* Princeton University Press (2023).
All rights reserved.
The Covid-19 pandemic has been a catastrophe in so many ways for America, killing over a million, ripping the fabric of family life and revealing how many Americans trust neither science nor government to help them in their hour of need. But there’s a silver lining — well, a lining not totally devoid of light.
Scott Fulford, a Princeton PhD who taught at Boston College before joining the Consumer Financial Protection Bureau as a senior economist,1 is the author of The Pandemic Paradox: How the COVID Crisis Made Americans More Financially Secure.* Fulford explains that Washington rose to the immense challenge of containing the financial consequences of the hardest-hit households. Almost as important, families discovered they had some agency over their own destinies, asserting their independence over how and where they worked and how they protected their financial security. The chapter excerpted here tells the story with clarity and compassion.
— Peter Passell
1 The views expressed here are those of the author and do not necessarily represent the views of the CFPB or the United States.
Published July 24, 2023
The pandemic allowed us to see what happens ...
• when we have a more generous social support system, even if some people were left behind.
• when we save more.
• when we have the chance to rethink how and where we work.
• when we return some power back to labor, at least briefly.
What happens is that far fewer people struggle to pay their bills, and far fewer are evicted. Financial health improves for most people, and more of us have the resources and confidence to start businesses.
How could so much good come out of a pandemic that killed more than a million of us? That is the pandemic paradox. Much of what we learned could have been learned without a pandemic, but it took a pandemic to reveal what is possible.
The pandemic showed that we are still capable of responding to massive threats, making individual and collective sacrifices for the greater good. Other huge societal threats exist, from climate change to inequality. If we can develop a vaccine over a weekend, test and deploy it in less than a year, spend $5 trillion for pandemic relief and alter our lives completely around a common goal, what else could we do?
The overall improvement in our financia lives does not mean we are better off because of the pandemic. That $5 trillion is a lot of money even for a country as wealthy as the U.S., and there are costs to spending it rang ing from increased inflation to reduced money for other priorities.
Government transfers got money to people and kept problems from ballooning. But many Americans also vastly reduced their personal spending and limited their social lives to reduce the virus’ spread. To take a personal example, my parents did not visit their grandchildren for nearly a year. Sure, they saved money by not traveling, but they would have rather held my wiggling one- (and then two-) year-old. They will not get those years with my family back. Many families have similar stories.
And it is important to remember the people left behind along with those who died. Economic Impact Payments did not make up for increased intimate partner violence during lockdowns. Nor will they compensate the children who lost nearly half a year of learning. Instead, we should think of our improved finances as mitigating a disaster, a ray of light through the dark storm. Perhaps we can use that light to find a way forward that leaves us more secure, but does not require a pandemic to make it happen.
Often, when we come across a seeming paradox, we discover that previous assumptions about what was possible were wrong. The pandemic forcibly and unpleasantly pushed us to do new things and try new policies. We learned a great deal about ourselves, about our society and about how to conduct policy for the common good.
We Learned We Could Spend Less and Save More
Americans’ financial lives improved for two main reasons. First, they spent less, at least for a while. And second, surprisingly effective economic policy got money to most people who would have otherwise suffered.
Americans’ savings were low before the pandemic. Few people had the savings or ability to borrow to deal with an income shock. And importantly, most Americans did not prioritize savings. When surveys ask households how much they want for “emergencies or other things that may come up,” the median household wants only a little over a month of income and 40 percent want less than a month. And before the pandemic, most households, except the poorest, had the emergency savings they wanted. They just did not want very much.
Americans save less than they used to, although measuring how much less and why is the subject of continuing debate. The personal savings rate averaged 11 percent in the 1960s. From there it fell slowly, averaging 4.4 percent from 2001 through 2008, before recovering after the Great Recession to 7.2 percent from 2010 through 2019.
During the pandemic, personal savings spiked, averaging 15 percent from March 2020 through November 2021. The amount in savings and checking accounts rose sharply for everyone, even for people with low incomes. Credit card debt was way down — paying off debt is also saving. By any measure, then, Americans put more into savings during the pandemic than they had at any time in the recent past.
Americans saved more because they spent less but their incomes did not go down. Spending declined sharply in March, April and May 2020. After that, people started buying again, but didn’t return to pre-pandemic levels until the end of the year. During this time, people put the difference between their income and their spending into savings, which accumulated substantially. Government policies such as unemployment insurance were central here because they kept even struggling families’ incomes from declining.
Saving is hard. It requires not spending today for some future need that may not happen. So why deny yourself and your family today?
