The Rent Is Still Due: America’s Renters, COVID-19, and an Unprecedented Eviction Crisis [feedly]

The Rent Is Still Due: America's Renters, COVID-19, and an Unprecedented Eviction Crisis
https://www.cbpp.org/housing/the-rent-is-still-due-americas-renters-covid-19-and-an-unprecedented-eviction-crisis

Testimony of Ann Oliva, Visiting Senior Fellow, Before the House Financial Services Committee, Subcommittee on Housing, Community Development and Insurance

JUNE 10, 2020
BYANN OLIVA

Thank you for the opportunity to testify. My name is Ann Oliva; I am a Visiting Senior Fellow at the Center on Budget and Policy Priorities. The Center is an independent, nonprofit policy institute that conducts research and analysis on a range of federal and state policy issues affecting low- and moderate-income individuals and families. The Center's housing work focuses on increasing access to and improving the effectiveness of federal low-income rental assistance programs. Prior to coming to the Center, I spent ten years as a senior career public servant at the U.S. Department of Housing and Urban Development (HUD), most recently as Deputy Assistant Secretary for Special Needs. At HUD I implemented the Homelessness Prevention and Rapid Re-Housing Program (HPRP), funded by the 2009 Recovery Act, which serves as a foundation for the emergency rental assistance program in the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, H.R. 6800.

I want to begin today by acknowledging the events of the last several weeks and the systemic racism resulting in the deaths of George Floyd, Breonna Taylor, Ahmaud Arbery, and many other Black Americans. As a nation we must pursue racial justice and equity, and housing justice must be a part of the discussion because systemic racism also results in homelessness, housing instability, and the disproportionate impact of COVID-19 on communities of color. It is unjust that we can predict a child's health, wealth, and overall well-being in adulthood based on the zip code they were born in. It is also unjust that the zip codes with the worst outcomes also have a disproportionate share of low-income people of color living in them. Racist and discriminatory housing policies and programs have led to the overrepresentation of people of color in communities that policymakers have neglected.

Most of us have heard the data. PolicyLink[1] reported recently that Black people are dying of COVID-19 at 2.4 times the rate of white people. The May unemployment data, while apparently understating joblessness due a data coding error, showed unemployment (relative to April) falling among white workers but rising among Black and Latinx workers, to 16.8 percent and 17.6 percent, respectively. May unemployment for Latinas aged 20 and over was 19 percent. These communities have been disproportionally impacted both by the virus itself and by the related economic crisis.

HUD data released in January 2020[2] show that in January 2019, Black people accounted for 40 percent of those experiencing homelessness, although they make up only 13 percent of the U.S. population. Latinx people made up 22 percent of the homeless population but only 18 percent of the population.

The COVID-19 pandemic has created an extraordinary need for flexible rental assistance. But if our response to the current health and economic crises follows the same policy script as in the past, we will do too little to stop a spike in evictions and homelessness and Black and Latinx communities will be hardest hit. We must actively combat disparities caused by systemic racism, not exacerbate them by conducting business as usual.

The federal response to addressing housing needs should focus on three groups: people now experiencing homelessness; people at risk of homelessness, including those who may need longer-term help affording housing; and people now receiving federal assistance who need additional help.

Specifically, it is essential that Congress provide:

An additional $11.5 billion for homelessness services through the Emergency Solutions Grant program, as included in the HEROES Act, to close the gap between what is needed to provide proper shelter and access to medical services for people experiencing homelessness or at high risk of becoming homeless as a result of the pandemic, and what has already been appropriated for this purpose.
Significant additional funding for emergency rental assistance to prevent homelessness for those who are at risk and safely house people who are already experiencing homelessness, in settings consistent with Centers for Disease Control and Prevention (CDC) guidance.
At least $10 billion for 200,0000 Housing Choice Vouchers to help those who will need longer-term assistance due both to the pandemic and to the difficulty of raising their incomes sufficiently to afford adequate, safe housing.
Additional funding for federal rental assistance programs so they can continue serving currently assisted residents despite budget challenges due to residents' reduced income (and, thus, reduced rental payments) and additional costs to keep residents safe during the pandemic.

As HPRP showed, funding for emergency purposes can have not only immediate benefits in addressing the crisis but also long-term benefits by leveraging funding and innovation to achieve systemic change.

The Need for Housing Assistance

Housing assistance will be a key component in community recovery from COVID-19's public health and economic impacts.

Public Health Impact

COVID-19 has shown vividly that housing is a form of health care. People living in doubled-up or overcrowded situations, congregate settings like shelters and jails, or on the street cannot socially isolate and follow other basic public health guidance. Many of them are older[3] or have disabilities or underlying health conditions that make them more susceptible to getting sick. Further, many individuals are being released early from jails and prisons due to concerns about the spread of COVID-19.[4] An estimated 40 percent of people who are incarcerated report having chronic health conditions that could put them at higher risk of contracting or having serious complications from COVID-19, either while incarcerated or upon release;[5] many have nowhere to go and could end up in shelters or on the street without housing support.

Disproportionately Black counties have five times — and disproportionately Hispanic counties have three times — as many confirmed COVID-19 cases per capita as disproportionately white counties, a recent analysis found.[6] Early state and local data also show that Black and Hispanic people are dying of complications from COVID-19 at higher rates than white people.[7] The Indian Health Service also reports concerns due to lack of testing and outbreaks during the pandemic's early stages within the Navajo Nation.[8]

COVID-19 is particularly harmful for people with underlying health conditions like lung disease, diabetes, and high blood pressure; obesity and smoking are also risk factors for the worst COVID-19 health outcomes. Black people and American Indians and Native Alaskans experience chronic health conditions more often than white people.[9] Both populations have higher rates of heart disease, lung disease and asthma, diabetes, kidney and liver disease, and immuno-compromising diseases. Also, Hispanic people have high rates of diabetes, asthma, and obesity.[10] Adult residents of Puerto Rico, with higher rates of diabetes, coronary heart disease, and obesity, are also at high risk of COVID-19 complications.[11]

These health disparities exist because people of color have experienced years of economic hardship, receive lower-quality health care, and have been segregated into neighborhoods that lack access to nutritious food, green space for exercise, clean air, and jobs that pay enough for families to have the money or time for recreational outlets such as belonging to a gym.[12]

Economic Impact

Rental assistance is also needed to address COVID-19's economic impact. Even before the pandemic, 23 million people in 10.7 million low-income households paid more than half their income in rent,[13] and rents across the country had become increasingly unaffordable.[14] (See Figure 1.) The median renter household income rose just 0.5 percent from 2001 to 2018 after adjusting for inflation, while rents rose nearly 13 percent. Even before the pandemic, a parent working full-time at the federal minimum wage could not afford a modest two-bedroom apartment in any state[15] without receiving rental assistance or having to make tough choices between paying the rent and meeting essential daily needs such as food, medicine, and child care.[16]

When families spend so much of their income on rent, it is harder for them to save, which makes it nearly impossible to meet basic needs if they lose a job, their income falls, or costs for basic needs rise. Without assistance, some could lose their homes and be compelled to live with other family members or friends, in shelters, or on the street. Before the crisis, 3 in 4 households likely eligible for federal rental assistance didn't receive it due to scarcity of funding,[17] and the need for housing assistance will grow significantly during this economic downturn, as it did during the Great Recession.[18]

FIGURE 1

As many as 44.7 million people could be out of work due to COVID-19, preliminary figures from the Census Bureau's Household Pulse Survey for the week of May 21-26 show. The unemployment rate was 13.3 percent in May, and the pandemic's economic effects could be long-lasting;[19] the Congressional Budget Office estimates that unemployment will be 8.6 percent in the fourth quarter of 2021, more than double the pre-crisis level of 3.5 percent.[20]

The gap between Black and White unemployment rates tends to grow when unemployment rises.[21] When unemployment initially spiked in March and April, unemployment remained significantly higher among Black and Latinx workers than among White workers but the gap did not widen significantly. May data, however, showed the gap widening, with unemployment falling among White workers but rising for Black workers, though more data will be needed to see these trends over time (and to understand the impact of a coding error identified by the Bureau of Labor Statistics).

