Episode 13: Stopping an Avalanche of Poverty

TESS VIGELAND: The socioeconomic consequences of the COVID-19 outbreak have been profound, hitting minority and low-income families the hardest.

EDUARDO PORTER: The absolutely unexpected outcome– poverty did not rise.

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TESS VIGELAND: This is Pandemic Economics, a podcast about the global impact of COVID-19 from Stitcher and the Becker Friedman Institute for Economics. I’m Tess Vigeland.

EDUARDO PORTER: And I’m Eduardo Porter. We’ve been invited to have conversations with University of Chicago economists. In this episode, I talk with Bruce Meyer of the Harris School of Public Policy to assess to what extent the emergency expansion of government benefits helped stem the economic catastrophe. What impact did the pandemic have on poverty?

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BRUCE MEYER: COVID led to a dramatic decline in employment. It was a huge shock to the American population. There was initially a drop in spending that was pretty dramatic. Even though these employment losses were unprecedented, the government responded in a way that it hadn’t ever before with $3 trillion committed to direct payments to individuals and families, and expanded unemployment insurance, and support for businesses to keep them hiring.

In particular, we find that poverty has fallen after the start of the pandemic because these government payments exceeded what families lost through earnings that they didn’t get with their loss in jobs.

EDUARDO PORTER: OK. Assuming they got all the benefits they were entitled to, two working parents who lost their jobs would get each an unemployment insurance bump of $600 bucks a week, plus those additional one-time emergency payments. Would this put a family above the official poverty rate?

BRUCE MEYER: Well, the poverty threshold for a family of four is around $25,000. You can argue that that’s too low, but the government payments in just two months are over $11,000, so a large sum relative to the $25,000 poverty threshold, roughly, for a family of four.

EDUARDO PORTER: Wow. Both the health emergency and the economic crisis has not hit everybody across the board equally. I mean, as the economic crisis has continued, there has been a disproportionate impact on the employment of people of color. Blacks and Latinos have suffered higher infection and death rates in many parts of the country. I’m wondering, has this government help kind of redressed those imbalances?

BRUCE MEYER: So there still are lopsided outcomes in terms of poverty rates. African-Americans and Latinos still have higher poverty rates than whites. But the poverty rate for all of these groups went down in the pandemic because of these payments. So the payments were enough to reverse the income losses for the low-educated, for African-Americans, for Latinos, for women.

But we were very interested in looking to see if there were some demographic groups– racial or age or education groups– that still had income declines towards the bottom. And we didn’t find any appreciable-sized groups that experienced a decline in income at the bottom after the pandemic. We should be concerned about what is going to happen down the road.

EDUARDO PORTER: Yeah. These extended unemployment benefits expire at the end of July. And I wonder if there is a case to be made to extend them further, given that unemployment is likely to remain very elevated even after that.

BRUCE MEYER: I think there is a good case to extend unemployment benefits, but would say that it’s important to keep track of how the economy is recovering and not necessarily commit to have them be available out six more months. I think we should change the benefits in the future to replace a given fraction of people’s past earnings, rather than just give a flat amount to everyone.

EDUARDO PORTER: How does the evolution of poverty in this emergency compare to what happened to what happened to poverty during the Great Recession? And how does that relate to the policy response?

BRUCE MEYER: In past recessions, typically poverty has risen quite a bit. And so far, we’ve had poverty falling because of just how large and swift the government response was to the pandemic.

EDUARDO PORTER: There seems to be still a lot of unmet need out there. Despite this kind of remarkable fact that poverty has actually declined, by some other measures, there is still a bunch of suffering. The families reporting food insecurity have increased. How can we make sense of these two facts?

BRUCE MEYER: Many people early in the pandemic weren’t able to get out of their house to shop, and if they did get to a grocery store, probably found that many of the shelves were empty. So I think many people experienced disruptions. There also are people who weren’t reached by these benefits. Some of the unemployment insurance benefits were slow to get out. The states didn’t do a very good job of ramping up to pay unemployment insurance benefits.

Also, while there’s been an improvement in the distribution of income, which means that the number of people below different income levels has gone down, that doesn’t mean that there haven’t been a lot of people who saw their income fall. And that was counterbalanced in the distribution by people who had their income raised up by economic income payments and high unemployment benefits relative to their past earnings. And we might expect people that had their income fall to feel that pinch more than people who had their income temporarily raised up to balance that out.

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TESS VIGELAND: Stay with us for more Pandemic Economics in just a minute.

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So, Eduardo, as we continue your conversation with Bruce Meyer, we’re talking a lot about the poverty level in the US. And I know that there is a considerable debate over where and how that is set in this country, especially when it’s compared to other developed nations. Can we place that in context as Bruce evaluates how COVID has affected the federal safety net?

EDUARDO PORTER: Yes. So poverty gets measured differently around the world. In the US, a family is considered poor if it can’t afford, like, this basic basket of stuff– food, clothes, and rent, stuff like that. In other advanced countries, though, families in poverty are those who have fallen far behind the average income of the population. It’s a concept that kind of takes inequality into account. And so by this standard, the US is the poorest rich country in the world.

TESS VIGELAND: The poorest rich country in the world. Wow. And by rich countries, we’re talking about the wealthy, developed nations known as the OECD– the 37 members of the Organization for Economic Cooperation and Development. So what does that mean that we’re the poorest rich country?