Because saving also protects you against starting down a negative cycle into poverty. Paying down your credit card debt saves money on interest payments. Having some emergency savings might help fix the car, so you can get to your job when your car breaks down. The hard truth is that savings is often much more valuable if you are poor because it helps protect against the extra costs that come from not having money when you need it most.
If we can improve financial wellbeing during a pandemic, why can’t we improve it when unemployment is not widespread?
The pandemic showed us that we can drastically reduce our spending. Not everyone can, of course. People whose income largely goes to housing, for example, have limited options. And many expenses are unavoidable — for example, the biggest reason people had difficulty paying expenses was unexpected medical bills.
But the fact that spending declined during the pandemic shows that many Americans spend a lot on wants, like meals out and travel, as opposed to needs. Spending on wants made life more enjoyable, but also left many Americans financially exposed.
The financial advice industry often uses coffee to illustrate how small choices add up. As Suze Orman, who writes financial advice books, puts it with characteristic directness, when you buy your coffee out, you are “peeing” your money away.
The typical story goes like this: if you just stopped buying that cup a day, you would be able to accumulate emergency funds. Or, to get even larger numbers, a financial adviser might point out that if you invested that money, in 30 years you would have, say, $100,000. Wouldn’t you rather have $100,000 to retire with than that daily cup?
Elites have long judged the eating habits of the poor, often with little justification. As the new immigrants with their strange tastes flooded New York starting around 1890, a movement emerged to educate these new Americans, particularly the Italians, on suitable eating. Schools instructed children in “proper” nutrition, for example. While the movement pretended to have scientific backing, its advice was clearly moralistic and nationalistic.
Immigrants were taught that pickles, tomatoes and peppers harmed digestion. Instead, the movement sought to teach these new immigrants to eat a supposedly healthier diet of porridge for breakfast and meat, beans, milk, potatoes and codfish balls the rest of the day. The crusade eventually fizzled, and we benefited from the Italian-American hybrid cuisine that Italy developed, including pizza and pasta and meatballs. Today’s lattes and avocado toast are last century’s pickles and tomatoes.
During the pandemic, many Americans stopped going out for coffee as much. One estimate suggests that the cups made at home grew from 73 percent to 81 percent of total consumption during the pandemic. This switch captures many pandemic trends:
• The average American was less social.
• People learned to do things themselves.
• Many reduced their outside spending, but they bought a lot of physical goods to meet new at-home needs.
Despite the financial advice industry’s moralistic tone and often absurd view that financial security is all about personal responsibility, the pandemic showed that it does sometimes have a point. When many Americans stopped going out for coffee (and the movies and so many other things), they had fewer financial troubles and were able to accumulate the capital to start businesses.
Many of the impediments to saving are outside our control, but not all of them: the pandemic showed that many Americans can cut back on spending if they choose to.
To continue the coffee example: the thing about coffee is that you can make it at home. And without the commute, many people had more time to do so. It requires a bit more effort. It probably does not taste as good (likely because you add a reasonable amount of cream and sugar rather than buying a coffeeflavored milkshake). But while coffee is not the most important expense Americans reduced, it hints at a broader shift in priorities. In at least one survey, most people who made the switch to brewing at home said they expected to continue.
The pandemic showed many Americans that they can make different choices about spending. Nearly 20 percent of households earning $100,000 or more had difficulty paying a bill or expense in 2019. But for the most part, these high-income households had fewer financial difficulties during the pandemic because they were saving more, not because of government aid. And every little bit more saving adds up and can help stop the vicious cycles from starting.
There are hints, moreover, that the change will endure. Half of respondents to one survey in 2021 said that having an emergency fund had become a greater priority because of the pandemic. And many reported wanting to stick with their new savings habits.
Most obviously, the pandemic showed us what happens when unemployment insurance becomes more generous: getting fired is no longer a financial disaster.
We Learned That Better Unemployment Insurance Can Improve Lives
Financial well-being went up during the pandemic despite the economic disruptions and widespread unemployment. A series of policies channeled funds to almost everyone, including small businesses and the unemployed. In fact, unemployed people’s average financial circumstances improved more than that of people whose families did not face unemployment.
While spending cuts were responsible for the financial improvement of people who kept their jobs and did not face other financial disruptions, it was these pandemic policies that kept others from harm. Indeed, the pandemic exposed the flaw in assuming there is nothing we could do about widespread financial suffering. If we can improve financial well-being during a pandemic, why can’t we improve it when unemployment is not widespread?