Historically, the gaps that widen during downturns do not narrow until unemployment has fallen substantially, and even then, a large disparity remains. (See Figure 2.) Not until several years after the Great Recession did the Black unemployment rate return to its pre-recession level, and it remained well above the white rate.[22]

FIGURE 2

Thus, history shows that as the economy begins recovering overall, the labor market can remain weak far longer for Black workers than for white workers. This means that many Black households will continue struggling with low or no earnings — and face significant difficulties affording housing — for long periods of time.

Recommendations: Federal Investments in Housing for COVID-19 Recovery

Communities must have a variety of short-, medium- and longer-term rental assistance options that together form a comprehensive COVID-19 response for a variety of housing needs. The options must include housing and services for people currently experiencing homelessness, as well as homelessness prevention and housing vouchers for households that will need longer-term help to weather the current storm and remain housed until they can afford rent. Together, these resources can provide additional housing stability during the health and economic crisis and as the nation recovers.[23]

Helping People Currently Experiencing Homelessness

Researchers from the University of Pennsylvania, the University of California at Los Angeles, and Boston University recently estimated that the homeless system needs $11.5 billion in funding above its pre-crisis level to ensure that those currently experiencing homelessness can have proper shelter and access to medical services.[24] Importantly, this estimate did not include temporary rental assistance for rehousing or homelessness prevention. The CARES Act provided $4 billion for ESG grants for the above purposes, but the recent study makes clear that significantly more will be needed.

The HEROES Act includes critical resources for homelessness services through ESG. States and localities can use ESG grants to reconfigure or reimagine congregate shelters so that residents and staff can adhere to proper social distancing guidance, to deliver medical respite services to people who contract the virus or are at high risk of serious complications if they contract the virus, to support people in temporary housing such as hotels and motels, and to increase street outreach to provide medical, hygiene, and other supports to people living in unsheltered settings. They can also use the grants to prevent homelessness for at-risk families. ESG under the CARES Act does not require matching funds, a critical advantage given the sharp revenue declines for states and localities.[25]

Providing Flexible Emergency Rental Assistance for Households Impacted by COVID-19

Substantial additional resources are needed for short- and medium-term rental assistance that prioritizes extremely low-income households impacted by COVID-19 but gives localities flexibility to serve other households facing illness, job loss, or reduced earnings. Communities could use these resources to shorten people's time spent without housing and help people stay in their current home and avoid homelessness altogether. Innovative tools like the Urban Institute tool that maps low-income job losses can be used to target this assistance to the communities most impacted by COVID-19, such as neighborhoods whose residents primarily have low incomes and are people of color.[26] (See below for more detail on using these funds to create systemic change within the housing and homelessness services systems.)

Providing Sustainable Assistance to People with High Needs

Evidence shows vouchers are highly effective at preventing homelessness and housing instability, and vouchers would assist families until their incomes rise enough that they can afford housing on their own. Thus, a robust increase in housing vouchers should be part of our overall housing strategy in response to the current crisis.

The $10 billion in the Emergency Housing Voucher Act of 2020 (H.R. 7084) would enable some 200,000 additional families to receive Housing Choice Vouchers, significantly reducing the number of families facing eviction and homelessness due to the current crisis if the funds are properly targeted. These vouchers should be aimed at people experiencing homelessness and with significant barriers to housing, people at risk of homelessness (such as those leaving jails or prisons without a safe place to live and those leaving nursing homes or hospitals), and people with other challenges to securing stable housing (such as people leaving violent or otherwise unsafe living environments).

A key advantage of vouchers is that households can use them as long as they need help affording rent. This ensures that individuals who get help now can remain stably housed even if it takes them longer to have incomes high enough to no longer need assistance. Given the long period that unemployment remained high after the Great Recession — particularly for Black and Latinx families —many families may need the lasting help that vouchers can provide.

Protecting Against Adverse System-Level Impacts of COVID-19

Federal rental assistance enables more than 5 million households to obtain decent, stable housing, primarily through three major programs administered by state and local agencies and private owners: Housing Choice Vouchers, Section 8 Project-Based Rental Assistance (PBRA), and public housing.

Federal rental assistance is well designed to enable families to continue to afford housing even as their incomes drop due to the pandemic and the economic downturn. Housing agencies and owners must recalculate a household's rent — which generally equals 30 percent of its income — when its income falls. But agencies and owners can only maintain properties and continue assisting the same number of families if they receive adequate federal subsidies to both make up for the reduced rent payments and cover the costs of activities such as providing services to quarantined residents, encouraging social distancing, sanitizing developments, and transitioning to remote operations. Otherwise, the number of assisted families could fall substantially. In addition, inadequate funding for site-based programs such as public housing, PBRA, and other privately owned assisted housing could jeopardize the safety and well-being of residents, more than half of whom are seniors or people with disabilities.

The HEROES Act provides $2 billion in needed supplemental funding for public housing operating subsidies. The CARES Act provided $685 million for that purpose, but much of that funding is needed simply to offset the decline in housing agencies' rent revenues as the incomes of public housing tenants fall. Agencies need additional funds now for expenses related to the virus.

What Happens If We Do Nothing?

Further action is needed to prevent the current health and economic crises from causing a large increase in homelessness.

Homelessness

In many areas, community-based homeless service providers and local leaders have made heroic efforts to protect the health and safety of people experiencing homelessness by opening overflow or non-congregate shelter options to isolate and quarantine high-risk individuals. To cite just a few examples:

In Los Angeles, Project Roomkey — a collaborative effort by the state, city, county, and the Los Angeles Homeless Services Authority — secures hotel and motel rooms for vulnerable people experiencing homelessness to enable them to stay inside and prevent the spread of COVID-19. It has served more than 4,000 people in 33 hotels to date. [27]
North Carolina's non-congregate sheltering program is a collaborative effort between the state, counties, and local partners to secure hotel and motel rooms, as well as essential wraparound services, for individuals with no other safe place to quarantine, isolate, or social distance. It has secured over 3,800 hotel and motel rooms for health care workers, farm workers, individuals experiencing homelessness, and other individuals and families that have been exposed to or are at high risk for the disease and need a safe place to stay.
In Louisiana, nearly 1,200 people experiencing homelessness have received non-congregate shelter across the state through a state-led COVID-19 program. The Continuum of Care reports that essentially all of the unsheltered population in New Orleans and Jefferson Parish have been sheltered. The program provides services such as meals; COVID-19 and other infectious disease testing; assistance with Medicaid, SNAP, SSI/SSDI, and unemployment benefits; links to employment; and assistance with securing government identification.
In Connecticut, homeless services providers have relocated 50 percent of homeless shelter residents (approximately 1,000 people) to 15 hotels to enable greater social distancing among staff and residents. Homeless services providers relocated operations and staff to provide services within those hotel settings. In order to avoid future outbreaks of COVID-19, providers in Connecticut estimate that 1,000 people must be housed in the next four months and that as many people as possible must be diverted from shelters so the shelters can operate at 50 percent of their pre-COVID capacity.
San Diego took a slightly different approach based on its deep experience with other public health crises, including a Hepatitis A outbreak that significantly impacted people experiencing homelessness in 2017. Non-congregate shelter is being used to decompress family shelters and for people who are homeless and over 65, and the San Diego Convention Center is housing another 1,500 people experiencing homelessness in compliance with CDC standards.

