One Enormous Mistake Congress Must Not Repeat If There’s a COVID-19 ‘Second Wave’

In the United States and around the world, concern is mounting over a potential COVID-19 “second wave” as economies reopen and nominal coronavirus case numbers rise. While we don’t yet know how the virus will play out and whether this concern is warranted, one thing is certain—no matter what happens, American taxpayers shouldn’t support a “second wave” of big government bailouts.

Congress failed the first time.

Here’s what happened. After the pandemic began and government-mandated lockdowns stopped the previously strong economy in its tracks, Republicans and Democrats alike came together to pass the $2.2 trillion CARES Act. The bill was a sweeping, behemoth legislative package meant to provide relief to adversely affected Americans, stimulate the economy, and keep businesses afloat.

The cost of this intervention is unprecedented, and the federal government will run an astounding $4 trillion deficit this year, in large part thanks to the CARES Act. Between the stimulus checks sent out to many Americans, government support for businesses, and expanded unemployment benefits, we were promised serious results for a serious price tag. In reality, the CARES Act has failed miserably on all three counts.

The bill expanded eligibility for government unemployment benefits to self-employed business owners, independent contractors such as Uber drivers, and other groups. More significantly, it also augmented the state-level unemployment benefits with an additional $600 a week, creating a large cushion many out-of-work Americans could fall on.

This expansion was a bad idea to begin with, but it even failed on its own terms. It pushed state unemployment bureaucracies to the breaking point, and quickly, they started collapsing. Here’s how it played out:

The Economic Policy Institute found that for every 10 people able to successfully file for unemployment, three to four couldn’t get through the system to make a claim, and one to two chose not to because it was too difficult. In total, the study concludes that 9 million to 14 million eligible people were thwarted from accessing benefits by these systemic failures.

This government incompetence stands in stark contrast to the ability of private charities and individuals to quickly get relief money directly to those in need—just look at all the businesses and COVID-19 victims who have fundraised cumulative millions via GoFundMe.

But the CARES Act didn’t just fail at distributing unemployment benefits—the expansion itself was always a mistake. It created skewed incentives for sidelined workers.

The overly generous federal benefit augmentation meant that the majority of workers were able to make more on government benefits than from their job. Many employers soon found themselves in the awkward position where they wanted to reopen their businesses but couldn’t get their employees to come back to work because unemployment paid more than working.

According to the Heritage Foundation, these skewed incentives caused 14 million additional workers to apply for unemployment and led to $1 to $1.5 trillion in lost economic growth. And the bill didn’t offer these ultra-generous unemployment benefits for just a month or another short-term period but it extended them through July 31—all but making complete economic reopening impossible in the interim. You can’t put the labor force back to work while workers are able to earn more by staying home.

So the provisions of the CARES Act meant to help the labor market were a colossal failure. Yet the consumer-side stimulus also profoundly disappointed, and reminded us that big government can’t solve big problems.

The CARES Act sprayed out taxpayer money in the form of $1,200 “stimulus” checks to most Americans. The aid wasn’t targeted at those who need it. At all.

The government sent taxpayer money to most adults regardless of whether COVID-19 had actually affected their livelihood, and, even worse, used outdated tax information that only reflected pre-pandemic financial realities to determine eligibility. (Turns out, a lot has changed since 2018!)

In a sadly unsurprising display of incompetence, the federal government sent $1.4 billion in stimulus checks to dead people. Yes, you read that correctly.

The stimulus payments were designed according to Keynesian economics, which supposes that consumer spending drives the economy. This is a flawed premise. As economist Dan Mitchell explains, “More spending is a consequence of economic growth, not the trigger for economic growth.” But even if we generously pretend the Keynesian premise is true, the CARES Act stimulus checks failed on its own terms.

Congress sent the $1,200 checks out with two main goals in mind: boost consumption to “stimulate” the economy and provide financial relief to help struggling Americans afford essentials.

On the first count, the checks were hardly successful. Polling shows at least 40 percent of recipients didn’t spend the money.

On the second count, it’s unclear that the bulk of this money was actually spent on necessary “relief” and essentials. For example, a sizable chunk of taxpayer money that could’ve gone to those who truly needed it was instead spent on drugs, porn, and frivolous consumption. And polling suggests that only about 40 percent of the money was spent on essentials like food and rent.

Posting on social media about wasting “Daddy Trump bucks” literally became a meme among young people.

Sure, the first two prongs of the CARES Act failed spectacularly, but the federal government couldn’t mess up the simple act of giving loans to struggling small businesses, right?

Oops. The loan program, dubbed the “Paycheck Protection Program,” was quickly exploited by big corporations and politically connected businesses at the expense of the small businesses it was meant to help. As corporations cashed out, the fund quickly hit its cap—while many small businesses were left out to dry.

“The rules for qualifying for the loans were so loose that the program was opened up to many businesses and people who were not the intended recipients, which is one of the reasons the program hit its ceiling so fast,” NBC News reported. “It has become a huge benefit for private clubs, law firms, investment managers, and accounting firms that have the resources to complete their applications quickly. Some wealthy individuals have set up LLCs (limited liability companies), which technically qualify for the loans, and put their yachts and planes and personal staffs in the companies in order to qualify.”

Rep. Thomas Massie warned that the CARES Act was “a massive wealth transfer from the middle class to the moneyed class.” Writing for the Washington Examiner, Jack Hunter described the loan program’s dysfunction just days after implementation and pointed out that it validated Massie’s argument:

As many citizens received their stimulus payments this week, many also noticed that aspects of this aid looked rotten. For starters, while mom-and-pop restaurants battled to get their pieces of the $350 billion ‘Payback Protection Program,’ large chain restaurants got them first.

While small businesses of all types, from salons to bars to auto shops, waited for relief, some hedge funds had applied ahead of them for a loan. So many big businesses and others applied that by Thursday, the money ran out.

Many little guys are still desperately waiting. Still, the rich got theirs.

The true extent of the loan program’s failure is unknowable, given that the federal government will not make public the complete list of businesses who received taxpayer-financed subsidies and grants via the CARES Act $600 billion loan program. That’s right: They won’t tell us which businesses got the money. So much for accountability with taxpayer funds.

The CARES Act also authorized the Federal Reserve to dole out billions in loans through bond purchases and gave them $25 billion from the Treasury, which they can leverage into $250 billion of bond purchases. Rather than help struggling small businesses, many of these large financial investments from the Fed have so far ended up going to massive corporations like ATT and Walmart or to well-connected industries like Big Tobacco and Big Oil.

Such cronyism and corruption are sad, but hardly surprising. These problems plague any large-scale government intervention into the economy, and there was never any reason to hope the CARES Act would be an exception.

Even Time Magazine—hardly a bastion of free-market thought—concluded that “it’s clear now that Congress’s massive outlay of cash has been often inefficient, helping to exacerbate the already-yawning wealth gap in the United States while leaving the neediest in the lurch during the worst unemployment crisis since the Great Depression. This package, devised and promoted as a mechanism to alleviate inequitable suffering during the pandemic, may end up playing a role in exacerbating it in the immediate future.”

Whether there’s a “second wave” of COVID-19 infections or not, taxpayers shouldn’t let Congress make the same mistakes with our money ever again.