Most obviously, the pandemic showed us what happens when unemployment insurance becomes more generous: getting fired is no longer a financial disaster. So why did most states limit UI benefits to half or less of pre-unemployment income before the pandemic? The standard explanation is that insurance makes it less painful to be unemployed, so more insurance may decrease the incentive to look for a new job.
But during a pandemic (or any big recession), more generous UI doesn’t materially affect job searches because few jobs are available. What about the impact during times when jobs are more available?
While it is true that overly generous UI might decrease efforts to find jobs, most American states offer far too little regular unemployment insurance. Although there is an active debate in economics, the current range of evidence is that UI that replaces more than half, but not all, of income provides the right balance. Such unemployment insurance would be more generous than that available in most states but somewhat less generous than the CARES Act, which replaced more than lost income for most recipients.
In addition to more liberal benefits, it makes sense to provide benefits for longer than the typical 26 weeks. Research from the Great Recession and the pandemic suggests that cutting off UI has only a very minor effect on pushing people to take jobs faster.
The pandemic experience also showed that better UI can make the labor market as a whole work better. More generous insurance not only improved recipients’ lives, it helped transform the labor market by shifting power to labor. By making everyone, particularly the unemployed, less financially strained, hefty UI and other pandemic policies showed that a financially healthy workforce demands better pay and jobs. No longer willing to take whatever pay and working conditions an employer offers, workers demanded better.
The Federal Reserve’s decision to keep interest rates at rock-bottom until March 2022 meant that the federal government paid very little interest on new debt. And inflation meant that the real value of the accumulated debt was diminishing.
A hidden tragedy during the pandemic was that poorly administered UI programs in many states contributed to fraud and delayed delivering help to people. Many states could not provide benefits with acceptable promptness, harming households just when they needed the money most.
Moreover, antiquated state computer systems could not handle changes in who got how much, with profoundly unfair consequences. The CARES Act provided a flat $600 weekly increase in unemployment benefits to everyone in addition to state benefits. This situation was profoundly unfair for essential workers who often would have earned more had they been fired. A fairer policy might have instead replaced a larger share of the unemployed’s pre-pandemic income — perhaps 75 percent. But many state systems could not handle this type of policy change, so we had to settle for a flawed alternative.
The pandemic also showed the value of automatic and speedy policy. Unemployment insurance is often called an “automatic stabilizer” because it automatically injects more spending power into the economy during a downturn, keeping recessions from becoming deeper. No need to have a special session of Congress or worry that elderly senators might come down with Covid-19 (yes, that was a concern during CARES Act negotiations).
The pandemic showed not just UI’s importance, but how to make it better.
We Learned Just Throwing Money around Is Not the Most Effective Policy
While expanded UI was key to reducing financial suffering, we spent nearly $4.5 trillion on other stuff as well. Was it worth it? U.S. GDP was around $21 trillion in 2019. Pandemic federal spending in the two years following March 2022 added up to something like $5.2 trillion, although calculating exactly what was spent within two years is difficult.
Spending this large a share of GDP had never happened outside wartime. But arguably we were at war against an existential threat, so war may be the appropriate comparison. Putting these numbers in context, the U.S. spent around $3.4 trillion on the invasion of Iraq. Other estimates that include the broader costs to the U.S. economy — from more expensive oil and higher interest rates that reduced productive investments — are even larger.
The key difference between wartime spending and pandemic spending is that war is intentionally destructive. When we build and fire a missile, the value of the missile literally goes up in smoke along with whatever the missile hits. In war, we spend money to achieve some policy goal, but most of the money spent is useless beyond that goal.
The federal government spent around $500 billion on the equivalent of this sort of “war” spending during the pandemic. On testing. On developing and deploying vaccines. On payments to hospitals and nursing homes to provide Covid-19 care. This spending would not have been valuable to society absent a pandemic. But the rest of pandemic spending was for economic purposes, mostly through transfers from the federal government.
In the giant accounting ledger for the entire economy, for every dollar increase in federal debt, there was approximately a dollar increase in small business assets, household income, or state and local government balance sheets. But not all redistribution increases social welfare. Redistribution during an economic downturn can have big benefits, by helping people spend more than they otherwise would and by keeping good businesses that cannot borrow from going under. Redistribution to the wealthy or to businesses that would not have closed has few of these benefits but all the costs.