However, getting vulnerable people off the streets during the pandemic will be a short-lived victory if people now housed in safe, non-congregate settings or other temporary locations are pushed back to the street because no rental assistance is available to transition them to more permanent solutions. And, while many communities have made strides, large numbers of people living in unsheltered locations who want to come inside continue to be ignored, criminalized, and underserved.

The only way to make long-term progress — and to avoid rather than simply delay homelessness for many families — is to put additional resources into rental assistance and target that aid to those most at risk of homelessness, rather than more politically favored populations with higher incomes.

People at Risk of Homelessness

While eviction moratoria are protecting some households for the moment, renters who cannot afford to pay rent continue to accrue debt that may cause a wave of evictions once the moratoria end. Some households will continue to pay rent by stopping payment on other bills like utilities, or will use credit cards or short-term loans and acquire debt that may be difficult to repay — placing them at high risk of losing their housing. When housing costs too much, households — particularly seniors and families with children — spend less on food and health care. Also, they often have little money left to cover other basic needs, putting them one financial emergency away from eviction or homelessness.[28] Rental assistance can reduce these hardships and improve stability.

Forty percent of working-age renters are worried about paying their rent, according to a recent survey,[29] and a recent analysis[30] projects that homelessness could rise by as much as 40-45 percent this year without additional income supports. These are not perfect predictors of what is to come, but they illuminate an important point: COVID-19 has created a perfect storm of factors that will weaken communities and widen disparities with long-lasting effects unless flexible rental assistance is available to address short-, medium-, and long-term needs of extremely low-income people and renters.

Lessons From HPRP and Beyond for Improving Housing and Homelessness Systems

At HUD I led the team that designed and implemented the Homelessness Prevention and Rapid Re-Housing Program (HPRP), funded by the 2009 Recovery Act. That $1.5 billion program was the first time HUD funded either rapid re-housing or homelessness prevention at that scale. As a field we learned a great deal implementing HPRP, and those lessons can inform the design and implementation of new emergency rental assistance programs responding to COVID-19.

Background on HPRP

Rental assistance in HPRP — and in the permanent Emergency Solutions Grants program — is designed to be flexible to meet a household's needs based on its specific circumstances. It generally takes one of two forms: rapid re-housing for households already experiencing homelessness or homelessness prevention for households at risk of homelessness. Both interventions can include financial assistance, like rent subsidies or payment of rent or utility arrears or moving costs, and services to support housing stability. HPRP's income limit for homelessness prevention services was 50 percent of the area median income.

HUD allocated HPRP funding to 454 state and local government grantees and 2,545 subgrantees,[31] and the program served over 1.3 million people in roughly 537,000 households between July 2009 and its end on September 30, 2012. Approximately 78 percent of participants received homelessness prevention assistance and 23 percent received rapid re-housing assistance, making it the largest homelessness prevention program in U.S. history[32] to date. Guidance for HPRP was released 30 days after the Recovery Act's passage, which allowed communities to get new programs up and running quickly. Many communities used HPRP funds to make long-term changes in their homeless systems, including implementing permanent coordinated entry processes and rapid re-housing programs, building more robust partnerships across government and non-profits, and increasing analytical capability so that data can be used in real time for improved decision-making.

It is important to note that HUD has not yet released guidance on several CARES Act programs, including Emergency Solutions Grants. This delay is causing confusion at the local level and harming the most heavily affected communities, who need help quickly.

Elements of a COVID-19 Emergency Rental Assistance Program

Given both the HPRP experience and the evolution of the field since then, a new Emergency Rental Assistance program should incorporate several key elements:

HUD should require communities to use a racial justice and equity approach in their programs. It is critical that planning, design, and implementation of responses to COVID-19 aim to close gaps in systems of care that lead to disparities and disproportionate impacts. Communities should consult the people most affected by these gaps to understand their impacts and identify effective responses. For example, funding recipients should hire people with lived expertise to design and operate programs and should solicit and incorporate direct community input into program design and outreach.
Recipients should use funds to end homelessness for as many people as possible. Pressure to spend these resources rapidly can motivate communities to spend more on preventing evictions than on targeting people already experiencing homelessness, because prevention is faster and easier to administer. Communities should resist this pressure and instead re-house as many people as possible with emergency rental assistance to protect individual and community health.
When designing prevention programs, recipients should focus on homelessness prevention before eviction prevention. The two are not the same, and as the Center for Evidence Based Solutions to Homelessness explains, "the single best predictor of eventual homelessness is having previously been in a shelter." [33] First targeting funds to extremely low-income households that have experienced homelessness (or who have multiple predictors) will reduce the number of households becoming homeless more effectively.
Both HUD and state/local recipients should eliminate barriers that prevent historically marginalized populations and other subpopulations from accessing the funds. Recipients should work with homeless assistance and affordable housing providers to ensure that people of color, LGBTQ people, youth and young adults, people with disabilities, survivors of domestic violence, immigrants, families with children, and others have access to resources, such as through robust community outreach and inclusive program design.
Recipients should work with non-traditional partners that can reach into highly impacted neighborhoods. Pressure to spend funds quickly can also motivate funding recipients to limit subrecipients to organizations with whom they traditionally partner. To reach the hardest-hit neighborhoods, recipients must foster new relationships with community-based organizations.
Recipients should work closely with landlords. Both rapid re-housing and homelessness prevention rely on relationships with landlords; communities with the most effective such programs have strong connections with landlords. We also know that small landlords can be especially impacted when their tenants are behind in rent, making those neighborhoods vulnerable to gentrification and loss of affordable housing. Recipients and subrecipients should execute landlord engagement strategies that reach small landlords with tenants who may be eligible for homelessness prevention, while also identifying new units to house people experiencing homelessness.

A Framework for an Equitable COVID-19 Homelessness Response

The Center has partnered with a number of national experts, including the National Alliance to End Homelessness, National Health Care for the Homeless Council, National Low Income Housing Coalition, National Innovation Service, Urban Institute, and former U.S. Interagency Council on Homelessness Executive Directors Barbara Poppe and Matthew Doherty, to develop a Framework and related tools for communities as they create and implement public health and economic recovery plans. [34] While it is oriented toward the use of CARES Act funding and related resources, it will also be a useful tool in designing or expanding current efforts as Congress makes additional resources available and in using these funds most effectively.

TOPICS:
Housing, Funding, Housing Vouchers

End Notes

[1] Abbie Langston et al., "Race, Risk, and Workforce Equity in the Coronavirus Economy," PolicyLink, https://www.policylink.org/our-work/economy/national-equity-atlas/COVID-workforce.

[2] The 2019 Annual Homeless Assessment Report to Congress, Part 1," Department of Housing and Urban Development, January 2020, https://files.hudexchange.info/resources/documents/2019-AHAR-Part-1.pdf.

[3] Dennis Culhane et al., "The Emerging Crisis of Aged Homelessness: Could Housing Solutions Be Funded by Avoidance of Excess Shelter, Hospital, and Nursing Home Costs?" Actionable Intelligence for Social Policy, January 2019, https://www.aisp.upenn.edu/aginghomelessness/.

