute food to individuals, and that was disrupted by the Coronavirus pandemic. If you do just a straightforward back-of-the-envelope calculation, take the Coronavirus out of the picture, the number of students in school who are on free or reduced lunch would be one proxy for potentially food insecure students. Those numbers run in some districts as higher than 50% of the student population. If schools are not meeting, it is not clear how those students are being fed even for that meal that they would have received at school, let alone the rest of the day, considering that they’re more likely to be in families that are negatively impacted by the pandemic economically.
So we could have… And now we realize we don’t have the extension of the unemployment benefits yet. So we now have a situation where even in our quote-unquote, robust economy, these children who are facing issues of food insecurity, we now have two different issues. Those who were formerly food insecure could be even more food insecure. And some children who were not food insecure will move into the food insecure category. So this is a sleeping giant that will rear its head as the autumn goes on.
Jessyn Farrell:
We’re talking about some really big numbers, 14 million students potentially facing food insecurity. You were mentioning this number of, for every one position, five people are unemployed. Those are aggregate numbers. And of course, those aggregate numbers tend to mask the systemic racism that’s really intertwined with capitalism and neoliberalism in our society and country. And I’m wondering if you can talk a little bit about the story that those big aggregate numbers aren’t telling particularly about black Americans and other impacted communities?
Dr. Trevon Logan:
Let’s just single in on, and it’s one thing that I just want to say again and again and again, because I want this to really be something that seeps into our general understanding of this pandemic. So far, as of the first week of August, more than 32,000 black Americans have died of COVID-19. In a typical year in the United States, last several years, around 340,000 black Americans die. So a new virus that literally did not appear in the United States until 2020 is already more than 10% of the deaths for black Americans. Already this year, Coronavirus is the third leading cause of death for black Americans.
More black Americans will die of the Corona virus than will die of diabetes, than will die of sickle cell, than will die of obesity, than will die of cancer. It is that significant. And if I said something new that has to now appear this year was going to be the third leading cause of death, immediately you should think that we are in a public health emergency and we should be marshaling all of our resources to understand it. That is where we’re at in terms of the racial disparities with COVID-19. We have something that is now the third leading cause of death to a significant amount and number of this population. And our response has been to literally twiddle our thumbs and at best wring our hands about what to do about it.
Jessyn Farrell:
Yeah. And those numbers that you’re saying are so sobering. It makes me think of how some local jurisdictions and counties have taken action to declare systemic racism a public health emergency. But layered underneath that then is that we need discreet policy solutions that directly address this. If we’re able to go forward and actually do something, are there some things that you would recommend to get at the massively disparate impacts to black Americans?
Dr. Trevon Logan:
I think it requires a much longer term approach than we might be thinking about. It is not something that’s going to solve itself in the short term because these patterns and these problems are systemic. Some of them are intergenerational, and many of them are the product of really long run policy. When we think about factors like environmental racism, air quality for example in black neighborhoods versus non-black neighborhoods, redlining and segregation which give us disparate living patterns, but which are also interspersed with transportation networks which affect air quality, which give us differences in rates of asthma, for example.
We see systematic differences in access to care and the quality of care for those in the African American community when they’re seeking medical care. All of these things are layered upon each other. They’re not independent forces that we can act upon and think that we’ve solved this problem. It’s like a really sophisticated web or net that is placed upon the African American community, and we can’t just pull one string. They’re literally not [inaudible 00:20:33] with each other, which is why we have to address holistically the range of policies; education policies, housing policies, banking, policies, employment policies, criminal justice policies, all of these things that have acted together to create this system.
So it really does require… I think a lot of people think that we can address the health issues now that we have a Coronavirus pandemic. But these health issues are not independent of the economic issues, which are not independent of the educational issues, which are not independent of the political issues. All of these are intertwined together. So the best way of preventing something like this from happening in the future is to address all of those facets which interlock and create this system of which the health outcomes are only one part.
Nick Hanauer:
So one of the questions we always ask our guests is, if you were a benevolent dictator, what would you do?
Dr. Trevon Logan:
So I do want to say a joke. I think we might have a dictator. I just don’t think he’s benevolent.
Nick Hanauer:
Absolutely. Yeah. Yes we do.
Dr. Trevon Logan:
That certainly is an opinion some people have expressed.
Jessyn Farrell:
It’s the kind of joke where we laugh instead of cry. But yes, it’s a joke.
Dr. Trevon Logan:
I think some of the things that we could do to address it, and I have been on board with the belief that reparations is one way of helping to at least start to think about the long-term effects of some of these racial inequality issues. So I would be on board if I was a benevolent dictator of forming and implementing a reparations program, a ratio operations program, to address this systemic and structural and historical inequality that we have seen by race in this country. I would also move towards a system of accessible healthcare for everyone, but also ensuring that that healthcare was of high quality and culturally competent, which I think is equally important. Access to something that is not fit for you or welcoming to you is not access at all. Those would be two of the things that I would move on very quickly.