EDUARDO PORTER: It means that we have a higher share of people in poverty by the OECD’s measure. And not only that, the US is also stingier than other rich countries in developing assistance programs for people in need. Our unemployment insurance is more meager. There is virtually no statutory childcare or statutory sick leave. Other rich countries do include these sorts of programs in their general safety net.

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So I wanted to think a little bit about the future beyond this immediate emergency here. And I wonder if, given the apparent success of these government efforts to keep poverty down, are there any lessons that we can take from this to maybe design the safety net on a more permanent basis?

BRUCE MEYER: So certainly I think that there are some gaps. I think the most noticeable one is our lack of universal health insurance coverage. And that, I think, is the biggest hole in our safety net. We do pretty well right now in terms of transferring income. We do less well in terms of making sure everyone has healthcare and making sure that everyone is matched to a job and gets job skills and has an opportunity to work. On the side of encouraging work, while at the same time supporting people in need, I think we’re doing less well.

So I don’t think that the responses to this pandemic give us a model for what we would want in terms of a permanent program. They may inspire us to revise the unemployment insurance program a bit, to raise unemployment benefits. We could potentially revise the triggers for when unemployment benefits get extended. I think that taking a fresh look at those is a sensible thing to do. But my take is that the safety net is doing a much better job than people are giving it credit for, and that the holes in the safety net are much smaller.

EDUARDO PORTER: I wonder if there is a case to be made– given that we’ve just discovered that we can actually reduce poverty in a very, you know, immediate term– whether there’s not a case to be made to, you know, think of that as a policy goal and try to bring our poverty rate down to some lower level.

BRUCE MEYER: First, I think our poverty rate is dramatically overstated because a large share of benefits aren’t recorded in the household surveys that are used to calculate poverty. But that still is not going to eliminate the gap between US measures of poverty and the measures in many OECD countries. I think I would argue, we’re already doing a pretty good job of getting income to low-income households and that things like health insurance and improving education and doing a better job of getting people to help themselves are where we can do a great deal of improvement.

Now there certainly are parts of the safety net that I would expand. I think expanding the child tax credit, expanding the earned income tax credit for those without custodial children would be a good idea. But if you look at what we’ve done historically, we’ve done a pretty good job at expanding our payments to individuals over time.

EDUARDO PORTER: Help me understand the political economy of this. It took only a few weeks for Congress to decide to spend upwards of $3 trillion dollars on this crisis. And in 2009, it was an entrenched political battle to get through just under a trillion dollars. The change seems, like, totally night and day.

BRUCE MEYER: It is night and day. And talk with people like Larry Summers, who was involved with formulating the package at that time, and they’ll say that just wasn’t enough. And that might very well have been the reason for the slow recovery from the financial crisis– or one of the reasons. In this recession, you had this alignment of Democrats who are very willing to spend, and I might even say too willing to spend, and Republicans concerned about the re-election of the president, and a president willing to do anything to improve the economy and help his election chances. So you had this alignment that meant that incredible largesse to stem the economic bleeding from the pandemic occurred.

EDUARDO PORTER: Yeah. Yeah, that makes sense. Do you think the politics surrounding the safety net have changed? Do you think that there is some sort of significant shift in perceptions about how much we should spend on that, how valuable it is, and so forth in the political system?

BRUCE MEYER: What are the indications that it’s changed? I’m just raising this to understand the question. I’m trying to think. I mean, we’ve seen an incredible awakening in terms of an understanding of the problem of race in America. I don’t know if we’ve seen an awakening in terms of the understanding of the safety net or poverty. I think if you looked at the living conditions of our bottom 10% or 20% in terms of what kind of apartment they live in, how big it is, whether it’s air conditioned, what appliances it has besides air conditioning, whether people have smartphones and a car, I think you would find that the bottom 10% or 20% in the US stacks up quite well relative to those in other countries.

EDUARDO PORTER: That’s interesting, because it kind of also requires you to choose what your measure of well-being is because if you look at, like, infant mortality and life expectancy and diabetes and stuff like that, we’re actually quite– we look pretty bad in comparison. So it’s, what is a bundle of well-being that I’m going to consider, you know, to making these comparisons?

BRUCE MEYER: Absolutely. And I think a lot of the things that you hit on deal with the lack of universal health insurance coverage. So I think we have a lot of dimensions to well-being which are better– mostly material standards, not necessarily health or education– where we don’t stand out as being at the top, often far from it.

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TESS VIGELAND: Next time we’ll explore research about the social safety net. In my conversation with Damon Jones, we’ll hear about all the people in this crisis who he says have been left behind.

DAMON JONES: Households with an undocumented person in the household are not eligible to receive the economic impact payment from the CARES Act. In those households, you could have children who are US citizens who are not eligible because one of their parents doesn’t have a social security number. They work in these frontline jobs. They contribute as much as anyone else, and they are left out of this type of relief.

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TESS VIGELAND: Pandemic Economics is produced by the University of Chicago’s Becker Friedman Institute for Economics. Our producers are Devin Robins and Dana Bialek. Our executive producer is Ellen Horne. Production and original music by Story Mechanics. Pandemic Economics is part of the University of Chicago Podcast Network I’m Tess Vigeland.

EDUARDO PORTER: And I’m Eduardo Porter. Thanks for listening.