[4] LaDonna Pavetti and Peggy Bailey, "Boost the Safety Net to Help People With Fewest Resources Pay for Basics During the Crisis," CBPP, April 29, 2020, https://www.cbpp.org/research/poverty-and-inequality/boost-the-safety-net-to-help-people-with-fewest-resources-pay-for.

[5] Laura M. Maruschak, Marcus Berzofsky, and Jennifer Unangst, "Medical Problems of State and Federal Prisoners and Jail Inmates, 2011-12," Department of Justice Bureau of Justice Statistics, October 4, 2016, https://www.bjs.gov/content/pub/pdf/mpsfpji1112.pdf.

[6] Jillian McGrath, Jim Kessler, and Akunna Cook, "Coronavirus is Decimating Racially Diverse Communities Large and Small," Third Way, April 2020, https://thirdway.imgix.net/pdfs/override/Coronavirus-is-Decimating-Racially-Diverse-Communities-Large-and-Small-website.pdf.

[7] Centers for Disease Control and Prevention (CDC), "COVID-19 in Racial and Ethnic Minority Groups," April 22, 2020, https://www.cdc.gov/coronavirus/2019-ncov/need-extra-precautions/racial-ethnic-minorities.html.

[8] Kent Sepkowitz, "The risk to Native American Nations from Covid-19," CNN, April 7, 2020, https://www.cnn.com/2020/04/07/opinions/natve-american-nations-risk-from-covid-19-sepkowitz/index.html.

[9] Samantha Artiga, Rachel Garfield, and Kendal Orgera, "Communities of Color at Higher Risk for Health and Economic Challenges due to COVID-19," Kaiser Family Foundation, April 7, 2020, https://www.kff.org/disparities-policy/issue-brief/communities-of-color-at-higher-risk-for-health-and-economic-challenges-due-to-covid-19/.

[10] Artiga, Garfield, and Orgera, op. cit.; CDC, "Adult Obesity Facts," February 27, 2020, https://www.cdc.gov/obesity/data/adult.html; and U.S. Department of Health and Human Services Office of Minority Health, "Asthma and Hispanic Americans," March 13, 2017, https://minorityhealth.hhs.gov/omh/browse.aspx?lvl=4&lvlid=60.

[11] Josiemer Mattei et al., "Health conditions and lifestyle risk factors of adults living in Puerto Rico: a cross-sectional study," BMC Public Health, April 12, 2018, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5898045/.

[12] Martha Hostetter and Sarah Klein, "In Focus: Reducing Racial Disparities in Health Care by Confronting Racism," Commonwealth Fund, September 27, 2018, https://www.commonwealthfund.org/publications/newsletter-article/2018/sep/focus-reducing-racial-disparities-health-care-confronting.

[13] CBPP, "Federal Rental Assistance Fact Sheets," updated December 10, 2019, https://www.cbpp.org/research/housing/federal-rental-assistance-fact-sheets#US.

[14] Alicia Mazzara, "Rents Have Risen More Than Incomes in Nearly Every State Since 2001," CBPP, December 10, 2019, https://www.cbpp.org/blog/rents-have-risen-more-than-incomes-in-nearly-every-state-since-2001; and Alicia Mazzara, "Report: Rental Housing Affordability Crisis Worst for Lowest-Income Families," CBPP, January 31, 2020,https://www.cbpp.org/blog/report-rental-housing-affordability-crisis-worst-for-lowest-income-families.

[15] National Low Income Housing Coalition, "How Much do you Need to Earn to Afford a Modest Apartment in Your State?"

[16] Douglas Rice, Stephanie Schmit, and Hannah Matthews, "Child Care and Housing: Big Expenses With Too Little Help Available," Center on Budget and Policy Priorities and CLASP, April 26, 2019, https://www.cbpp.org/research/housing/child-care-and-housing-big-expenses-with-too-little-help-available.

[17] CBPP, "Three Out of Four Low-Income At-Risk Renters Do Not Receive Federal Rental Assistance," August 2017, https://www.cbpp.org/three-out-of-four-low-income-at-risk-renters-do-not-receive-federal-rental-assistance.

[18] Barbara Sard, "More Households Facing Unaffordable Housing Costs Than Before Recession," CBPP, February 9, 2015, https://www.cbpp.org/blog/more-households-facing-unaffordable-housing-costs-than-before-recession.

[19] Pavetti and Bailey, op. cit.

[20] Congressional Budget Office, "Interim Economic Projections for 2020 and 2021," May 2020, https://www.cbo.gov/system/files/2020-05/56351-CBO-interim-projections.pdf. The data on unemployment prior to the crisis reflect the average unemployment rate for the December 2019-February 2020 period.

[21] Center on Budget and Policy Priorities (CBPP), "Chart Book: Tracking the Post-Great Recession Economy," updated regularly, https://www.cbpp.org/research/economy/chart-book-tracking-the-post-great-recession-economy.

[22] Vincent Adejumo, "African-Americans' economic setbacks from the Great Recession are ongoing – and could be repeated," The Conversation, February 5, 2019, https://theconversation.com/african-americans-economic-setbacks-from-the-great-recession-are-ongoing-and-could-be-repeated-109612; Chad Stone, "Fiscal Stimulus Needed to Fight Recessions," CBPP, April 16, 2020, https://www.cbpp.org/sites/default/files/atoms/files/4-16-20econ.pdf.

[23] Will Fischer, "Urgent Need for More Housing Vouchers, Other Rental Assistance Amid Pandemic," CBPP, April 24, 2020, https://www.cbpp.org/blog/urgent-need-for-more-housing-vouchers-other-rental-assistance-amid-pandemic.

[24] Dennis Culhane et al., "Estimated Emergency and Observation/Quarantine Capacity Need for the US Homeless Population Related to COVID-19 Exposure by County; Projected Hospitalizations, Intensive Care Units and Mortality," National Alliance to End Homelessness, March 2020, https://endhomelessness.org/wp-content/uploads/2020/03/COVID-paper_clean-636pm.pdf.

[25] Michael Leachman, "Projected State Shortfalls Grow as Economic Forecasts Worsen," CBPP, May 20, 2020, https://www.cbpp.org/blog/projected-state-shortfalls-grow-as-economic-forecasts-worsen.

[26] Urban Institute, "Where Low-Income Jobs Are Being Lost to COVID-19," June 5, 2020, https://www.urban.org/features/where-low-income-jobs-are-being-lost-covid-19.

[27] "The Road Home: News and Updates from LAHSA," https://www.lahsa.org/.

[28] Will Fischer, Douglas Rice, and Alicia Mazzara, "Research Shows Rental Assistance Reduces Hardship and Provides Platform to Expand Opportunity for Low-Income Families," CBPP, December 5, 2019, https://www.cbpp.org/research/housing/research-shows-rental-assistance-reduces-hardship-and-provides-platform-to-expand.

[29] Mary K. Cunningham, "When People Can't Pay Their Rent, What Comes Next?" Urban Institute, May 5, 2020, https://www.urban.org/urban-wire/when-people-cant-pay-their-rent-what-comes-next.

[30] "Analysis on Unemployment Projects 40-45% Increase in Homelessness This Year," Community Solutions, May 11, 2020, https://community.solutions/analysis-on-unemployment-projects-40-45-increase-in-homelessness-this-year/.

[31] Homelessness Prevention and Rapid Re-Housing Program (HPRP): Year 3 & Final Program Summary, HUD, June 2016, https://files.hudexchange.info/resources/documents/HPRP-Year-3-Summary.pdf.

