Unsanitized: The COVID-19 Report for July 6, 2020

How the CARES Act Led to the Pandemic Surge
It's all about the missing state and local aid

 

Bars in Texas have closed down, a scenario set in motion by federal
crisis response. (David J. Phillip/AP Photo)

First Response

We return from a holiday weekend to continued uncontrolled outbreaks in
the south and southwest, and tentative steps toward shutting down that
which was reopened. Texas, Michigan, and Arizona closed bars
,
California locked up dine-in seating
in
restaurants, and larger chains are rethinking reopening plans

as well. The closures don't even have to be official: States that
opened early and saw cases rise have seen reversals at restaurants

and other business activity
,
as people suddenly don't want to put themselves in danger for the meat
loaf special for some reason.

Most of the leaders in these states won't commit to new lockdowns
,
and you won't catch them admitting error

on opening too soon. But it's important to understand the dynamics
underlying this second half of the first wave, and why we failed where
so many other developed countries succeeded. It goes back to the CARES
Act.

The legislation, as you recall, paid people for staying at home during
the lockdowns, which was an important step at that time. The goal was to
use the unemployment system to keep people safe, alive and afloat while
the country tried to manage the outbreak. (The PPP also paid businesses
to keep people on payroll, but unemployment was the more dominant
mechanism here.)

What the CARES Act did not do was protect cities and states who were
about to lost giant chunks of tax revenue as a result of this plan. Not
only were millions of people coming off of payrolls (Many states do tax
unemployment but some
,
like California and New Jersey, do not), but reduced economic activity
was crushing sales tax revenues as well as use taxes like road tolls.
States were staring at hundreds of billions of dollars in shortfalls,
and unlike the federal government, they could not borrow their way out
of trouble or keep their budgets unbalanced.

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The CARES Act supplied $150 billion to states but only for emergency
coronavirus spending

not accounted for in state and local budgets. So it could not be used to
plug increasing budget holes. The continued shortfall was closer to $1
trillion, and it grew every minute that cities and states remained
locked down.

This weighed heavily on cities and states, and unquestionably played a
role in the timing of the reopening
.
While most developed countries waited until their average case counts
were quite low before letting people back into the world, states were
pressured into salvaging their economies and bringing in some semblance
of revenue by throwing open the doors. This was a direct result of not
having any guarantee from the outset that state and local budgets would
be taken care of.

The result has been catastrophic, and the states that opened early know
it
.
It's hard to disassociate the budgetary desperation with the
ideological impulse in conservative areas to back the president by
trying to roar back with the economy. Greg Abbott and Ron DeSantis would
have probably reopened even if they had billions in reserve to weather
the lockdown. But look at my home county of Los Angeles, no home to
Republican lickspittles, which clearly reached a breaking point where it
felt the need to generate more revenues by getting retail and restaurant
spaces going.

There's no doubt that the official reopening orders gave many
residents confidence to venture back out when they should have stayed
home, leading to the wider outbreaks. And there's no doubt that these
businesses and these cities and states are now in far worse position
economically than if they waited it out.

Restaurants that managed to survive in March and April, only to open and
face a downturn in July, are much less likely to persevere
.
Just in the immediate term, food purchased in the expectation of
reopening will not get used. Workers brought back will be sent home. The
start and stop was economically and emotionally jarring, and it risks a
wider failure.

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It also has put all other businesses at greater risk
,
by increasing the amount of virus. It makes it hard to send people back
to offices or other less perilous activities. This hurts local economies
even further, and this damage was precipitated by depriving them of a
safety net in the initial bill.

This association between the lack of state fiscal aid, premature
reopenings, and sustained epidemics isn't particularly novel. Eric
Levitz of New York Magazine made substantially the same case

last week. But he pulled his punch, blaming the issue on Republicans.
The CARES Act bill passed 96-0 in the Senate and virtually unanimously
in the House. Democrats worked hard and took credit for the main
economic survival pieces, the ones that created the incentive structure
to reopen early. You cannot wedge this into a partisan framework.

And you certainly cannot turn around and call the CARES Act a solid
crisis response when it ignored the central feature that set cases
spiking out of control. The CARES Act was hastily assembled and didn't
fit together logically. It created a scenario where cities and states
would be ruined if they followed proper public health guidelines. And it
subsequently set in motion the horrific social and economic outcome
we're mired in today.

This is crunch time
for the
next coronavirus response bill, and maybe this time state and local aid
will make it into the deal. But the damage has been done. By waiting for
months to ensure mayors and governors that they won't be left behind,
Congress put them in an impossible position, induced them to open
prematurely, and severely damaged the recovery. Not "Republicans,"
Congress, with the most bipartisan bill in recent memory.

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Today I Learned

* Warren Buffett has made his first post-pandemic fire sale purchase:
natural gas assets
.
I've been told Buffett is the world's largest carbon producer.
(Press release)

* Uber buys Postmates

after losing out on GrubHub. So maybe buying into monopoly was the goal?
(Bloomberg)

* Hundreds of scientists plead with the World Health Organization

to recognize that coronavirus is an airborne disease. (International
Business Times)

* Inside a Houston hospital

seeing a wave of coronavirus cases. (New York Times)

* Day trading has grown in popularity in the crisis and claimed
inexperienced victims
.
(Financial Times)

* Forty lobbyists secured $10 billion in coronavirus aid
for their clients.
(Associated Press)

* The pandemic could undermine trust in government
.
(Washington Post)

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