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How Covid-19 Is Increasing Support for Social Spending

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How Covid-19 Is Increasing Support for Social Spending

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Yves here. On the one hand, this study provides some positive news, that the ravages of Covid are leading more Americans to support stronger social safety nets. On the other, it’s hard to reconcile these findings with election results coming in, save that voters might not have been keen about Biden precisely because his economic policy and Covid promises were weak and unconvincing. Or worse, with California voting for Prop 22, which amounts to “Screw gig workers because I want my cheap rides.” Oh, and those who were keenest to have stronger protections were either those who had taken hits or saw themselves in the “There but for the grace of God go I” category.

A big problem is that Americans sensibly want a less patchwork system, but it’s hard to see how we get there. It took a Great Depression and lots of improvisation last time, some of which stuck. Remember that polls overwhelmingly and consistently show that Americans back progressive policies, like strengthening Social Security and Medicare, higher minimum wages, taxing the rich more, and cutting military spending, but curiously those desires don’t show up in policies until the Commies are on the doorstep.

Nevertheless, there’s an encouraging finding buried in this report, that Americans are all on board with deficit spending. Either they got the MMT memo or else they’ve recognized that the US engages in it regularly to fund its wars, and why not use that power at home?

By Alex Rees-Jones, Associate Professor of Business Economics and Public Policy, The Wharton School, University of Pennsylvania, John D’Attoma, Lecturer in Taxation, University of Exeter Business School, Amedeo Piolatto, Ramon y Cajal Fellow, Autonomous University of Barcelona, and Luca Salvadori, Post-Doctoral Research Fellow, Tax Administration Research Centre (TARC), University of Exeter – Business School; Affiliated Researcher, Barcelona Institute of Economics (IEB). Originally published at VoxEU

While few groups have weathered the Covid-19 crisis unscathed, recent evidence suggests that the damage has been especially extreme among the economically vulnerable. This column evaluates changing attitudes towards welfare spending as a result of the pandemic. The findings suggest that people living in areas most severely hit by the crisis are increasingly supportive of long-term reforms to the welfare system. Despite having access to relatively widespread welfare spending, European citizens are dissatisfied with the safety net systems currently in place.

People across the world have been hit hard by the Covid-19 pandemic. While few groups have weathered the crisis unscathed (Aspachs et al. 2020, Carvalho et al. 2020, Chetty et al. 2020), recent evidence from the US suggests that the damage has been especially extreme among the economically vulnerable. For instance, the US unemployment rate increased by 14.1 percentage points in April 2020 and increased by 17.8 percentage points among those without college education (Bitler et al. 2020). Because Americans commonly rely on employer-sponsored health insurance, these historic levels of job loss translate into substantial reductions in insurance coverage at a very inopportune time (Bivens and Zipperer 2020). This economic upheaval has put many households under strain to meet basic needs, with 23% of households reporting food insecurity and 7% of adults receiving assistance in the form of donations from a food pantry in the prior week (Bitler et al. 2020).

In Europe, existing policies providing substantial social insurance, combined with ambitious actions by the EU, have helped to mitigate this crisis. Compared to most European nations, the US offered a lower degree of protection through its pre-pandemic safety-net programs, perhaps contributing to these problems.

Despite this comparison, the US is not without social insurance programmes, and a greater degree of crisis mitigation may reasonably have been expected. As noted in the recent work by Moffitt and Ziliak (2020), however, few of these existing programmes are designed to function as ‘automatic stabilisers’ in the presence of large, systemic shocks. Of the major safety net programmes they consider, only Unemployment Insurance (UI) and the Supplemental Nutrition Assistance Program (SNAP) served as such stabilisers during the early months of the pandemic. Other programmes, they find, “showed little buoyancy to economic downturns over the last two decades”.

Recognising the inadequacy of the existing system to protect against this unique crisis, many governments quickly legislated stop-gap temporary measures. For instance, Italy’s ‘Cura Italia’ decree introduced measures such as vouchers for hiring babysitters, tax rebates, and lump-sum payments of between €600 and €1,000 for the self-employed. The US government similarly took action, introducing a one-time payment of $1,200 per adult (and $500 per dependent child), temporary expansions to unemployment insurance, and temporary expansions to food-security programmes. And yet, despite these historic actions, substantial and urgent need persists.

The system in place to protect Americans from such dire economic downturns has had its defects laid bare in the course of this crisis. This invites a period of analysis and consideration by policymakers, academics, and the general public. It remains to be examined exactly how the existing system is falling short, and what systems should be put in place in anticipation of future crises.

