Discover more from Letters from an American
April 28, 2020
As of today, at least 58,356 American have died from the coronavirus.
58,220 Americans died in the Vietnam War.
As the numbers of infections are steadying in some places, states are gradually reopening, against the advice of public health advisors, and despite the fact that between 60% and 81% of Americans (depending on the poll) agree they want to “continue to social distance for as long as needed to curb the spread of coronavirus, even if it means continued damage to the economy.”
At stake appears to be the same ideological struggle that has existed between Republicans and Democrats since the 1980s. Should government provide a social safety net for its people to carry them through this pandemic—a social safety net that will cost tax dollars-- or should people support themselves, regardless of the danger?
Beginning with Georgia’s Brian Kemp, Republican governors began the process of ordering open retail establishments like nail salons, restaurants, malls, and so on, last week. Immediately, critics charged that the premature reopenings were an attempt to keep people off unemployment rolls, where the exploding number of cases was running state finances dry. These state coffers could only be repaid by imposing higher taxes.
When asked last week whether or not employees could refuse to go back to work out of fear of contracting Covid-19, Iowa Governor Kim Reynolds, a Republican, said no. “If you're an employer and you offer to bring your employee back to work and they decide not to, that's a voluntary quit," she said. "Therefore, they would not be eligible for the unemployment money." The same is true in Texas, where Republican Governor Greg Abbott recently called for retail establishments to reopen on Friday. To collect unemployment benefits in Texas, a worker must be “willing and able to work all the days and hours required for the type of work you are seeking.”
Workers at meat processing plants have been hit especially hard by Covid-19, and at least 13 have had to close. The processing plants in most trouble have been pork plants, where employers have been cutting costs and speeding up production for years, increasing efficiency by stationing workers side by side. As employees sicken and die from coronavirus, employers face liability for risking their workers’ lives. They have said they would have to close more plants, choking off the nation’s meat supply.
Today, Trump announced that he will use the Defense Production Act to force meat processing plants to stay open. “We’re going to sign an executive order today, I believe, and that’ll solve any liability problems,” Trump said.
By declaring meat packing a part of the nation’s critical infrastructure, the president can demand it continue to operate in an emergency. Since Congress passed the DPA in the 1950s, presidents have used it to keep vital supplies moving, and food is certainly a vital supply. But never before has a president had to grapple with what it means to invoke this law when a pandemic puts its burden not on business leaders but on American workers, whose lives are at stake. That Trump’s primary concern was over employer liability in this case is revealing.
Protecting businesses from liability if their workers or customers get sick is on the table in Congress, as well. Senate Majority Leader Mitch McConnell (R-KY) has said there is no way he will consider another bill to address the dislocations caused by the coronavirus unless it protects businesses that reopen from liability if someone in them catches Covid-19. “We have a red line on liability,” McConnell said. “It won’t pass the Senate without it.”
At the same time, it turns out the $500 billion in emergency aid to large corporations provided in the $2.2 trillion coronavirus package does not carry certain restrictions. The aid is a loan. The Federal Reserve will buy up to $500 billion in company bonds to provide cash for the corporation, and the money must be repaid with interest. But the law does not require a corporation using this program to protect jobs or to limit compensation for executives or shareholders, unlike the programs for small and midsize businesses.
The Payment Protection Plan requires that small businesses certify they will use the money to “retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments.” The program for midsize businesses—the “Main Street” program—requires recipients to try to keep their workers on, and it limits executive compensation and forbids dividends until a year after the loan is repaid.
Cornell economist Eswar Prasad talked to Washington Post reporters Jeff Stein and Peter Whoriskey about the leniency of the program for large corporations. “I am struck that the administration is relying on the good will of the companies receiving this assistance. A few months down the road, after the government purchases its debt, the company can turn around and issue a bunch of dividends to shareholders or fire its workers, and there’s no clear path to get it back.”
What Democrats want in a new coronavirus package is to bail out state governments crippled by a lack of the tax dollars that fund their states. This request is what has sparked the criticism from McConnell, Florida Senator Rick Scott, and Fox News Channel personalities about “blue state bailouts,” as well as the backlash from New York Governor Andrew Cuomo and Connecticut Senator Chris Murphy, who point out that their Democratic states put more money into the federal government than they take out, while Republican states Kentucky and Florida do the opposite.
The fight over state relief brings into focus the ideological struggle between the parties. In a really terrific article in The Atlantic this week, conservative writer David Frum explains that McConnell’s call for blue states to declare bankruptcy has been a pet project of Republican Party leaders since 2011. Compared to Republican states, Democratic states provide generous benefits to state retirees, including health care packages (a deal that is implicit when state workers accept lower salaries throughout their careers than they would earn in the private sector). Those pensions are supported with tax dollars, which currently have dried up. At the same time, health costs continue to go up.
Bankruptcy would not mean states defaulted on all their debt. Bankruptcy is a legal process that would permit a federal judge to decide what bills would be paid, so it would essentially allow Republican appointees at the federal level (remember all those judges?) to impose their ideology on Democratic states by determining their spending. Republican judges would protect wealthy bondholders but slash pensions and healthcare. Frum notes that Republican calls for state bankruptcy are explicit that “a federal law of state bankruptcy ‘must explicitly forbid any federal judge from mandating a tax hike.’”
McConnell is unlikely to get the idea of forcing states into bankruptcy through Congress, but his reluctance to bail out suffering states is nonetheless instructive. The pandemic has given him the chance to empower Republican lawmakers from poor states to dismantle the social safety nets of wealthy Democratic states. Frum notes that McConnell is likely worried that Democrats will end his Senate leadership by taking the Senate this fall, so he is working as hard as he can “to refashion the federal government in ways that will constrain his successors.”
Trump has his own angle on using the pandemic to cement Republican ideology. Today he suggested that federal aid to rescue states would depend on their willingness to adopt his policies. In order to receive emergency money to survive the pandemic, they would likely have to stop protecting undocumented immigrants from arrest and cut payroll taxes.
It is, one might say, a quid pro quo.
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Large business loans: https://www.washingtonpost.com/business/2020/04/28/federal-reserve-bond-corporations/