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How the US Won the Economic Recovery

How the US Won the Economic Recovery

Jasmine Holloway knows it sounds odd. But March 2021, when she and the rest of America were enduring the 13th month of a brutal pandemic, may have been the best month of her life.

When the pandemic hit, Holloway was working at a day care center, taking night classes at the University of the District of Columbia, and raising her three kids.

Initially, the lockdown was a blessing: Suddenly her kids — ages 14, 5, and 3 — were at home where she could watch them more easily. Her 14-year-old, who had been arrested in a particularly rough period shortly before lockdown, found the time especially beneficial. “All the bad influences he was doing before, it stopped because the world stopped,” Jasmine recalls.

But the juggling act eventually took its toll on Holloway. It got so stressful that a bald spot began to grow on the back of her head.

Then more terrible news: In mid-February, a few days before her birthday, she lost her job.

But instead of hitting rock bottom, something strange happened: Holloway started making more money. First, she was able to easily enroll in food stamps and DC’s cash assistance program. Getting unemployment insurance took a bit more work, but once she signed up, she started getting weekly checks larger than the paychecks she was getting from the day care center, thanks to the $300-per-week unemployment bonus — that is, $300 on top of the typical amount — included in President Joe Biden’s relief plans.

There was also a one-time check for $5,600 — $1,400 for her and each of her three kids —as part of the most recent round of stimulus. And another $850 a month, $300 each for her 3- and 5-year-old and $250 for her 14-year-old, is coming, thanks to the fully refundable child tax credit Biden enacted.

For Holloway, who spent some time in foster care growing up and currently lives in DC’s Ward 8, a historically disadvantaged area east of the Anacostia River, the pandemic wound up leading to a period of unprecedented prosperity. The pandemic relief “has enabled me to do things I’ve only dreamed about doing for my family,” she says. “I’m getting passports for my children so that when the world opens back up we can travel.” She wants to take them to a Nickelodeon resort in the Dominican Republic. At the very least, she wants them to experience flying on a plane. She’s socking away the weekly $300 bonus for a rainy day. The bald spot on her head has completely grown back.

“Before me being let go, I thought, ‘I need to find other ways to make money, to get to my goals fast,’” Holloway recalls. “Never did I think me being laid off would be what did it.”

Holloway is not alone. For millions of Americans, the pandemic has been a nightmare. But many have also found that the country’s safety net actually caught them.

In March 2020, Congress passed and President Donald Trump signed into law the CARES Act, which sent out no-strings-attached checks to the vast majority of Americans for the first time. The bill also dramatically increased the generosity of unemployment insurance, making many workers whole and, for some months, leaving most workers (including Holloway) with more money than they would have earned at their employer. It paused evictions and created a new near-universal child tax credit reaching the poorest families with children.

Then lawmakers did it again in December 2020, passing another bill that offered bonus unemployment benefits and one-time $600-per-person checks.

Under President Biden, the government passed yet another bill, with one-time $1,400-per-person checks, another bonus unemployment measure, and hundreds of billions in relief money for state and local governments.

The result? The poverty rate in the US fell in early 2020. The government did so much to assist its citizens that many people were left financially better off than before the pandemic.

As an American who supports large government intervention to help those in need, I’m used to envying other nations’ governments. I envy European universal health care systems, France’s crèches for child care, and Finland’s success at reducing homelessness.

When my editors asked me to write a story for our Pandemic Playbook series on the country that I thought “got Covid-19 right” economically, I immediately looked abroad. I spent a few weeks researching and writing about Japan, which has kept unemployment low and spent big to fight the economic downturn.

But as I was working on my Japan article, the US adopted Biden’s American Rescue Plan, a $1.9 trillion behemoth of a bill. With that step coming after the two Trump relief bills, the US just about matched Japan’s spending to fight the downturn. And as I looked into the details, it became impossible to deny that the US spent the money better.

To be sure, it’s not as simple as that. Would I rather have been in Japan for the outbreak or in the US? In public health terms, the answer was obvious: Japan has kept the virus under control vastly better. But in economic terms, the answer was also obvious: The US was more generous.

The comparison seemed even more favorable as I looked to Europe, which botched the virus on a public health level in a manner similar to the US, and offered less extraordinary support to its citizens. Most European countries have stronger safety nets to start with, but they largely didn’t use the pandemic as an occasion to strengthen them. The US did.

No country handled the economic shock of Covid-19 perfectly. Every country, the US included, made mistakes, sometimes grave mistakes. But a detailed comparison suggests that the US had the strongest economic response to the pandemic, in terms of providing income to its citizens during lockdown and ensuring a strong, rapid recovery as the economy began to reopen.

“The US will come out of this economically better than any country that was similarly affected by the virus,” Jason Furman, an economist at Harvard and former chair of Obama’s Council of Economic Advisers, says.

The US passed some of the biggest Covid-19 relief packages in the world — and targeted those who needed the most help
When it became clear in March 2020 that the coronavirus would necessitate lockdowns across the world, policymakers immediately saw the event as the biggest economic crisis since the 2008 recession, or perhaps even since the Great Depression.

Because of the need for social-distancing procedures, businesses like restaurants, sports arenas, and movie theaters would need to be shuttered. But the hit was much broader. Orders of raw materials from metal to soybeans collapsed in March. The worst week for new unemployment claims in American history, in fall 1982, saw 680,000 people claim benefits for the first time. The week ending March 21, 2020, saw 3.3 million, more than four times the previous record. And the weekly tally stayed above 1 million for months.

This was an economic crisis of unprecedented speed and ferocity, one that brought predictions of enduring Great Depression-scale unemployment for months or years to come.

In the US, at least, that prediction (made by, among other people, me) seems to have been wrong. The country is recovering quickly from the economic shock of the pandemic.

And we did so despite botching our response to the crisis itself. Using aggressive social distancing, testing, and contact tracing to contain the virus — as nations like South Korea and Australia did early on — had huge economic benefits, and the US’s failure to contain its outbreak had enormous economic costs.

But many other large, rich countries also botched their response to the pandemic. If you compare the US to the five most populous countries in Europe, it fares roughly the same in terms of deaths from Covid-19. Germany does better, but the UK, Italy, Spain, and France are right there in the muck with the US.

If this past year is any indication, countries are not always going to be able to contain future pandemics. If and when that happens, they need to be able to manage the economic fallout.

A blunt, but useful, way to see if they managed the fallout successfully is to measure how much countries spent on stimulus measures. Pinpointing this number is tricky, and reputable researchers have produced a number of different estimates.

Christina Romer, a former chief economist to President Obama now at UC Berkeley and an expert on downturns, put together her estimates in a recent paper presented at a conference hosted by the Brookings Institution. She only looked at “early packages,” defined as stimulus passed before July 31, 2020. The US dominated the list, outstripping every peer country in the scale of its response, with only New Zealand really coming close.

Another estimate, this time drawing from International Monetary Fund data, comes from economists Ceyhun Elgin, Gokce Basbug, and Abdullah Yalaman. Their estimates include policies through March 2021, which takes into account the $1.9 trillion Biden package. Here, too, the US spending surpasses its European peers, though the authors estimate that Japan spent vastly more, around half of its 2020 GDP.

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