How Covid-19 Is Increasing Support for Social Spending

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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  1. ambrit

    It won’t be much of a gamble to observe here that the degradation of the social safety nets is the “next social challenge.” The rolling back of the New Deal provisions for the public good has been a Reactionary work in progress for decades now. We must remember that it took a massive economic and financial collapse and subsequent mass civil disturbances to lay the groundwork for the New Deal. Covid-19 by itself is not sufficient to supply this impetus. Expect the Post Covid-19 economic effects to fuel desperate actions by the dispossessed. Combine the societal stresses to create the precursors for ‘Real Change.’
    One interesting theory about the 1930s New Deal is that it was not just the Bonus Army that energized the “masses” to demand serious change, but the Bonus Army and the Establishment’s overreaction of sending in the ‘Real’ Army to burn the demonstrator’s encampment at the Anacostia Flats that tipped the balance of the public opinion towards support for ‘serious’ governmental actions to deal with the Great Depression in America.

    1. flora

      Yes. The large majority of US voters wanting something, e.g. Medicare for All, has no influence in D.C. absent other forces at work. Yesterday’s Tom Ferguson post explained that very well.

      1. Clem

        Wait until all those who have survived Covid get next years insurance premium boosted bills based on “pre-existing conditions.”

        If President Trump wants to really get even with and to hurt the blob that opposed him, he will lobby for some kind of M4A, which would do more to cripple the media and social media that villified him than anything else, by removing the source of much of their pharma, medical device and health plan advertising revenue.

      2. Carla

        I would posit that “The large majority of US voters wanting something” has very little influence at the state level, either.

        The only place voters have any power at all is at the local level, and then, only in towns and very small cities. And of course, it is steadily diminishing as lower revenues from state and federal sources force cities to replace tax increases (subject to voter approval) with higher fees for various services, which municipalities can impose at will. This has happened galore in NE Ohio.

        Oh, you want your garbage picked up? Then you will pay that monthly fee to have it hauled to the landfill.

        1. ambrit

          Our experience of this is that the “privatized” garbage pickup is now a government supported “stealth tax,” in that you are mandated to have the “service” to be ‘officially’ approved to live in the municipality. Scofflaws who refused to pay the private garbage haulers at the county level where we once lived had their monthly “Garbage Bills” added to their yearly property tax bill. If one still did not pay, the property went up on the auction block.
          So, we can observe that “privatization” is but a false front for private rent extraction, with an added layer of graft.
          This could be viewed as a digression but for the fact that it appears that the costs for the administration of the vaccines developed partly with public financing will be dumped upon the individual. If any of these vaccines proves out to have merit, (a questionable assumption at best considering the track record for coronavirus vaccines,) the rational citizen will opt for the administration of said vaccine, at whatever cost of administration the Medical complex manages to ‘get away with.’ Another ‘stealth tax’ on the public. Now, as with vaccines for “serious” diseases like polio, inoculation with a Covid-19 vaccine could be mandated by the State; such as requiring it at birth or at the entrance to the school system.
          This whole debacle just gets more and more complex, and thus, prone to being “gamed.”

    2. Jeremy Grimm

      I think the author of this post is well-insulated from and relatively clueless about life in the US. For example: “… 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.” What is striking about discovering people most affected by the impacts of the Corona pandemic are more supportive of expansions to the “safety-net” is that a Professor of Business Economics and Public Policy should find the ‘discovery’ striking. And how does the US “safety-net” compare to the European “safety-net”? I think calling the US “safety-net” a “safety-net” has become quite a stretch. We are tight-rope walkers, walking on a well-oiled quivering line over a 200 foot drop with a tired stretchy and hole-laden “safety-net” poorly secured 2 feet above the concrete floor. Follow this ‘striking’ discovery with “This preference further extended to a desire for ‘bigger government’.” I believe a little “quantitative” surveying might discover a widespread desire for an effective Government of size appropriate to the problem at hand.

      “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.” After Government dumps multiple trillions into the pockets of Big Money and leaves the rest of us to go hang this anodyne observation is at best clueless.

      1. Basil Pesto

        ‘striking’ does not mean the same thing as ‘surprising’ which is the meaning you seem to impute to it in the authors’ usage. I find the turn of phrase utterly uncontroversial.

  2. Jeff N

    Here in IL, we had a constitutional amendment on the ballot to switch from flat tax to progressive tax. It failed to pass.
    All the “anti” adverts were along the lines of “no tax hike” even though a move to a progressive tax rate is the opposite of a tax hike to those making under $250k; I imagine a flat tax hike is in the cards now.
    I suspect the people who voted “no” didn’t vote against it to protect millionaires, they voted “no” because they feel like starving the state government of revenue will force it to shrink more to their liking. In reality, all they’re going to do is make the state continue to borrow even more money at punitive rates.

  3. John Richmond

    6.3 and 5.8 points more likely to support increased social spending…Fine, but that just brings us back near baseline, as the average US Senate seat votes 6.6% more Republican than the country as a whole.

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