The economic crisis from the coronavirus could lead to 'disaster socialism' that briefly extends basic social benefits other countries already have
- The full economic toll from the coronavirus won't be known for months, but low-income Americans are most at risk.
- "Because of that vulnerability, it means they'll feel the impact first and probably most acutely," Dr. Maria Hernandez of Columbia University told Business Insider.
- It could lead to a renewed push to strengthen the social safety net in what Will Bunch, an opinion columnist at the Philadelphia Inquirer, called "disaster socialism."
- Two ideas have gained momentum in particular: paid sick leave and government-funded medical care, which other developed nations already have.
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The novel coronavirus outbreak is quickly upending American life, disrupting every part of society. Schools across the nation closed their doors. It has shuttered workplaces and sent employees home, forced the cancellation of major sports events and compelled states like New York to ban large gatherings of people.
The fallout has ravaged the economy, and the full scope of the damage remains unknown as businesses and consumers alike cut back on their spending. That new reality wreaked havoc on the stock market, erasing trillions in wealth and sparking massive drops this week. Economists are increasingly warning of the ripple effects triggering a recession.
Democrats charged the Trump administration with mismanaging the federal government's response to the outbreak and repeatedly downplaying the threat. The White House shifted gears this week under mounting pressure, declaring a national emergency that freed up $50 billion in federal funding for states to combat the epidemic.
And it engaged in volatile negotiations that ended with a deal struck on a relief package to help people impacted by the outbreak, The Washington Post reported. The House supported it in a bipartisan vote with Trump's endorsement, sending it to the Senate where its expected to pass as well. More stimulus measures are likely.
A substantial portion of Americans, though, are still wholly unprepared to weather the coronavirus's effect on their personal finances - whether its an unexpected medical bill or a burst of spending on cleaning products and food. A 2018 study from the Federal Reserve indicated that 40% of Americans couldn't afford an emergency $400 cash expense.
Dr. Maria Hernandez - a professor of sociomedical sciences at Columbia University who researches the intersection of race, health, and economics - told Business Insider the finances of many working-class people in hourly or low-wage jobs has been dire for many years.
"Low-income folks and the working poor, they're already precarious in their economic situation," she said. "Because of that vulnerability, it means they'll feel the impact first and probably most acutely."
They're also likely among the quarter of Americans who don't have access to paid sick leave, a critical safeguard as the Centers for Disease Control and Prevention urges sick people to stay home and avoid infecting others.
Gene Sperling, director of the National Economic Council under Presidents Barack Obama and Bill Clinton, told Business Insider about the lack of social benefits in place: "We're gonna get a national teaching moment now. It's not tenable."
These factors could lead to what Will Bunch, an opinion columnist at the Philadelphia Inquirer, labeled "disaster socialism" - a political push to briefly strengthen the safety net by guaranteeing basic social benefits in the midst of an unprecedented public health emergency.
"Disaster socialism" would provide basic benefits for a brief amount of time
The US has reported over 2,200 infections and 50 deaths so far from the virus. The spread has accelerated the urgency among public health officials and lawmakers to strengthen the safety net and slow the rate of transmissions.
Two ideas in particular have gained momentum as part of a federal strategy to fight the outbreak:
- Extending paid sick leave to every American worker.
- Waiving costs related to coronavirus testing and medical treatment.
Progressives have also proposed varying forms of universal basic income. Rep. Alexandria Ocasio-Cortez called for it, along with Medicare for All to guarantee comprehensive healthcare to everyone in the US.
And the idea of sending federal checks to stimulate immediate spending made a comeback, mirroring a similar effort undertaken by the Bush administration just over a decade ago before the 2008 financial crisis.
Two prominent House Democrats - Rep. Ro Khanna and Rep. Tim Ryan - unveiled a bill on Friday that would send a one-time check between $1,000 to $6,000 to every American earning below $65,000 and help them make ends meet.
Jason Furman, the chair of the Council of Economic Advisors during the Obama administration, has also proposed sending $1,000 checks to provide people with a financial cushion.
Bolstering specific benefits also gained steam on the other end of the political spectrum, as more Republicans have said they're willing to back free medical care for people infected by the coronavirus.
"You can look at it as socialized medicine," Florida Rep. Ted Yoho told HuffPost. "But in the face of an outbreak, a pandemic, what's your options?"
Trump had also signaled he was open to the idea. Last week, the president said: "We're going to be looking at the uninsured to see if we can help them out."
The economic package that House Speaker Nancy Pelosi unveiled on Friday contained many of these sweeping benefits. They included a paid leave program, strengthened unemployment benefits, free COVID-19 testing, as well as additional funding for Medicaid and food stamps.
But some benefits had an expiration date. Under the legislation, workers taking paid medical leave would be paid at two-thirds of their wages - or up to $4,000 - for up to three months. The provision would be available for up to a year.
The plan also underscores holes that remain in the social safety net and separates the US from other rich nations.
"If we'd had paid leave going into this, we'd be less concerned about the spread of the virus and less concerned about its impact on families," Furman told the Post.
Paid sick leave and universal healthcare are common in other developed nations - and they're helping curb the economic fallout
Universal healthcare systems and paid sick leave are embedded into the safety nets of developed nations like Germany, France, Denmark, and the Netherlands. The New York Times reported those two elements are helping restrain the economic fallout from the coronavirus and maintain consumer spending.
The skyrocketing cost of healthcare has heightened concerns in the US that it could discourage people from seeking medical attention from the virus. But that's not a huge concern in many European countries.
"I would be more concerned in the US what the cost would be," Ángel Talavera, an economist at Oxford Economics, told the Times about obtaining medical care. "For Europeans, that is not a consideration we have in mind."
Other financial hurdles could gain further attention as the economic crisis goes on and Americans lose their jobs, underscoring more gaps in the safety net.
Hernandez called for a moratorium that could include debt forgiveness for Americans struggling to cover utility bills: water, gas, electricity and Wi-Fi.
She noted that one in three households had reported having trouble paying them, according to a survey from the US Energy Information Administration.
"That's the safety net," Hernandez said. "That [problem] would only exponentiate by the challenges of maintaining productivity in the interim as people are told to socially distance themselves."
It appears steps are being taken in that direction. By Friday, regulators in at least eight states had ordered utilities to maintain connections for people struggling to cover the bills, HuffPost reported.