[32] Gabriel Piña & Maureen Pirog, "The Impact of Homeless Prevention on Residential Instability: Evidence From the Homelessness Prevention and Rapid Re-Housing Program," Housing Policy Debate, Vol. 29 No. 4, December 13, 2018, 10.1080/10511482.2018.1532448.

[33] Marybeth Shinn and Rebecca Cohen, "Homelessness Prevention: A Review of the Literature," Center for Evidence-based Solutions to Homelessness, January 2019, http://www.evidenceonhomelessness.com/wp-content/uploads/2019/02/Homelessness_Prevention_Literature_Synthesis.pdf.
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The Looming Bank Collapse [feedly]

...not to worry... Ten other externalities may kill us first

The Looming Bank Collapse

Frank Partnoy
https://www.theatlantic.com/magazine/archive/2020/07/coronavirus-banks-collapse/612247/

After months of living with the coronavirus pandemic, American citizens are well aware of the toll it has taken on the economy: broken supply chains, record unemployment, failing small businesses. All of these factors are serious and could mire the United States in a deep, prolonged recession. But there's another threat to the economy, too. It lurks on the balance sheets of the big banks, and it could be cataclysmic. Imagine if, in addition to all the uncertainty surrounding the pandemic, you woke up one morning to find that the financial sector had collapsed.

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You may think that such a crisis is unlikely, with memories of the 2008 crash still so fresh. But banks learned few lessons from that calamity, and new laws intended to keep them from taking on too much risk have failed to do so. As a result, we could be on the precipice of another crash, one different from 2008 less in kind than in degree. This one could be worse.

[John Lawrence: Inside the 2008 financial crash]

The financial crisis of 2008 was about home mortgages. Hundreds of billions of dollars in loans to home buyers were repackaged into securities called collateralized debt obligations, known as CDOs. In theory, CDOs were intended to shift risk away from banks, which lend money to home buyers. In practice, the same banks that issued home loans also bet heavily on CDOs, often using complex techniques hidden from investors and regulators. When the housing market took a hit, these banks were doubly affected. In late 2007, banks began disclosing tens of billions of dollars of subprime-CDO losses. The next year, Lehman Brothers went under, taking the economy with it.

The federal government stepped in to rescue the other big banks and forestall a panic. The intervention worked—though its success did not seem assured at the time—and the system righted itself. Of course, many Americans suffered as a result of the crash, losing homes, jobs, and wealth. An already troubling gap between America's haves and have-nots grew wider still. Yet by March 2009, the economy was on the upswing, and the longest bull market in history had begun.

To prevent the next crisis, Congress in 2010 passed the Dodd-Frank Act. Under the new rules, banks were supposed to borrow less, make fewer long-shot bets, and be more transparent about their holdings. The Federal Reserve began conducting "stress tests" to keep the banks in line. Congress also tried to reform the credit-rating agencies, which were widely blamed for enabling the meltdown by giving high marks to dubious CDOs, many of which were larded with subprime loans given to unqualified borrowers. Over the course of the crisis, more than 13,000 CDO investments that were rated AAA—the highest possible rating—defaulted.

The reforms were well intentioned, but, as we'll see, they haven't kept the banks from falling back into old, bad habits. After the housing crisis, subprime CDOs naturally fell out of favor. Demand shifted to a similar—and similarly risky—instrument, one that even has a similar name: the CLO, or collateralized loan obligation. A CLO walks and talks like a CDO, but in place of loans made to home buyers are loans made to businesses—specifically, troubled businesses. CLOs bundle together so-called leveraged loans, the subprime mortgages of the corporate world. These are loans made to companies that have maxed out their borrowing and can no longer sell bonds directly to investors or qualify for a traditional bank loan. There are more than $1 trillion worth of leveraged loans currently outstanding. The majority are held in CLOs.

I was part of the group that structured and sold CDOs and CLOs at Morgan Stanley in the 1990s. The two securities are remarkably alike. Like a CDO, a CLO has multiple layers, which are sold separately. The bottom layer is the riskiest, the top the safest. If just a few of the loans in a CLO default, the bottom layer will suffer a loss and the other layers will remain safe. If the defaults increase, the bottom layer will lose even more, and the pain will start to work its way up the layers. The top layer, however, remains protected: It loses money only after the lower layers have been wiped out.

[Annie Lowrey: The small-business die-off is here]

Unless you work in finance, you probably haven't heard of CLOs, but according to many estimates, the CLO market is bigger than the subprime-mortgage CDO market was in its heyday. The Bank for International Settlements, which helps central banks pursue financial stability, has estimated the overall size of the CDO market in 2007 at $640 billion; it estimated the overall size of the CLO market in 2018 at $750 billion. More than $130 billion worth of CLOs have been created since then, some even in recent months. Just as easy mortgages fueled economic growth in the 2000s, cheap corporate debt has done so in the past decade, and many companies have binged on it.

Despite their obvious resemblance to the villain of the last crash, CLOs have been praised by Federal Reserve Chair Jerome Powell and Treasury Secretary Steven Mnuchin for moving the risk of leveraged loans outside the banking system. Like former Fed Chair Alan Greenspan, who downplayed the risks posed by subprime mortgages, Powell and Mnuchin have downplayed any trouble CLOs could pose for banks, arguing that the risk is contained within the CLOs themselves.

These sanguine views are hard to square with reality. The Bank for International Settlements estimates that, across the globe, banks held at least $250 billion worth of CLOs at the end of 2018. Last July, one month after Powell declared in a press conference that "the risk isn't in the banks," two economists from the Federal Reserve reported that U.S. depository institutions and their holding companies owned more than $110 billion worth of CLOs issued out of the Cayman Islands alone. A more complete picture is hard to come by, in part because banks have been inconsistent about reporting their CLO holdings. The Financial Stability Board, which monitors the global financial system, warned in December that 14 percent of CLOs—more than $100 billion worth—are unaccounted for.

[From the September 2017 issue: Frank Partnoy on how index funds might be bad for the economy]

I have a checking account and a home mortgage with Wells Fargo; I decided to see how heavily invested my bank is in CLOs. I had to dig deep into the footnotes of the bank's most recent annual report, all the way to page 144. Listed there are its "available for sale" accounts. These are investments a bank plans to sell at some point, though not necessarily right away. The list contains the categories of safe assets you might expect: U.S. Treasury bonds, municipal bonds, and so on. Nestled among them is an item called "collateralized loan and other obligations"—CLOs. I ran my finger across the page to see the total for these investments, investments that Powell and Mnuchin have asserted are "outside the banking system."

The total is $29.7 billion. It is a massive number. And it is inside the bank.

George Wylesol

Since 2008, banks have kept more capital on hand to protect against a downturn, and their balance sheets are less leveraged now than they were in 2007. And not every bank has loaded up on CLOs. But in December, the Financial Stability Board estimated that, for the 30 "global systemically important banks," the average exposure to leveraged loans and CLOs was roughly 60 percent of capital on hand. Citigroup reported $20 billion worth of CLOs as of March 31; JPMorgan Chase reported $35 billion (along with an unrealized loss on CLOs of $2 billion). A couple of midsize banks—Banc of California, Stifel Financial—have CLOs totaling more than 100 percent of their capital. If the leveraged-loan market imploded, their liabilities could quickly become greater than their assets.