So the value of most pandemic spending is the value of redistribution during a pandemic. In these terms, there are broadly two ways to evaluate pandemic spending. First, did it relieve suffering? For example, unemployment benefits kept many families from suffering financially. Second, did it increase growth? For example, giving money to the unemployed who might otherwise have cut their spending helped keep demand high, so it made the recession both shorter and shallower. If a policy prevents an economic collapse, that policy likely pays for itself.
Against these benefits, there is the extra cost of federal debt. In the short term, these costs were nearly zero and perhaps even below zero. The Federal Reserve’s decision to keep interest rates at rock-bottom until March 2022 meant that the federal government paid very little interest on new debt. And inflation meant that the real value of the accumulated debt was diminishing.
In the long term, however, interest rates will rise and future taxpayers will need to service the debt. The debt may thus crowd out other investments, lead to higher taxes, or reduce government transfers in the future. And when the next crisis hits, perhaps the federal government will have less ability to respond. There are real costs to spending, although they are not easy to quantify and may not be as large as the spending itself.
Whether a given pandemic program was worth it thus depends on how you compare the costs with the benefits and what you think would have happened without the program. Weighing these factors is hard. But taken as a whole, the pandemic paradox surely holds: despite a massive recession, household balance sheets improved, financial suffering was largely averted, and the U.S. economy recovered very rapidly. Yet we could have achieved those outcomes with far less spending, perhaps causing less inflation as the pandemic wound down.
Many of the CARES Act policies were put together rapidly, but later policies had time to consider better approaches, so they have no such excuse. How do the pandemic policies compare?
American Rescue Plan Act funds were supporting new spending, not preventing cuts. They were, effectively, a transfer from future federal taxpayers to current state taxpayers. The programs these funds support may increase growth by facilitating productive projects that states would not have otherwise undertaken.
Expanded unemployment insurance ($680 billion). Pandemic policy’s star is undoubtedly expanded UI. It alleviated suffering and, because it was targeted at individuals in difficulty, did so far more effectively per dollar spent than untargeted programs like the Economic Impact Payments. The federal expansion was key: regular unemployment benefits would not have protected people the same way. And by providing funds to households that would have cut their spending the most, expanded UI also had a large impact on growth.
Paycheck Protection Program (approximate cost: $835 billion). The program protected few paychecks. Instead, it transferred funds to nearly all small business owners, many of whom had high incomes. It was thus a massive and regressive redistribution. On the plus side, because many very small business owners could not have borrowed on their own, the Paycheck Protection Program did prevent some small business failures, which would have deepened the recession.
How many would have shut down absent the program is difficult to estimate. But it could likely have achieved nearly the same effect at less than half the cost by targeting much smaller businesses. And while the initial $540 billion in March and April 2020 was distributed during lockdowns and the severe downturn, during which a “whatever it takes” approach was perhaps reasonable, the additional $285 billion in the December 2020 relief bill was dispersed in a growing economy and after research had illuminated the program’s flaws. Again, though, there was a plus side: the later money was more likely to go to the smallest businesses and to owners of color, so it made the massive redistribution fairer.
Economic Impact Payments ($817 billion total; $141 billion in the CARES Act, $276 billion in the December 2020 relief bill and $400 billion in the American Rescue Plan Act). It is worth dividing up the Economic Impact Payments from the different bills. Individual Americans benefited from the CARES Act’s Economic Impact Payments. The money filled in gaps in other programs and, because it went out quickly, helped tide over many families while dysfunctional state unemployment systems stumbled.
But the money also went to many families that were not suffering. Later payments in the December 2020 relief bill and the American Rescue Plan Act filled in fewer gaps. And by 2021, the economy was in trouble not from a lack of demand as in other recessions, but from difficulty in supplying goods and services. So while all of the payments provided some stimulus, the later payments may have provided too much, possibly contributing to inflation. However, the Economic Impact Payments were also a massive redistribution toward lower-income Americans whose finances improved markedly.
State and local funding ($752 billion total; $244 billion in the American Rescue Plan Act, $191 billion in education assistance and $150 billion to state and local governments in the CARES Act, plus smaller allocations that add up to $167 billion). State and local governments generally cannot spend more than they take in except for specific bond issues. Thus, after revenues fell precipitously during the Great Recession, they were forced to cut spending and employment severely. These cuts slowed the recovery. So in the initial months of the pandemic, there was good reason to fear that states and localities would again have to cut spending and employment.
Yet all of the income support to the unemployed and to small businesses, along with the Economic Impact Payments meant that state tax revenues barely fell. As a result, many of the transfers, especially the March 2021 American Rescue Plan Act funds, were supporting new spending, not preventing cuts. They were, effectively, a transfer from future federal taxpayers to current state taxpayers.
