Does the US Spend Too Much on Police?

Thursday, June 4, 2020

The good news: Initial jobless claims for state benefits continue to fall. Torsten Slok, chief economist at Deutsche Bank Securities, said the job market appears to have bottomed out and is “crawling out of the hole now,” adding that we “have the worst behind us.”
Earlier this week, Mark Zandi, chief economist at Moody’s Analytics, said he thinks the coronavirus recession is technically over, with growth resuming this month. “This Covid recession will go down as the shortest and arguably the most severe in history,” Zandi told The Washington Post.

The bad news: The unemployment numbers are still shockingly high, and the economy is in bad shape by any measure. “Even as states reopen, claims in the millions are an indicator that the economic pain of the Covid-19 crisis is still acute,” Daniel Zhao, senior economist at Glassdoor, told CNBC.

Recovery is expected to be slow and painful. Economist Ed Yardeni said Thursday in a note to clients that he expects it to take more than two years to recover all of the lost jobs, with a return to the February 2020 employment peak not coming until October 2022.

The even worse news: The official unemployment numbers are almost certainly underestimating the damage.

In addition to the state unemployment filings, there were about 623,000 newly reported claims from independent contractors, who are eligible to receive federal aid temporarily under the Pandemic Unemployment Assistance program. But at least half a million filings for pandemic relief payments have yet to show up in the official data,

Bloomberg reported Thursday, due to lags in the system. And the weekly unemployment reports tell us nothing about the people who may still be working but are earning far less than they were just a few months ago.

Up next: On Friday the Labor Department will release its employment numbers for May. Economists surveyed by Dow Jones project 8.3 million job losses and an unemployment rate of 20.5%.

The $600-per-week boost for unemployment benefits that Congress passed in March expires at the end of July, and Republicans have vowed not to renew it, saying the payments are too generous and encourage workers to stay at home.

The Congressional Budget Office said in a report Thursday that extending the $600 payments for six more months would increase unemployment, as five out of six workers would receive more in benefits than they would earn on the job.

But as the severity of the unemployment situation for millions of Americans becomes increasingly clear — and likely to linger through the election — some GOP lawmakers reportedly are having second thoughts about simply letting the program expire.

According to The Hill, a growing number of Republican senators are discussing an extension of the extra unemployment benefits past July, though at a lower level. A federally funded back-to-work bonus of $450 is also on the table, part of an effort to ensure that workers are encouraged to return to their jobs.

The recent protests over police violence and racism are also playing a role in changing minds among Republicans, who are worried about maintaining their control of the Senate. “I don’t think we can ignore the fact that this civil unrest is happening against a backdrop of 20-plus percent unemployment,” said Sen. Josh Hawley (R-MO).

Whatever form the additional aid takes, it’s becoming clear to Republicans that Congress will have to provide help to the unemployed for some time beyond July, stretching perhaps to the end of the year. “I’m very open-minded about how to supplement unemployment benefits,” said Sen. Lindsey Graham (R-SC), one of the most outspoken critics of the $600 unemployment payments.

The Senate announced Wednesday that it will hold a hearing next week on how to handle unemployment benefits in the next and perhaps final coronavirus relief bill.

The Washington Post’s Christopher Ingraham writes that, in the wake of protests over George Floyd’s death, tensions over funding differences for police departments and social services lie at the heart of many calls for police reform.

New York City Comptroller Scott Stringer, for example, is calling for a $1.1 billion cut in NYPD spending over the next four years, with the money going “toward vulnerable communities most impacted by police violence and structural racism.” Similarly, the Los Angeles Police Department budget could be cut by $100 million to $150 million as part of a plan by Democratic Mayor Eric Garcetti to reinvest $250 million in communities of color, the L.A. Times reports.

To illustrate the nationwide divergence between funding for law and order and that for cash welfare, Ingraham highlights a statistic, detailed in the chart below, pulled from the work of liberal Berkeley economists Emmanuel Saez and Gabriel Zucman: The United States spends more than twice as much on police, prisons and the courts as it does on food stamps, Temporary Assistance for Needy Families and supplemental Social Security.
That wasn’t always case, Ingraham explains:

“Up until about 1980, American governments spent roughly the same amount on criminal justice and cash welfare: a little over 1 percent of total national income for each. But those trend lines have steadily diverged ever since: Welfare spending has been on a long, uneven decline, while law and order spending ballooned almost unabated until about 2010, when it amounted to nearly 2.5 percent of national income. Since then, law and order spending has fallen to a hair under 2 percent, while welfare spending stands at about 0.8 percent of national income. …

“Taken together, the two lines trace a dramatic shift in national priorities. We funneled money away from poverty prevention to beef up our response to one of poverty’s biggest consequences: crime. We now treat the symptoms rather than the underlying disease.”

The protests and debates now roiling the nation might change that balance, as they’ll likely color the budget choices made by cities, states and the federal government.

Read the full story at The Washington Post.

The Senate on Wednesday evening passed a bill modifying the Paycheck Protection Program of forgivable coronavirus relief loans to small businesses. The bill, which sailed through the House last week in a 417-1 vote, now goes to President Trump’s desk for his signature.

Among its provisions, the new Paycheck Protection Program Flexibility Act extends from eight weeks to 24 weeks the period that small businesses have to spend their emergency funds while still qualifying to have their loans forgiven. It also provides more flexibility in how the loans can be used, lowering the minimum percentage required to be spent on payroll from 75% to 60%. See more details here.

An earlier snag: Republican Sen. Ron Johnson of Wisconsin had objected to an earlier effort Wednesday to pass the bill by unanimous consent, but he reportedly agreed to the evening vote after getting a letter entered into the record clarifying that an extension of the loan program to the end of December would only lengthen the deadline for business owners to spend their funds, not the application deadline.

“We don't want to see this program automatically reauthorized until the end of December,” Johnson said, according to Roll Call. “Now there's some dispute as to whether the language actually does that. Sounds like the intent was not to do that, it was just to allow people to spend money through the end of December, which we have no problem with.”

Sens. Marco Rubio (R-FL) and Susan Collins (R-ME) will still be pursuing technical fixes to the program.

A pair of former Congressional Budget Office directors testified Wednesday before the House Budget Committee at a hearing on the economic impact of the Covid-19 pandemic.

Douglas Elmendorf, who led the CBO from 2009 to 2015 and is now dean of the Harvard Kennedy School and, urged Congress to learn from the response to the Great Recession: "The premature tightening of federal fiscal policy in 2011 was a significant mistake of economic policy. I hope that policymakers do not make the same mistake again," he said, adding that, as Congress considers another coronavirus relief package, “more than $1 trillion of additional fiscal support is warranted,” with fiscal help needed until at least 2022.

Elmendorf also said that exceptionally low interest rates give the government room to take on more debt. “We will ultimately need to raise taxes and reduce spending substantially,” he said. “But we can wait to do that until we have rebuilt a vibrant economy with full employment.”

Douglas Holtz-Eakin, the CBO director from 2003 to 2005 who is now president of the American Action Forum, similarly said that the aggressive response by Congress and the corresponding large increase in the deficit was necessary and appropriate — but that lawmakers would need to pay attention to the debt going forward.

"There is now a large amount of debt, and the minimum thing that a country has to do is to stabilize its debt relative to GDP. This country has not done that in the 21st century," he said. “It now is faced with doing that in the aftermath of this crisis with a much higher level of debt. I encourage members to focus on that task in the years to come.”

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Does the US Spend Too Much on Police?