[Read: The pandemic's economic lessons]

How can these banks justify gambling so much money on what looks like such a risky bet? Defenders of CLOs say they aren't, in fact, a gamble—on the contrary, they are as sure a thing as you can hope for. That's because the banks mostly own the least risky, top layer of CLOs. Since the mid-1990s, the highest annual default rate on leveraged loans was about 10 percent, during the previous financial crisis. If 10 percent of a CLO's loans default, the bottom layers will suffer, but if you own the top layer, you might not even notice. Three times as many loans could default and you'd still be protected, because the lower layers would bear the loss. The securities are structured such that investors with a high tolerance for risk, like hedge funds and private-equity firms, buy the bottom layers hoping to win the lottery. The big banks settle for smaller returns and the security of the top layer. As of this writing, no AAA‑rated layer of a CLO has ever lost principal.

But that AAA rating is deceiving. The credit-rating agencies grade CLOs and their underlying debt separately. You might assume that a CLO must contain AAA debt if its top layer is rated AAA. Far from it. Remember: CLOs are made up of loans to businesses that are already in trouble.

So what sort of debt do you find in a CLO? Fitch Ratings has estimated that as of April, more than 67 percent of the 1,745 borrowers in its leveraged-loan database had a B rating. That might not sound bad, but B-rated debt is lousy debt. According to the rating agencies' definitions, a B-rated borrower's ability to repay a loan is likely to be impaired in adverse business or economic conditions. In other words, two-thirds of those leveraged loans are likely to lose money in economic conditions like the ones we're presently experiencing. According to Fitch, 15 percent of companies with leveraged loans are rated lower still, at CCC or below. These borrowers are on the cusp of default.

So while the banks restrict their CLO investments mostly to AAA‑rated layers, what they really own is exposure to tens of billions of dollars of high-risk debt. In those highly rated CLOs, you won't find a single loan rated AAA, AA, or even A.

How can the credit-rating agencies get away with this? The answer is "default correlation," a measure of the likelihood of loans defaulting at the same time. The main reason CLOs have been so safe is the same reason CDOs seemed safe before 2008. Back then, the underlying loans were risky too, and everyone knew that some of them would default. But it seemed unlikely that many of them would default at the same time. The loans were spread across the entire country and among many lenders. Real-estate markets were thought to be local, not national, and the factors that typically lead people to default on their home loans—job loss, divorce, poor health—don't all move in the same direction at the same time. Then housing prices fell 30 percent across the board and defaults skyrocketed.

[From the January/February 2013 issue: Frank Partnoy and Jesse Eisinger on not knowing what's inside America's banks]

For CLOs, the rating agencies determine the grades of the various layers by assessing both the risks of the leveraged loans and their default correlation. Even during a recession, different sectors of the economy, such as entertainment, health care, and retail, don't necessarily move in lockstep. In theory, CLOs are constructed in such a way as to minimize the chances that all of the loans will be affected by a single event or chain of events. The rating agencies award high ratings to those layers that seem sufficiently diversified across industry and geography.

Banks do not publicly report which CLOs they hold, so we can't know precisely which leveraged loans a given institution might be exposed to. But all you have to do is look at a list of leveraged borrowers to see the potential for trouble. Among the dozens of companies Fitch added to its list of "loans of concern" in April were AMC Entertainment, Bob's Discount Furniture, California Pizza Kitchen, the Container Store, Lands' End, Men's Wearhouse, and Party City. These are all companies hard hit by the sort of belt-tightening that accompanies a conventional downturn.

We are not in the midst of a conventional downturn. The two companies with the largest amount of outstanding debt on Fitch's April list were Envision Healthcare, a medical-staffing company that, among other things, helps hospitals administer emergency-room care, and Intelsat, which provides satellite broadband access. Also added to the list was Hoffmaster, which makes products used by restaurants to package food for takeout. Companies you might have expected to weather the present economic storm are among those suffering most acutely as consumers not only tighten their belts, but also redefine what they consider necessary.

Even before the pandemic struck, the credit-rating agencies may have been underestimating how vulnerable unrelated industries could be to the same economic forces. A 2017 article by John Griffin, of the University of Texas, and Jordan Nickerson, of Boston College, demonstrated that the default-correlation assumptions used to create a group of 136 CLOs should have been three to four times higher than they were, and the miscalculations resulted in much higher ratings than were warranted. "I've been concerned about AAA CLOs failing in the next crisis for several years," Griffin told me in May. "This crisis is more horrifying than I anticipated."

Under current conditions, the outlook for leveraged loans in a range of industries is truly grim. Companies such as AMC (nearly $2 billion of debt spread across 224 CLOs) and Party City ($719 million of debt in 183 CLOs) were in dire straits before social distancing. Now moviegoing and party-throwing are paused indefinitely—and may never come back to their pre-pandemic levels.

The prices of AAA-rated CLO layers tumbled in March, before the Federal Reserve announced that its additional $2.3 trillion of lending would include loans to CLOs. (The program is controversial: Is the Fed really willing to prop up CLOs when so many previously healthy small businesses are struggling to pay their debts? As of mid-May, no such loans had been made.) Far from scaring off the big banks, the tumble inspired several of them to buy low: Citigroup acquired $2 billion of AAA CLOs during the dip, which it flipped for a $100 million profit when prices bounced back. Other banks, including Bank of America, reportedly bought lower layers of CLOs in May for about 20 cents on the dollar.

[Read: How the Fed let the world blow up in 2008]

Meanwhile, loan defaults are already happening. There were more in April than ever before. Several experts told me they expect more record-breaking months this summer. It will only get worse from there.

If leveraged-loan defaults continue, how badly could they damage the larger economy? What, precisely, is the worst-case scenario?

For the moment, the financial system seems relatively stable. Banks can still pay their debts and pass their regulatory capital tests. But recall that the previous crash took more than a year to unfold. The present is analogous not to the fall of 2008, when the U.S. was in full-blown crisis, but to the summer of 2007, when some securities were going underwater but no one yet knew what the upshot would be.

What I'm about to describe is necessarily speculative, but it is rooted in the experience of the previous crash and in what we know about current bank holdings. The purpose of laying out this worst-case scenario isn't to say that it will necessarily come to pass. The purpose is to show that it could. That alone should scare us all—and inform the way we think about the next year and beyond.

Source: Based on data from Fitch Ratings. The fourth CLO depicts an aggregate leveraged-loan default rate of 78 percent.

Later this summer, leveraged-loan defaults will increase significantly as the economic effects of the pandemic fully register. Bankruptcy courts will very likely buckle under the weight of new filings. (During a two-week period in May, J.Crew, Neiman Marcus, and J. C. Penney all filed for bankruptcy.) We already know that a significant majority of the loans in CLOs have weak covenants that offer investors only minimal legal protection; in industry parlance, they are "cov lite." The holders of leveraged loans will thus be fortunate to get pennies on the dollar as companies default—nothing close to the 70 cents that has been standard in the past.

As the banks begin to feel the pain of these defaults, the public will learn that they were hardly the only institutions to bet big on CLOs. The insurance giant AIG—which had massive investments in CDOs in 2008—is now exposed to more than $9 billion in CLOs. U.S. life-insurance companies as a group in 2018 had an estimated one-fifth of their capital tied up in these same instruments. Pension funds, mutual funds, and exchange-traded funds (popular among retail investors) are also heavily invested in leveraged loans and CLOs.

The banks themselves may reveal that their CLO investments are larger than was previously understood. In fact, we're already seeing this happen. On May 5, Wells Fargo disclosed $7.7 billion worth of CLOs in a different corner of its balance sheet than the $29.7 billion I'd found in its annual report. As defaults pile up, the Mnuchin-Powell view that leveraged loans can't harm the financial system will be exposed as wishful thinking.