The programs these funds support may increase growth by facilitating productive projects that states would not have otherwise undertaken. For example, school funding may help close the pandemic learning loss. Whether these funds relieve suffering or increase growth enough to outweigh the costs depends on what they are used for.
Health spending ($511 billion, including $158 billion to hospitals and nursing homes, $97 billion for testing, $58 billion for vaccines, and many other provisions). This spending was the closest to “war” spending — money to combat a new virus directly rather than for income support. While some of it was wasted, it surely saved lives and helped to keep struggling hospitals afloat.
Tax cuts ($391 billion total, including $193 billion in business tax cuts in the CARES Act). The largest tax provisions allowed mostly very rich individuals to reduce their taxes, with little obvious impact on growth or individual well-being. Other provisions perhaps had larger impacts by exempting some unemployment benefits from taxation.
Social spending ($381 billion total, including $71 billion for nutrition, $62 billion for child and family services, $39 billion to defer student loans, $106 billion to expand the child tax credit for six months, $62 billion on rental assistance and housing, and $41 billion to farmers). Much of this money went to struggling families, so it relieved substantial suffering. Individual programs, such as nutrition spending for school meals, the expanded child tax credit and rental assistance, helped in profound ways that suggest relieving financial suffering need not be very expensive. And because these transfers went to families likely to spend it, it may have speeded economic recovery.
Other spending ($794 billion total, including $565 billion in loans and direct support for specific industries and $229 billion for many industries including disaster support, transportation, telecommunications, national defense and higher education). That an additional $794 billion, divided into many different programs, is mostly a footnote illustrates the massive scale of pandemic spending. Much of this money was in the form of loans, so the direct costs were perhaps only $200 billion. Some of this spending was likely unnecessary, while other spending supported necessary pandemic adjustments to existing programs.
Federal Reserve asset purchases ($4.2 trillion). By its size, the largest pandemic response was the Fed’s purchase of securities from many markets, expanding both its assets and liabilities by something like $4 trillion. Many of these purchases were supported by modest outlays from Treasury and the CARES Act to cover any losses, so the direct costs of these programs to the federal budget were small.
Looking at pandemic policies in historical perspective, public policy was extraordinarily effective at preventing financial hardship partly because we had learned from mistakes made during the Great Recession and the Great Depression of the 1930s.
As of spring 2022, the Federal Reserve had no losses and will send any profits (from interest received on loans) back to Treasury. This spending may have headed off another financial crisis, so its macroeconomic effects are potentially large. On the other hand, we do not yet know the impact of having the Fed suddenly become one of the biggest owners of assets ranging from mortgage-backed securities to municipal bonds, or how the Fed will extract itself from these massive positions.
Unlike in previous recessions, the pandemic recession showed what happens when we perhaps do too much rather than too little. Of course, the pandemic-induced recession was also different from other recessions. Yet perhaps the biggest lesson, which also makes it difficult to evaluate individual programs, is that the programs supported one another.
For example, because we had sufficient UI, household spending largely held up. So state and local revenues did not decline much (if at all) and businesses that could operate safely had more customers. With the income support, fewer people were at risk of eviction and landlords largely got the rent. And loan defaults were low, making a financial crisis less likely. In hindsight, with sufficient income support (particularly for the unemployed) other programs become less vital. Yet it is worth remembering the disastrous response to prior recessions to understand the costs of doing too little.
We Learned That We Do Not
Have to Repeat past Policy Mistakes
The defining characteristic of the policy response to the 2008 financial crisis was timidity. Monetary policy that came in only after markets were already spiraling. Too little stimulus. Too little help for regular people.
True, some people had made poor choices in home purchases at the height of the market. But AIG, one of the largest insurance companies in the world, had also made some stupid bets. AIG was deemed “too big to fail,” so it was bailed out (and, in turn, the banks to which it owed money were bailed out). Individual Americans were not “too big to fail,” even collectively, it seems. So many Americans suffered through house foreclosures and years of unemployment.
During the pandemic, we learned that a large immediate policy response can have a giant impact on people’s lives. Pandemic aid was almost triple the stimulus enacted in February 2009, and was passed in the first three weeks of the pandemic. Then another aid package was passed just nine months later. Then another three months after that. In total, the fiscal response to the pandemic was more than five times the response to the Great Recession. And rather than the insufficient programs that helped relatively few homeowners struggling with their mortgages following the 2008 financial crisis, we had effective and widespread mortgage forbearance and an eviction moratorium.
