The Shrunken Safety Net Could Help Explain Bad Feelings About Economy

The expansion and subsequent lapse of pandemic benefits have had major effects on people’s lives.

The Shrunken Safety Net Could Help Explain Bad Feelings About Economy
The Shrunken Safety Net Could Help Explain Bad Feelings About Economy

By Arthur Delaney

See original post here.

WASHINGTON ― There’s a raging political debate about why voters hate the economy despite low unemployment, rising wages, slowing inflation and strong consumer spending.

Are people brainwashed by TikTok? Is it partisan misinformation, or maybe too much gloomy journalism? Did no one notice the plummeting cost of a dozen eggs? These are the questions vexing the White House as President Joe Biden’s poll numbers slump ahead of the 2024 election.

There’s another possible reason for the bitter views of the economy, a policy explanation hiding in plain sight: Some people’s lives are harder now than they were three years ago because the government is doing less.

Starting in 2020, the federal government vastly expanded social programs, paused student loan payments and put a moratorium on evictions. But these initiatives were temporary, and as the COVID-19 pandemic subsided, the government pulled those benefits back.

Median household income saw a substantial decline last year, the Census Bureau reported in September ― partly because of inflation, but also “due in part to the expiration of policies introduced in response to the COVID-19 pandemic.”

One example: Congress created a monthly child benefit that paid parents as much as $300 per kid in the second half of 2021, dramatically reducing material hardship for millions of families. When the benefit expired at the beginning of 2022 ― primarily due to opposition from Sen. Joe Manchin (D-W.Va.) ― the child poverty rate shot from 5.2% to 12.4%, the fastest year-over-year increase in modern American history.

It’s possible the several million families who went through that dramatic change of economic circumstances did not enjoy the experience. In one survey last year, a third of parents said they reduced their spending on food as a result of the lapse in benefits.

This year, the government pared back a pandemic increase to food assistance, cutting monthly Supplemental Nutrition Assistance Program benefits to 16 million households by $82 per person. More than 11 million Americans have been disenrolled from Medicaid, student borrowers were required to resume paying off their loans, and extra federal funding for child care programs has just lapsed.

Most of these pandemic policies expired automatically, without much partisan conflict, which might have reduced the amount of attention they received.

“Classically, we understand the idea that people don’t like it when programs get cut back, but people are somewhat blind to that right now, perhaps because they don’t think of these as programs that were cut back but rather as temporary programs that ran their course,” said Matt Bruenig, director of the People’s Policy Project, a left-wing think tank.

Bruenig’s research suggests that inflation-adjusted incomes declined for 58% of Americans last year, after having risen for a similar percentage in 2020.

The White House has touted the success of “Bidenomics,” pointing to overall economic growth, low unemployment and wage increases outpacing inflation.

Asked to respond to a viral TikTok video from Mackenzie Moan, a working mom who tearfully explained that she and her husband have good jobs but are still living paycheck to paycheck, White House economic adviser Jared Bernstein suggested Moan might not know about some of the administration’s policy accomplishments.

“If you actually asked somebody like that… what do they think of the fact that we’ve kept insulin prices at $35 a month?” Bernstein said on Fox News Sunday last month. “What about giving Medicare the power to negotiate lower drug prices? What about tax incentives for manufacturing jobs? What about capping out-of-pocket prescription drug costs?”

Bernstein noted that the recently enacted insulin price cap polls very well, as do the limits on prescription drug costs poll. Those policies, however, targeted older Americans enrolled in Medicare. They were part of the Inflation Reduction Act, the law Democrats passed last year that included green energy subsidies and funding for the IRS, but not an extension of the child tax credit payments that benefited families in 2021. That policy would have greatly expanded the $100 or $200 in disposable income that Moan said she and her husband have left over after bills each month.

The University of Michigan’s index of consumer sentiment has been stuck at levels not seen since the Great Recession and its aftermath, when unemployment was almost three times higher than it is now. It’s possible that collectively speaking, any good feelings from expanded social welfare programs are offset by bad feelings from consumers who dislike government spending and debt. (Just like good feelings from slowing inflation have been partially offset by bad feelings about high interest rates.)

“The expansion of fiscal policy probably doesn’t have a huge impact on sentiment,” Joanne Hsu, director of the surveys of consumers at the University of Michigan, told HuffPost.

Stimulus checks were probably the most popular fiscal policy Congress enacted in response to the pandemic. Lawmakers sent almost everyone in America three rounds of checks in 2020 and 2021, totaling $800 billion, seemingly prompting consumers to give the government higher marks for economic policy in the University of Michigan’s surveys.

Congress also boosted unemployment insurance, temporarily remaking a rickety federal-state scheme into the wage-replacement program of Democrats’ dreams, at a cost of nearly $700 billion. And Democrats had hoped to make their child benefit permanent, in what was supposed to be a new compact between families and the government on the scale of Social Security retirement insurance. But they fell short of that goal by one Senate vote, the program expired after six months, and voters could be poised to put Republicans back in charge of the upper chamber next year.

It’s possible the pandemic policy experiments disappointed voters, since they saw how easy it is for Washington to make structural changes to the economy, improving life for Americans, only for lawmakers to abandon the project and revert to the status quo.

But maybe voters don’t think like that. The way Hsu sees it, people are more nostalgic for the pre-pandemic economy than they are for the government benefits of the pandemic era.

“We’re all in this collective sense of grief that we’re not going back to 2019,” Hsu said.

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