Thus far, I've focused on CLOs because they are the most troubling assets held by the banks. But they are also emblematic of other complex and artificial products that banks have stashed on—and off—their balance sheets. Later this year, banks may very well report quarterly losses that are much worse than anticipated. The details will include a dizzying array of transactions that will recall not only the housing crisis, but the Enron scandal of the early 2000s. Remember all those subsidiaries Enron created (many of them infamously named after Star Warscharacters) to keep risky bets off the energy firm's financial statements? The big banks use similar structures, called "variable interest entities"—companies established largely to hold off-the-books positions. Wells Fargo has more than $1 trillion of VIE assets, about which we currently know very little, because reporting requirements are opaque. But one popular investment held in VIEs is securities backed by commercial mortgages, such as loans to shopping malls and office parks—two categories of borrowers experiencing severe strain as a result of the pandemic.

[Jesse Eisinger: We're replicating the mistakes of 2008]

The early losses from CLOs will not on their own erase the capital reserves required by Dodd-Frank. And some of the most irresponsible gambles from the last crisis—the speculative derivatives and credit-default swaps you may remember reading about in 2008—are less common today, experts told me. But the losses from CLOs, combined with losses from other troubled assets like those commercial-mortgage-backed securities, will lead to serious deficiencies in capital. Meanwhile, the same economic forces buffeting CLOs will hit other parts of the banks' balance sheets hard; as the recession drags on, their traditional sources of revenue will also dry up. For some, the erosion of capital could approach the levels Lehman Brothers and Citigroup suffered in 2008. Banks with insufficient cash reserves will be forced to sell assets into a dour market, and the proceeds will be dismal. The prices of leveraged loans, and by extension CLOs, will spiral downward.

George Wylesol

You can perhaps guess much of the rest: At some point, rumors will circulate that one major bank is near collapse. Overnight lending, which keeps the American economy running, will seize up. The Federal Reserve will try to arrange a bank bailout. All of that happened last time, too.

[From the September 2015 issue: How Wall Street's bankers stayed out of jail]

But this time, the bailout proposal will likely face stiffer opposition, from both parties. Since 2008, populists on the left and the right in American politics have grown suspicious of handouts to the big banks. Already irate that banks were inadequately punished for their malfeasance leading up to the last crash, critics will be outraged to learn that they so egregiously flouted the spirit of the post-2008 reforms. Some members of Congress will question whether the Federal Reserve has the authority to buy risky investments to prop up the financial sector, as it did in 2008. (Dodd-Frank limited the Fed's ability to target specific companies, and precluded loans to failing or insolvent institutions.) Government officials will hold frantic meetings, but to no avail. The faltering bank will fail, with others lined up behind it.

And then, sometime in the next year, we will all stare into the financial abyss. At that point, we will be well beyond the scope of the previous recession, and we will have either exhausted the remedies that spared the system last time or found that they won't work this time around. What then?

Until recently, at least, the U.S. was rightly focused on finding ways to emerge from the coronavirus pandemic that prioritize the health of American citizens. And economic health cannot be restored until people feel safe going about their daily business. But health risks and economic risks must be considered together. In calculating the risks of reopening the economy, we must understand the true costs of remaining closed. At some point, they will become more than the country can bear.

The financial sector isn't like other sectors. If it fails, fundamental aspects of modern life could fail with it. We could lose the ability to get loans to buy a house or a car, or to pay for college. Without reliable credit, many Americans might struggle to pay for their daily needs. This is why, in 2008, then–Treasury Secretary Henry Paulson went so far as to get down on one knee to beg Nancy Pelosi for her help sparing the system. He understood the alternative.

[From the June 2012 issue: How we got the crash wrong]

It is a distasteful fact that the present situation is so dire in part because the banks fell right back into bad behavior after the last crash—taking too many risks, hiding debt in complex instruments and off-balance-sheet entities, and generally exploiting loopholes in laws intended to rein in their greed. Sparing them for a second time this century will be that much harder.

If we muster the political will to do so—or if we avert the worst possible outcomes in this precarious time—it will be imperative for the U.S. government to impose reforms stringent enough to head off the next crisis. We've seen how banks respond to stern reprimands and modest reform. This time, regulators might need to dismantle the system as we know it. Banks should play a much simpler role in the new economy, making lending decisions themselves instead of farming them out to credit-rating agencies. They should steer clear of whatever newfangled security might replace the CLO. To prevent another crisis, we also need far more transparency, so we can see when banks give in to temptation. A bank shouldn't be able to keep $1 trillion worth of assets off its books.

If we do manage to make it through the next year without waking up to a collapse, we must find ways to prevent the big banks from going all in on bets they can't afford to lose. Their luck—and ours—will at some point run out.

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Will the Jobs Report Destroy Jobs?

Will the Jobs Report Destroy Jobs?
https://www.nytimes.com/2020/06/08/opinion/coronavirus-jobs-report.html

Paul Krugman:

Text only

On Friday the Bureau of Labor Statistics released its report on the employment situation in May. The report was much better than most economists expected, showing a large gain in jobs and a fall in the unemployment rate.

The thing is, a good jobs report may be bad for future policy. Why? Because the U.S. economy is still very much on life support. And a bit of good news is all too likely to encourage the usual suspects to end that life support too soon, with dire effects just a few months from now.

Before I get there, let me address one widespread concern. Were the employment numbers rigged?

No, they weren't. No doubt the Trump administration, which lies about everything, would fake the numbers if it could. And the Trump-appointed head of the Bureau of Labor Statistics is a Heritage Foundation hack, with a long history of making ludicrous claims about the effects of tax cuts, the burden of the estate tax, and more.

But the jobs report is prepared by a large, professional staff that takes its responsibilities seriously. And it contains much more than the headline numbers. It's not the kind of thing that could be altered with a Sharpie, and any effort to fake it would have set off multiple alarm bells.

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In fact, the overall picture painted by the employment report makes considerable sense. It shows a partial bounce back of contact-intensive sectors like restaurants and dentists' offices that were largely shut down by social distancing; these are exactly the things you'd expect to show some growth as social distancing is relaxed.

So the good news, despite statistical problems created by the unique economic situation — problems the bureau acknowledges — is real. But it's also very limited.

So far, employment numbers in this time of Covid-19 look like a fishhook: a huge decline followed by a much smaller upturn. Unemployment is still higher than it was for most of the Great Depression. And while unemployment over all fell in May, it rose slightly for black workers.

The saving graces of the situation, such as they are, are that (a) while there is immense economic hardship, it's not nearly as severe as you might have expected given Depression-level unemployment and (b) the employment slump has so far been mostly limited to contact-intensive sectors. That is, the crisis hasn't — yet — spilled over into a crash of the economy as a whole.

Both these saving graces, however, are the result of emergency aid — the safety net hurriedly put in place in late March, largely at Democrats' insistence. This safety net alleviated hardship while allowing the unemployed to maintain spending and encouraging businesses to maintain their payrolls.

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And unless Congress and the White House act, that safety net will be yanked away by August.

More specifically, enhanced unemployment benefits, which are both more generous than standard benefits and cover more people, have been a huge source of support despite the difficulties many have faced in getting enrolled. Among other things, those benefits have — temporarily — made it possible for millions of families to keep paying rent on their homes. But those benefits will expire July 31.