Stepping back to look at pandemic policies in historical perspective, public policy was extraordinarily effective at preventing financial hardship partly because we had learned from mistakes made during the Great Recession and more notoriously, the Great Depression of the 1930s.
It is possible that pandemic policies could have been even more effective — and more cost effective, of course. And previous recessions were different in many ways, so we should treat comparisons carefully. Among the most important differences, we know what caused the pandemic economic decline. It is far easier to treat a patient when you know the disease.
The Great Recession starting in 2008 was not nearly as deep as the short pandemicinduced economic coma. But thanks in part to the tepid policy response, the Great Recession’s negative effects lasted for years. The most important work combatting the Great Recession was done by the Federal Reserve as it struggled to keep the financial crisis in check. It is thus a bit hard to know the appropriate measure of success. Fed policies did keep the worst financial crisis since the Great Depression from becoming a depression. But the downturn was so bad that it got its own name — the Great Recession — which is not exactly a mark of success.
In contrast to its slow response in 2008, the Fed quickly deployed tools used during the Great Recession starting in March 2020. Stuttering financial markets soon smoothed, perhaps because of Fed policies, or perhaps they would have smoothed all by themselves. But markets knew the Fed was ready and willing, which has a calming effect all on its own.
Affordable housing and child care were problems before the pandemic, but the crisis showed how deep these problems run. Housing is the largest household expense — about a third of total spending — and has only gotten pricier.
Most estimates suggest that federal spending also helped GDP decline less than it would have otherwise during the Great Recession. But while it did bail out banks and insurers whose investments went bad, fiscal policy was distinctly ineffective at preventing widespread misery. That’s in part because, as noted earlier, the one stimulus bill during the Great Recession was a small fraction of pandemic spending as a percentage of GDP.
While peak unemployment was higher during the pandemic, it did not last long. By contrast, unemployment close to 10 percent lasted for years following 2008. Yet the only direct aid to families was a short extension of unemployment insurance eligibility, along with a token $400 individual tax cut. Millions of people lost their homes partly because policies channeled huge amounts of money to banks but did not force them to modify mortgage- loan terms. During the pandemic, the CARES Act required lenders to offer to suspend payments for a time. And in any event, far fewer people needed help with their mortgages during the pandemic, partly because the expanded UI benefits and Economic Impact Payments got money directly to people.
Going even further back, the economic decline in the initial period of the pandemic was as severe as the initial decline in the Great Depression, which started in 1929. Indeed, GDP may have fallen by slightly more in the first two quarters of the pandemic than during the Great Depression and unemployment increased slightly more in the pandemic.
But policy mistakes during the Great Depression turned what might have been a deep recession into a decade-long depression. Economists still debate the relative importance of contributing factors, but there is general agreement that mistakes included:
• Instituting bad monetary policy that decreased the money supply, caused deflation, and was a drag on economic activity for years
• Allowing waves of bank failures and bank runs
• Pulling back government spending to balance the budget
• Not protecting the unemployed
• Increasing tariffs and a trade war
Many of the policies that were important during the pandemic had their roots in lessons learned during the Great Depression. Activist monetary policy during the pandemic vastly expanded the availability of credit, rather than contracting it during the Great Depression. The Federal Deposit Insurance Corporation was created in 1933 in response to the waves of Depression bank failures, and bank runs were not a pandemic problem. And this time around, the federal government did not try to balance its budget. Unemployment insurance, created with the Social Security Act and accompanying state laws in 1935, was the rock on which pandemic recovery was built. And in contrast to the Great Depression, trade held up relatively well during the pandemic.
We Learned We Can’t Keep Ignoring Affordable Housing and Child Care
Affordable housing and child care were problems before the pandemic, but the crisis showed how deep these problems run. Housing is the largest household expense — about a third of total spending — and has only gotten pricier. For families with young children, child care costs are often the second-largest expense. And the actual cost of child care is even higher than the numbers suggest since, rather than paying for help, one parent often drops out of the labor force to take care of the kids.
Many pre-pandemic household finance problems come back to these huge costs. The more you spend on housing or child care, the less is available for everything else, leaving households more exposed to financial shocks. And because there is often no easy way to reduce these costs, everything else in a household’s budget must revolve around them.
