On Friday, the enhanced unemployment program, which has been a lifeline for millions of Americans during the current economic crisis, expired. There is no consensus in Washington to replace it. The Democrats are eager for a renewal, but Republicans have promised only a temporary, one-week extension.
The ultimate Republican goal is to cut enhanced unemployment from $600 to $200 a week, on the grounds that generous relief creates a disincentive to work. This argument is false both on factual grounds (the consensus of economists is that the unemployed would still return to work if offered jobs) and in terms of policy goals. With Covid-19 still raging, making it easier for people to stay at home is desirable. Further, without the stimulus that extra unemployment money gives, the economy will suffer a demand shock due to lower consumer spending, leading to a much longer recession. Trump is even more feckless than the congressional Republicans. He keeps bringing up the idea of a payroll tax cut, a nonstarter since his own party has given up on the idea.
House Speaker Nancy Pelosi has also pushed for more spending on health care as well as a $1 trillion aid package to states and municipalities. Treasury Secretary Steven Mnuchin adamantly opposes this aid project, saying, “That’s something we’re not going to do.”
The irresponsibility of Republicans in a time of crisis has mystified many observers. Even from a short-term political point of view, they should want to get stimulus money out there in order to ease the worries of voters and ensure their own electoral success. Adopting austerity measures amid the worst economic crisis in decades seems like political suicide.
But this apparent disdain for policy makes sense if we realize that for Trump and congressional Republicans, the main goal of economic relief has already been achieved. Thanks to the greater power assumed on March 23 by the Federal Reserve, which can for the first time lend money directly to nonfinancial corporations, the party of big business is now triumphant. The federal government has effectively become a silent partner to American capitalism, guaranteeing an economic lifeline to not just big banks but all larger corporations.
If the 2008 economic crisis led to a new Washington consensus that large banks were too big to fail, then 2020 has radically extended that idea: Now Wall Street as a whole is too big to fail.
The revolutionary new policy of the Federal Reserve received a bipartisan seal of approval with the passage of the Coronavirus Aid, Relief and Economic Security (or CARES) Act on March 27. The CARES Act had unanimous support in the Senate and only five votes against it in the House of Representatives, with Representative Alexandria Ocasio-Cortez distinguishing herself as the only Democratic vote of opposition.
As the economic historian Robert Brenner noted in an article in the New Left Review, the most crucial aspect of the CARES Act was the $454 billion allocated to spend on corporate bailouts, with no strings attached. The Federal Reserve was able to leverage this money as a backstop for a more extensive loan program. In addition to loans to some of America’s wealthiest companies, the Fed has purchased trillions in Treasury notes and mortgage-backed securities. Moreover, the knowledge that the federal government was acting as a safety net for Wall Street served to comfort private lenders, who had previously been scared by the pandemic. This led to a resumption of private lending that has revitalized the stock market, even as the coronovirus spreads unabated in the United States.
The Federal Reserve loan program has truly broken new ground: government loans at near-zero interest to some of the biggest companies in the world—with no oversight or political demands. While Main Street worries over whether it can keep up with the mortgage, pay the rent, or afford health insurance, Wall Street is now getting money for nothing, or almost nothing. In this new environment, Amazon was able to take out a loan of $10 billion at 0.4 percent—only a smidgen above the rate that the American government itself pays.
As Brenner notes, “Even in the midst of one of the worst economic crises in US history, with the living standards of large swathes of the population profoundly threatened, top managers and stockholders would be free to line their own pockets via share buybacks, dividends and executive salary increases, while reducing employment and investment—very much as they had routinely been doing with their companies’ earnings and borrowings throughout the previous decade.”
The upshot is that big business has “been enabled to achieve this incredible enlargement of wealth unconditionally, without having to commit to doing anything with their money or to adopt any particular economic policy.”
The power of corporate capitalism has been enormously enhanced thanks to the CARES Act. This is a replication of the 2008 bailout—but on a far grander scale. In the earlier bailout, big banks were bailed out, but individual homeowners were left to sink. That allowed private investors to buy up distressed properties at bargain prices. The same dynamic is likely to replay itself now, with big business having a much stronger hand against economic competitors.
Big business is uniquely situated to ride out the current crisis. As David Dayen notes in The American Prospect, “The Fed is intervening in large corporate debt markets because it allegedly has to, but not intervening in smaller lending markets. Similarly, the Fed isn’t doing much lending in the Municipal Liquidity Facility (MLF), despite dire needs in state and local governments. So the biggest corporations are benefiting from a subsidy while everyone else is subject to the whims of the market.”
The CARES Act was an enormous win for the party of big business. As Dayen pointed out on Twitter, this explains why the Republicans had been willing to make compromises to pass it in March but aren’t willing to make a deal now. There is nothing more the Republicans want so badly that they’ll make compromises to allow the continued generous enhancement of unemployment insurance. Given the unprecedented looting of the public treasury that now has bipartisan support, Republicans can be satisfied that they’ve achieved a lasting victory, one that even an election loss in November will do little to diminish.
This article has been updated.