And the Paycheck Protection Program, which offers small businesses loans that can be converted into grants if they're used to maintain payroll, is already out of money, and the job support lasts only eight weeks.

So two of the main things sustaining the economy are set to disappear. At the same time, Congress has yet to provide major relief to state and local governments, which are facing a huge fiscal crisis and have already laid off a million and a half workers; there will soon be many more layoffs unless aid comes soon.

In other words, we're facing probable disaster in the near future unless Congress acts. But here's the thing: Republicans just hate helping the unemployed, hate aiding states, in fact hate any kind of disaster response other than tax cuts. And the uptick in jobs gives them an excuse to indulge their hatred.

House Democrats have passed the HEROES Act, a very good bill extending and improving economic relief. But Friday's employment report encourages Republicans to revert to type; they'll almost surely block any significant further relief until or unless the economic situation becomes even more dire than it is.

It also encourages them to push for more opening, more relaxation of social distancing, despite the fact that Covid-19 is nowhere near under control and there are early indications that the pandemic may be roaring back to life as states reopen.

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So it's all too possible that we'll see an ugly scene in the late summer and early fall — more government layoffs and widespread job losses in industries that have so far been relatively unscathed as desperate workers slash spending, all against the backdrop of a resurgence in hospitalizations and deaths. And the May uptick in jobs makes that scene more likely, because it promotes more wishful thinking from the people who insisted a few months ago that Covid-19 would go away and posed no threat to the economy.

Maybe we'll be lucky and the bad things I'm worried about won't actually materialize. But hoping for the best isn't a plan.

The Times is committed to publishing a diversity of letters to the editor. We'd like to hear what you think about this or any of our articles. Here are some tips. And here's our email: letters@nytimes.com.

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Paul Krugman has been an Opinion columnist since 2000 and is also a Distinguished Professor at the City University of New York Graduate Center. He won the 2008 Nobel Memorial Prize in Economic Sciences for his work on international trade and economic geography. @PaulKrugman

--

John Case
Harpers Ferry, WV

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Why Making Economic Predictions Now is Useless [feedly]

I love Branko. The Eeyore of economics. Call him the pessimist, if you will: Lately his analysis is accurate: there are more answers under your feet, than on the ridge in the distance.

Why Making Economic Predictions Now is Useless
https://www.globalpolicyjournal.com/blog/03/06/2020/why-making-economic-predictions-now-useless

Branko Milanovic on the limits of our ability to predict the post-pandemic future. 

In one of his poems, Constantine Cavafy distinguished, in the art of foretelling future events, three groups: men who are able to see what exists now, Gods who alone know the future, and wise men who perceive "what is just about to happen":

 

Ordinary mortals know what's happening now,
the Gods know what the future holds
because they alone are totally enlightened.
Wise men are aware of future things
just about to happen.

 

We all aspire to be the wise men and women who can see the immediate future (Cavafy does not believe that even wise men can see the distant future) and the demand for such seers is high when the times are troubled as they are now. Economists are often in particular demand because they claim they can tell the shape of future demand and supply, unemployment and growth. To do that they resort to models that through behavioral equations and identities, show the future evolution of key variables and pretend to predict how long the depression will last and how quick and strong the recovery will be.

 

My argument is that such models are useless under today's conditions. There are several reasons for that.

 

All economic models, by definition, take the economy as a self-contained system which is exposed  to economic shocks, whether in form of more or less relaxed monetary policy, higher or lower taxes, higher or lower minimum wage etc. They cannot by their very nature take into account extra-economic discrete shocks. Such shocks are simply not predictable. One cannot tell today whether China might invade Hong Kong, or whether Trump might ban all imports from China, or whether the race riots in the US can continue for months, or similar riots break up elsewhere in the world (Latin America, Africa, Indonesia) or even if the US may not end this year with a military government in charge.

 

All of these social and political shocks that I have listed are due to, or have been exacerbated, by the pandemic. There is little doubt that the "most important relationship" (to quote Henry Kissinger), the one between China and the United States, has significantly deteriorated because of the pandemic. Some in the United States see the pandemic as intentionally engineered by China to weaken the US economy and its president. There is also little doubt that the differential reactions, between the countries, in countering the pandemic have either destabilized domestic political situations (Brazil, United States, Hungary, Great Britain) or changed the relative correlation of global economic and political power (most notably between the US and China).

 

It is therefore utterly wrong to believe that history does not matter and that the social and political changes wrought by the pandemic can be ignored so that, if the pandemic is miraculously over in December 2020, December 2020 will be just like December 2019 with a twelve-month lag. Not at all: even if the pandemic is over by then, December 2020 will be entirely different than  December 2019, and the political forces that these twelve months will have set in motion—and which we currently cannot predict—will fundamentally affect how economies behave in the future.

 

With covid-19 we are facing a situation that (with the exception of two world wars) has no precedent. This, in two respects: the global nature of the problem, and its open-ended,  uncontrollable nature. This pandemic, unlike the most recent other pandemics (SARS, MERS, swine flu) is truly global. It has affected almost all territories in the world. Compared to the previous economic crises, its global nature also stands out. Whether we think of the debt crisis of the 1980s, the crisis faced by post-communist economies in the 1990s, the 1998 Asian financial crisis, or even the Great Recession, they were all regionally contained crises. To be sure, there were spillovers, but we could essentially, in our assessment or prediction of global affairs, place the countries that were most affected (so to speak)  between the brackets and look at the rest of the world using the standard economic approach. We cannot do that now when the entire world is affected.

 

The second feature of today's situation is its open-ended nature: no one knows when the pandemic will end, how it will affect different countries, and even whether thinking of a sharp and clear end to the pandemic makes sense at all. In fact, we may live for years with stop-and-go policies where movements to open up the economy are followed by increased flare-ups of the infection, and then new closures and lockdowns. We also have no idea not only what countries and continents would be hit next by the pandemic and whether there would be a second wave, but we cannot at all predict how successful individual countries will be in curbing it.  No one could have predicted that a country with the highest health expenditures per capita in the world, and with hundreds of universities that sport public health  departments and publish probably thousands of scientific papers annually, would totally fail in the control of the pandemic and have the highest number of cases and fatalities. Similarly very few would have predicted that the UK, with its fabled NHS, would lead Europe in the number of deaths. Or that modestly wealthy Vietnam would have zero deaths from the pandemic.

 

Similar unknowns abound. These are not one-level unknowns, but unknowns at three or four dimensions.  The future geographic spread of the pandemic is unknown (will it severely hit Africa?), the reactions of countries, as we have just seen, are equally impossible to predict (how successful may be India? Will China stop the second wave?), and perhaps most importantly the social and political consequences are unknown. They may turn out to be, as I argued in March 2020 article in Foreign Affairs, the most nefarious long-term product of the pandemic with obvious effects on global recovery.

 

There are only a few things—the same ones that I  mentioned in mid-March—that we can, with some dose of confidence, predict:

 

1. aggravation of the conflict between the US and China with China being "upgraded" to the status of "challenger";

2. tendency toward greater state role in many countries;

3. set-back for globalization, in terms of ability of people to travel internationally and capital to move across borders (driven in part by political uncertainties); and

4. increasing political instability both internally and globally.

 

This crisis is like "the warrior that leaves devastation in its stead", and to make projections assuming that none of that devastation has occurred, and even if has occurred, that it will have no impact on future functioning of the economy is simply wrong. We  have to admit that there are limits to our ability to tell the future: we are not "Gods that are totally enlightened".  

 

 

 

 

This first appeared on Branko's blog 

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