Housing became less affordable during the pandemic. With many people working from home, the demand for residential space went up. But supply barely increased, so prices rose rapidly. Rents started rising in 2021 and accelerated in 2022. Meanwhile, supply-chain difficulties made it even harder and more costly to build, so there was no construction boom in response to the higher prices. Adding to the problem, the Fed started raising interest rates in 2022 in order to contain inflation, making mortgage finance far more costly. Pandemic regulation did briefly provide relief from evictions, but it did nothing for the chronic scarcity of affordable housing.
The good news is that attitudes are changing. Some cities and states are already taking important steps to allow greater density. Th pandemic uprooted where many of us work and live; perhaps it can help more of us say, “Yes in my backyard.”
When people think “affordable housing,” they often think of government programs that build public housing, subsidize rents or require developers to offer lower-cost housing in return for the right to erect market-rate units. While such programs might be part of the solution, subsidies or rent controls can’t be the whole answer.
The fundamental problem is supply: we have stopped building in places where people want to live. Why? Mostly local regulation and neighborhood opposition. It’s easy to see the effects if you look around. For example, in Washington, DC, the subway system extends into Virginia and Maryland. On the first stops after crossing the border, there are a lot of apartment buildings. That’s because Washington makes high-density, high-rise building expensive, so dwellings get pushed out to places where it is easier to build. The costs in terms of traffic, commuting time, the environment and housing affordability are immense.
The populations of the San Francisco and San Jose metro areas have increased more slowly — sometimes much more slowly — than the U.S. population over the past 20 years. Wages in the Bay Area are high and many people would move there if they could afford it. Why can’t they? Because these cities and surrounding ones have not allowed much new construction in the form of high-density apartment buildings or even multi-family townhouses.
As a result, a substantial portion of those high Silicon Valley engineer salaries goes to housing — and the engineers have largely pushed out poorer residents. Is it any wonder that, during the pandemic, the populations of these prosperous metro areas fell by 3 percent when remote work eliminated many of these tech workers’ obligations to live close to their jobs?
All told, the most productive cities and states have chosen to make it difficult to increase density. These choices protect rich, mostly white, incumbent homeowners from change. But they slow economic growth and they perpetuate racial inequities. They keep owners from developing their property and keep people from living how and where they want. They exacerbate regional economic inequality. They harm the environment by forcing longer commutes and undermining the viability of mass transit. And they keep more and more people in an economically fragile state.
It seems likely that Americans will work in more varied locations, although the change will be gradual. The big cities will continue to be draws, but smaller cities and rural areas, with more space, lower costs and proximity to family, will no longer be places to escape from.
One important lesson from the pandemic is that solving one problem often solves others. By making housing more generally affordable, we would have fewer financial problems. And the worst of these problems — evictions and homelessness — would be less common.
The good news is that attitudes are changing. Some cities and states are already taking important steps to allow greater density. Th pandemic uprooted where many of us work and live; perhaps it can help more of us say, “Yes in my backyard.”
In the meantime, the pandemic showed that substantial rent assistance need not be unaffordable and mortgage foreclosures need not be common. According to a 2013 estimate, providing rent subsidies to households with incomes below 30 percent of the local median would cost just $22 billion per year, and short-term relief for families facing temporary homelessness would cost just $3 billion — figures close to pandemic rental assistance. For context, in 2013 we spent about $118 billion subsidizing mostly highincome homeowners through mortgageinterest tax deductions and other tax breaks.
The pandemic also showed how central child care is. Without it, parents cannot work — it’s that simple. And when child care is unreliable, parents are unreliable employees, if they can work at all. When child care and schools shut down in 2020, millions of mothers left the labor force. And many could not come back in 2021 because reliable child care was often unavailable. So while the pandemic did not show how to make child care available and affordable, it did show we dare not continue to ignore it.
We Learned Many of Us Can Work
from Anywhere (and Maybe Should)
As the pandemic dragged on from one year to two, it became increasingly clear that much work could be done well remotely. But we have likely only seen the first signs of a revolution. People make location decisions slowly, and relatively few people moved permanently because the pandemic forced them to work at home. That will likely change, though. As one spouse gets a great job in a new city or needs to return to their hometown to take care of aging parents, the trailing spouse will ask to work remotely. And companies that previously would have said “no” will prioritize the retention of experienced employees.
Companies may still say no, but the balance has shifted significantly. By 2022, forcing an employee to move to an expensive city and come into the office was something companies had to negotiate over, not a fact of life.
It seems likely that Americans will work in more varied locations, although the change will be gradual. The big cities will continue to be draws, but smaller cities and rural areas, with more space, lower costs and proximity to family, will no longer be places to escape from. Meanwhile, commercial real estate in big cities may go down in value or get repurposed. During the pandemic, former office buildings were converted to apartments, giving an entirely new meaning to work from home.
