What we didn’t know about the economy was bound to hurt us
By Tom Baxter
What kind of economy is it, exactly, that we’ll be trying to jumpstart back to life in the coming months? The pandemic has churned up some surprising answers to that question.
The Commerce Department reported last month that the nation’s Gross Domestic Product declined by 4.8 percent in the first quarter of this year, the worst contraction since the 2008 recession. Given the obvious economic damage, a bad number had been expected. But there was quite a surprise within that number. Nearly half the decline in the economy came from the laid-off dental assistants, the cash-strapped specialty clinics and struggling hospitals of the healthcare sector.
As much as the healthcare system has been pictured in the news this year, we have largely glossed over the importance to the larger economy of all the elective surgeries, regular checkups, annual cleanings and dentists appointments that have been put on hold. Hospitals and their satellites have become, in effect, the automobile plants of the 21st Century economy. If this had been understood earlier, it would have made reopening the economy a lot smoother.
Suppose that Gov. Brian Kemp had announced that the first wave of reopenings in Georgia would be elective surgeries and other routine healthcare activities, and the hair salons, tattoo parlors and gyms has been put off to a slightly later date, as was the case with restaurants and bars. Whatever the medical advisability of this would have been, it would have saved Kemp a lot of political pain, without making a lot of difference economically.
Starting with its name, the Payroll Protection Program offers several examples of how a misunderstanding of what the economy was before the pandemic has hampered efforts to restart it. This part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act was sold as a program of loans to help small business stay afloat during the pandemic shutdown and keep their employees on the payroll for eight weeks.
This revealed the fuzziness of an expression used widely in political arguments over the economy: “small business.” As a result, every kind of enterprise from public companies to non-profit organizations, mom-and-pop cafes to a homeowner’s association in South Carolina, were thrown in the same, too-shallow pool to thrash around for money.
There was a modest uproar when Ruth’s Chris got $20 million, the Kiawah Island Community Association got $1 million, and thousands of struggling small business owners are still waiting for their lifeline. Both the restaurant chain and the homeowner’s group have agreed to give back the money after a lot of public shaming, but they weren’t doing anything worse than the big and well-connected fish usually do to the smaller and more marginal fish. They were playing by the rules when they applied for loans — a very imprecisely drawn set of rules.
Some businesses have received loans and been unable to open because their states are still under lockdown. That has led some to keep their higher paid employees and pay their holiday bonuses early, so they can reach the required 75 percent of their loan spent on payroll and use the remainder to pay their rent and other expenses. This seems like the opposite of the effect the bill was intended to have, but again it reflects a misunderstanding of the economy the program was intended to fix.
I said “modest uproar,” because there are striking differences between the outrage over the $831 billion bailout in 2009 and the $2 trillion (so far) bailout happening now. Some of the same conservative groups involved in the Tea Party movement have helped organize the protests against stay-at-home orders, but this time around the protests center on social issues, not primarily economic ones.
Nobody’s marching against the CARES Act, in part because of those $1,200 checks they got. But when the eight weeks of payroll on the PPP loans start to run out and the government booster check has been long spent, at an astounding cost to those future generations everybody was so worried about back in 2009, the mood could get pretty ugly.