COVID relief land mines
Published March 10, 2021
Editor's note: This comment was posted prior to the House approval of he COVID relief measure.
The Biden administration’s COVID-palooza is with the U.S. House, which probably will pass it Tuesday and send it to the president so he can sign it Wednesday. Democrats cite public opinion polls with 76% backing the bill.
I’d wager a nontrivial amount of money that 76% of any scientific polling sample couldn’t tell you what’s in the bill other than the $1,400 checks … if that.
I’ll remain silent on whether tossing an extra $1.9 trillion in economy this would “overheat” things. I’m a journalist, not an economist. It’ll be months before much of the money actually goes anywhere.
But it’s clear the economic recovery is underway, even before this bill become law.
Here’s two genuine howlers in the bill:
• Private pension bailout. The bill commits $86 billion to prop up multi-employer private pension plans. The New York Times reported these plans, “bring groups of companies together with a union to provide guaranteed benefits.” The employees, from retail clerks to delivery drivers to construction workers, often move from job to job. And this work force is getting older, retiring, and stressing out their pension plans. The plans have chased high-risk investments that haven’t kept pace with the plans’ baked-in liabilities.
“As the work force ages, an alarming number of the plans are running out of money. The trend predated the pandemic and is a result of fading unions, serial bankruptcies and the misplaced hope that investment income would foot most of the bill so that employers and workers wouldn’t have to.”
The feds normally require ailing private pensions to take loans and restructure benefits. They haven’t handed over tax money, especially without strings. Since the bailout doesn’t require the companies to change their investment strategies, the plans can continue throwing money at risky schemes. If the pensions fail, Uncle Sam will step in. (See “moral hazard.”)
• State government bailout. Roughly 20% of the $1.9 trillion will go to state and local governments, presumably to cover lower tax collections and higher state spending from the pandemic. (Another $130 billion heads to K-12 schools, “ostensibly to help them make the health and safety adjustments necessary to reopen for in-person learning,” as The Dispatch put it). This bailout gives a mulligan to states that managed finances poorly even before the pandemic.
It also indirectly says states (including North Carolina) that managed the people’s money well before and during the pandemic are suckers. No matter. You get a bailout! You get a bailout! Everybody gets a bailout!
Most states aren’t in bad fiscal shape. Recent reports from think tanks and financial analysts made some astounding findings. Again, from The New York Times,
A researcher at the Urban-Brookings Tax Policy Center, a nonpartisan think tank, found that total state revenues from April through December were down just 1.8 percent from the same period in 2019. Moody’s Analytics used a different method and found that 31 states now had enough cash to fully absorb the economic stress of the pandemic recession on their own.
To be sure, many local governments that rely on dedicated local taxes are in awful shape. Just spitballing here, but you could make a case for temporary loans or even direct aid targeted to the ones in the worst shape. But the bill doesn’t do that.
Then there’s the debt pile on. Dealing with federal debt may not be an immediate problem, but life can sneak up on you fast. Inflation, soaring interest rates, credit crunches, cuts in retirement programs. They’ll happen. We don’t know when. Buckle up when they do.