The nature of inequality will change. Income and wealth are extremely concentrated in the big cities. Yet, even before the pandemic, there was a slow dilution as those with very high incomes used the ability to work remotely to choose where to work. Before the pandemic, the most unequal place in the U.S. was Teton County, Wyoming. Teton County is home to the Jackson Hole ski resort and the Grand Teton National Park. And ranches there were a hot commodity among the very wealthy, who could use them as retreats yet still be connected to their business empires.
Covid-19 forced many to reevaluate what else mattered. And fittingly, what mattered differed. For people working from home, it was often the realization that life is much better without a soul-crushing commute. For people who lost their jobs, it was often the forced realization that their job was not their life.
As more professionals realize they can choose where to live, more areas may come to resemble Teton County — although perhaps not quite as extreme. For example, real estate in Boise, Idaho, went through a boom during the pandemic as many moved there for its relatively affordable housing (compared with California).
Local income and wealth inequality will increase. But it is important to remember that this inequality already existed; it’s just that the high-income workers were geographically concentrated. Increasing remote work will increase inequality locally, but not necessarily change it nationally.
The new remote workers will also bring benefits. They will pay taxes and spend locally. By breaking the stranglehold that location has on work, remote employment can help flatten the geographic differences, spreading prosperity around more.
The new remote workers can also help bridge social divides. We have increasingly sorted ourselves into like-minded enclaves where almost everyone votes for the same political party, worships in the same churches (or not at all) and marries within the group. Part of the sorting is by education, as many of the college-educated moved to big cities. Remote work lets these people return to their hometowns, exposing themselves (and their hometowns) to a broader world.
We Learned What Was Important to Us
On March 15, 2022, almost exactly two years after the first Covid-19 shutdowns, the DC public school system lifted its mask mandate. The Omicron surge, which had hit the region hard, left DC schools cautious. But in a sign of how much had changed, other parents I talked to weren’t certain how to proceed. We all wanted our kids to interact and learn maskless — to live in a world with only regular childhood worries — but we also wanted them to be safe and respectful of others.
My wife and I asked our son what he wanted to do. He could barely remember a world without masks or virtual school, and he left his mask on until the end of the school year. As school mask mandates ended throughout the country that spring, many children now had to make yet another transition.
Just as my son had to navigate a new world with new rules as the virus receded, we all had to confront a new world. Many people had hardly altered their behavior and wondered what took everybody else so long. Others planned to continue social distancing and masking. In February 2022, close to 15 percent of respondents in one study of evolving workplace norms said they expected to continue social distancing even after the pandemic ended.
While I have focused on the pandemic’s financial impact, Covid-19 also forced many to reevaluate what else mattered. And fittingly, what mattered differed. For people working from home, it was often the realization that life is much better without a soulcrushing commute. For people who lost their jobs, it was often the forced realization that their job was not their life. Many decided they wanted to switch careers or stop working altogether. For some essential workers, it was the realization that their jobs were not worth their lives.
The onset of the pandemic caused a 4.6 percent drop in the number of hours people wanted to work. Even as wages increased, many people, particularly those who could not do their jobs from home, decided that the pay was not worth it. The lower labor force participation that persisted into 2022 (despite a tight job market) was linked to the reality that many people had reevaluated their priorities.
For others, it was the opportunity to start a new business and try something new. “I’ve been wanting to do it for years,” Rose Galer told Wired. She had quit a safe government job at the EPA to start a zero-waste retail business called Refill Exchange. “The pandemic made me think, you know what? If there’s a time to do it, it’s now.”
The better safety net and higher savings during the pandemic also provided many people the financial space to invest in themselves. By forcing them to take a step back and reconsider, the pandemic let them see an opportunity. And by giving them the money to invest, pandemic policy helped them pursue it.
The pandemic helped show us what matters. Even as it stole more than a year of our lives, it showed we can take back control of our financial lives. It showed we can have better social policy. It showed we can take on big problems. It showed we can work where we want and how we want. It killed more than a million of us — but maybe it showed us a better way forward.
Many of the programs we introduced or expanded during the pandemic, from better unemployment insurance to rental relief to mortgage forbearance to refundable child tax credits, could continue. And without the pandemic rush to get money out the door, surely these and other programs could be even better.
Pandemic relief did not reach everyone, and the big problems of housing affordability, child care and wealth inequality still loom. But while the pandemic caused great suffering, perhaps it can help us prevent future suffering as well.