Federal aid helped bring millions of Americans out of poverty last year. New reforms could make this social safety net permanent.

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Federal aid helped bring millions of Americans out of poverty last year. New reforms could make this social safety net permanent.
© Provided by Business Insider Poverty rates fell to 9.1% in 2020 after accounting for the federal stimulus aid. Getty Images / Marco Geber

  • Paul Constant is a writer at Civic Ventures and cohost of the “Pitchfork Economics” podcast.
  • In a recent episode, he and cohost Jessyn Farrell examine how poverty rates fell during the pandemic.
  • Constant says continued pandemic benefits could help form a stronger safety net for all Americans.

In March of 2020, when the global economy was shutting down to stop the wildfire-like spread of COVID-19, the economic outcome for many Americans looked dire. With unemployment spiking to never-before-seen levels and businesses shuttering from coast to coast, many economists predicted that we were about to see levels of poverty in America comparable to the widespread suffering of the Great Depression.

But that’s not what happened. Heather Long and Amy Goldstein reported at the Washington Post last month that according to the US Census, “poverty fell to 9.1% in 2020 after accounting for all the government aid – the lowest rate on record and a significant decline from 11.8% in 2019.”

In the face of all that economic uncertainty, almost 8.5 million people rose above the poverty line last year – a change that Goldstein and Long report was “largely attributed to the stimulus payments” of several thousand dollars for most Americans that Congress approved through bipartisan support. Many of those Americans, too, were buoyed by the expanded pandemic unemployment checks, which totaled $600 per week for the early days of the pandemic and $300 per week for most of 2021 until the program ended altogether on September 4.

When those expanded unemployment payments ended, economists predicted a surge in employment levels as Americans rushed back to work. That hasn’t happened, either. States which ended additional unemployment benefits didn’t see an increase in employment, and after the benefits expired everywhere, the September jobs report was lackluster at best. It’s most likely lack of childcare, low wages, and unsafe work conditions, not larger unemployment checks, that are keeping Americans from going back to work.

The pandemic has taught us two significant economic lessons: We learned that we could cut poverty by a significant amount through large cash investments, and we learned that large benefit payments weren’t keeping Americans from rushing back to work. When taken in tandem, the lessons from both discoveries contribute to what might hopefully be a completely new understanding of how the American social safety net actually works.

In the latest episode of “Pitchfork Economics,” Jessyn Farrell and I explore the way the social safety net performed under the pandemic, through interviews with the Washington Post’s Amy Goldstein and Economist data journalist Elliott Morris.

The social safety net didn’t fall apart when strained by the pandemic. In fact, the robust protections our leaders put in place managed to significantly shrink poverty and save the economy from descending into a recession. The larger benefits clearly didn’t convince people to stay home, be lazy, and stop participating in the economy, either. In other words, benefits performed exactly as they should.

So why can’t America have a robust safety net all the time? Pandemic assistance benefits weren’t rigidly means-tested or challenging to access, the way many benefits have been for the last 40 years, and they pulled millions of Americans out of poverty. What’s more, when those people who had lost their jobs were able to pay their rent, buy food for themselves, and provide for their children, their spending likely saved other businesses from closing and more Americans from losing their jobs. In fact, estimates suggest that continuing expanded unemployment benefits into 2021 created more than 5 million jobs.

The fact is, our creaky old benefits systems don’t serve the modern economy. In particular, our unemployment insurance program, which was created in the 1930s for a nation of farms and factories, completely fails to meet the needs of our service economy.

In a new report for the Economic Policy Institute, Rebecca Dixon and William Spriggs propose the first steps toward systemic unemployment insurance reform “to ensure equity and adequate standards regarding just financing, eligibility, duration of benefits, and benefit levels and amounts – so that no one is left behind.”

Their proposals include increasing federal funding for higher unemployment payments, expanding the system to apply to part-time and gig workers, and including triggers that would automatically expand unemployment payments and the duration of payments when the economy enters a recession or depression. It’s a good start to rebuilding an important piece of our safety net. After all, now that we know what a functioning benefits system looks like, why would we go back to an old, broken system that harms us all?

Read the original article on Business Insider

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