Recent work by Bitler et al. (2020) directly poses the question: “Why do we see so much need and distress despite a policy response of unprecedented magnitude?”. The authors document three key contributing factors. First, due to the strains on the system and the need to legislate and establish new programmes, much of the urgently needed relief provided was received with substantial delay. Second, outside of the unemployment insurance system, the amount of additional transfers to low-income families was woefully insufficient for a time of great need (averaging between $30 and $40 per week). Finally, many individuals in need fell into ‘coverage gaps.’ This lead some unemployed workers to not receive the unemployment insurance payments which serve as the primary means of safety net transfers.

The general public appears to be asking a similar question. Even prior to the pandemic, recent US political discourse had brought safety net reform into the public eye. In the run-up to the 2020 election, prominent political candidates advocated for expansions to healthcare guarantees through policies like Medicare for All, for expansions to income guarantees through unemployment insurance or universal basic income programmes, and for revisions to the structure of the tax-and-transfer system through a more progressive tax code. With the arrival of the pandemic, this attention to the safety net has intensified and discussion of the successes and failures of the US policy response has dominated media coverage (e.g. Brooks 2020).

Did COVID-19 Shape the Preferences for Safety Net Programmes in the US?

In our recent work (Rees-Jones et al. 2020), we sought to test the possibility that citizens’ experience with Covid-19 has influenced their tastes for safety net policies. In June 2020, we surveyed over 2,500 members of the Understanding America Study about their support for both short- and long-term expansions to government-provided healthcare and the unemployment insurance programmes. We paired their responses with several measures of exposure to Covid-19 and its consequences. These include objective measures like the number of Covid-19 deaths or infections in their county as well as the local changes in the unemployment rate. These also include subjective measures like survey reports of their perceived chance of catching or dying from Covid-19, as well as survey reports of their chances of economic harms.

In these data, a striking finding emerged: individuals facing more real or perceived harm from Covid-19 were typically more supportive of long-term expansions to safety net programmes. This preference further extended to a desire for ‘bigger government’. Of course, some association between support of social insurance and Covid-19 exposure could be explained simply by who the pandemic struck first (the early battlegrounds were large cities in left-leaning states). And yet, we find that such associations persist when controlling for the Understanding America Study’s pre-pandemic measurement of political ideology, as well as when we control for detailed demographics.

To understand the quantitative effects found in the study, consider two survey respondents: one facing the average number of Covid-19 deaths in his county, and another facing a very high number of deaths  (a number greater than 95% of other survey respondents). Controlling for political ideology and a wide array of demographic variables, our estimates suggest that the respondent facing the unusually high number of deaths was 6.3 percentage points more likely to support long-term unemployment insurance expansions. This type of respondent was also predicted to be 5.8 percentage points more likely to support long-term expansions to government-provided healthcare and one percentage point more likely to support a bigger government. Similar qualitative results arise when using other measures of exposure that we consider. These include changes in the unemployment rate, perceived chances of death conditional on infection, perceived danger associated with daily activities, and perceived changes of running out of money or of losing one’s job.

We interpret our results to suggest that citizens, like academics, are examining the impacts of Covid-19 and are reassessing their perceptions of optimal policy. Of course, fully determining a policy response requires not only specifying the programmes citizens want but, additionally, what they will pay to access them. In our data, we found little evidence to support the idea that experience with the pandemic has increased willingness to pay taxes. Instead, it appears that the citizens that we have surveyed have an increased tolerance for deficit spending. While the US has adopted this means of financing the current attempts to combat the pandemic, long-term shifts in the safety net programme may require hard choices to be made regarding the trade-off of government generosity and government revenue.

If an impact of the Covid-19 pandemic is to push Americans towards a European-style safety net regime, American citizens should consider the experience of Europeans during this same crisis. While European countries have fared better in a number of metrics, they too have faced substantial strains and confronted similar trade-offs. Foremny et al. (2020) document support among Spaniards for a shift of government spending towards healthcare but find no evidence that willingness to support medical interventions through taxes respond to information interventions describing the harms of Covid-19. As with the findings above, these results point towards a desire for more protections against harms like Covid-19, without evidence of a willingness to offer further financing for those protections. More worryingly, Daniele et al. (2020a, 2020b) document a precipitous drop in interpersonal and institutional trust among survey respondents in Italy, Spain, Germany, and the Netherlands (with a perhaps consequent drop in support for the EU and a welfare state). It thus appears that Americans are not alone in dissatisfaction with safety net programmes in the wake of the crisis.

While it is perhaps too much to expect any safety net system to be free from criticism during its moments of greatest strain, the experience in both the US and Europe suggest that reforms are needed, and may well be demanded. These findings suggest a potential silver lining to the calamity brought about by the pandemic: by drawing our attention so sharply to safety net programmes, perhaps they will receive the attention and support necessary to be reformed for the better before our next social challenge arrives.

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