Nick Hanauer:
And so, what would your advice to Congress be today?
Dr. Trevon Logan:
To seriously consider what I would think is that the cost of doing nothing. And I think because we have built this into our expectations that Congress does nothing. So I think the first thing would be for Congress, and when I’m thinking about Congress, I’m thinking of course about both houses, to actually work for the American people. More than 30 million Americans are out of work. We don’t have the number of jobs per the number of unemployed people for us to have these discussions about work disincentives. It is time to stop that and start dealing with the actual problem. The analogy I think that I have heard many times is, if it’s going to rain for 40 days and 40 nights, you build an ark, right? That’s what you do to solve the actual problem that is before you.
You don’t go into the forest and start wondering about how the plants are going to grow through a flood. You actually have to address the problem that is set before you to maintain your own survival. This is what we send these people to Congress for is to design and implement policies which are going to be generally beneficial for Americans. We now face a pandemic and an economic collapse, and we do not see immediate action to that. It is going to rain 40 days and 40 nights. And it’s very important to understand that even if you can swim, you can’t swim 40 days and 40 nights. You need an ark. We send our representatives to construct these things that will help all of us. We continue to have a rhetoric which praises those who can swim without realizing that even those who are treading water can not survive the once in every 500 year flood.
Jessyn Farrell:
And that is absolutely what we’re in the midst of. That is a really profound way to frame this. We really appreciate your taking the time and talking with us about these issues. Really, really important.
Nick Hanauer:
Absolutely.
Jessyn Farrell:
Thank you.
Nick Hanauer:
Yeah. And that framing of the problem was absolutely a killer. I really appreciate it.
Jessyn Farrell:
Yeah.
Nick Hanauer:
It was so good. Well, Trevon, thank you so much for being with us.
Dr. Trevon Logan:
Thank you.
Nick Hanauer:
We’ll talk soon.
Jessyn Farrell:
So here we are still in the midst of the pandemic, and the economic impacts to Americans are still staggering. It’s estimated that about 33 million Americans are going to be impacted by the loss of the $600 a week unemployment benefit, and yet Congress is still dithering, and it’s August. It’s pretty astonishing.
Nick Hanauer:
But we are discussing whether to put President Trump on Mount Rushmore. So there is that.
Jessyn Farrell:
There’s that. That’s worth 600 bucks a week, something like that, right? Yeah. So even if we keep the benefit but lower it, there’s still a massive impact on employment. The Economic Policy Institute estimates that even cutting those benefits by $400 a week as Senate Republicans have proposed will lead to 3.4 million fewer jobs, and that’s already on top of the massive job loss that this country has experienced.
Nick Hanauer:
Yeah. Jessyn, and that’s a great example of how the consequences of our decisions compound negatively, and just a great example of the negative implications of more trickle-down economics.
Jessyn Farrell:
Exactly, not acting doesn’t equal status quo. It actually equals things getting a lot worse for people right now.
Nick Hanauer:
And more expensive in the future.
Jessyn Farrell:
Exactly.
Nick Hanauer:
One of the things that Dr. Logan said that I really appreciated was that it’s never too late to do something. And even though our federal government’s response to this crisis has been pretty horrible up to now in all ways, it isn’t too late to do something. And I take some measure of optimism from the knowledge that there is still a huge amount of wealth in the country as the stock market is very, very high. There’s a ton of money in the country that we can use to get past this crisis. We just have to have a Congress that understands and is willing to enact the policies that will actually fix the problem and address the serious challenges that so many working in middle class families face.
Jessyn Farrell:
Yeah. I really appreciated Dr. Logan’s framing at the end of the interview of this crisis being like rain for 40 days and 40 nights, and that no one can swim for 40 days and 40 nights. And just that idea of we are all in this together, it doesn’t feel like that a lot of the time, because even the public health response has gotten so polarized. But I think his framing really reminds us that it’s time for us to build a policy regime both on the economic side and the public health side that really recognizes we are all in this together. And it is not too late.
Nick Hanauer:
Yeah. Let’s hope that Mitch McConnell agrees.
Jessyn Farrell:
Maybe he can listen to our podcast.
Nick Hanauer:
Yeah.
Jessyn Farrell:
We’ll tweet it at him.
Nick Hanauer:
Yeah, exactly. Not optimistic, but there is an election coming and hopefully change will come, and we can begin to dig ourselves out of this mess.
Speaker 4:
Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to subscribe, rate, and review us wherever you get your podcasts. Find us on Twitter and Facebook at Civic Action and Nick Hanauer. Follow our writing on Medium at Civic Skunk Works, and peek behind the podcast scenes on Instagram @pitchforkeconomics. As always, from our team at Civic Ventures, thanks for listening. See you next week.