There are lots of reasons why the U.S. stock market has thrived even as the unemployment rate has hit post-Depression highs. But one is that unemployment has had a different meaning in this country over the past four months than it has had at all previous times. Thanks to the CARES Act’s relief check and unemployment-insurance provisions — which provided the vast majority of laid-off Americans with at least as much income as they’d had from their old jobs — personal income in the U.S. rose by a record 10.5 percent in April, while rates of poverty held roughly steady.
The benefits of replacing Americans’ lost paychecks weren’t just humanitarian. Putting money into workers’ pockets couldn’t save many small firms and frontline industries whose business models were built around attracting large numbers of people into public spaces. But fiscal transfers did stabilize demand for the various consumer goods and services Americans can enjoy from the comfort of their homes. And since in-person, service-sector businesses in the U.S. tend to be privately owned, while large tech firms dominate the major stock indexes, as long as demand for Amazon deliveries and Netflix subscriptions remained stable, the market rally could be sustained.
But last week, Congress allowed enhanced unemployment benefits to expire for 30 million Americans. Meanwhile, job growth has slowed, as persistent outbreaks continue to hobble many regional economies. Nevertheless, the market rally has persisted, with stocks rising for five consecutive days.
Wall Street’s resilient bullishness is undergirded by its faith in a pending breakthrough on Capitol Hill. Congressional negotiators named this Friday as an unofficial deadline for reaching a deal on the next round of relief. But as Politico’s Jake Sherman notes, it’s hard to see much basis for believing Congress will hit that mark:
It’s important to be clear about the nature of this deadlock: House Democrats passed a $3.4 trillion bill in May; Republicans refused to enter negotiations over that legislation until unemployment benefits were about to expire. Even then, the Senate GOP proved incapable of reaching a consensus, as roughly 20 of its members believe there is no need for further relief funding of any kind. The party’s leadership would like to extend enhanced unemployment-insurance benefits but at a much lower level than the $600 a week that jobless Americans had previously enjoyed. Republicans are interested in providing some direct cash assistance to U.S. households, but they are refusing to provide a fraction of the fiscal aid to states that would be required to avert mass layoffs of public-sector workers or cuts to basic social services. Individual members of the Republican Senate caucus have endorsed sending hundreds of billions in aid to states and municipalities, but the White House and Majority Leader Mitch McConnell have refused to offer more than $150 billion. Republicans have also resisted Democratic proposals for increasing funding for food assistance, child care, and — perhaps most critically — ensuring that the Postal Service has the resources it needs to handle an unprecedented number of mail-in ballots for the November election.
Democrats feel they have the upper hand in negotiations for a variety of reasons. They believe the public will blame the GOP for any extended lapse in benefits, since Republicans spent much of the past two months publicly lamenting the excessive generosity of those benefits. Democrats also feel their demands have both moral weight and public opinion behind them. Asking for the federal government to use its (demonstrably immense) fiscal capacity to help states avoid austerity measures that will deepen the recession may be partisan in fact but not in spirit. And asking for the federal government to safeguard access to the ballot isn’t a Democratic demand but a (small d) democratic one. Finally, voters tend to blame incumbent presidents for adverse economic conditions; thus, in purely electoral terms, Trump has more to lose from no deal than Democrats do.
But there is one snag in Pelosi’s sweater-vest: The Democratic Party has a degree of ideological and coalitional investment in mitigating the suffering of working people, and the Republican Party does not. Thus, the GOP seems to believe that once America’s unemployed miss another paycheck, Democrats will blink.
This may be a winning bet. But it’s also quite plausible that, if America’s unemployed miss another paycheck, the markets will sink. And the GOP is ideologically and coalitionally invested in safeguarding the net worth of Americans who own lots of equities. Faced with a choice between owning the libs and reinflating the portfolios of the ownership class, Republicans are more likely than not to do Pelosi’s bidding. After all, in the wake of the last big market crash, it was McConnell’s caucus that bit the bullet and voted for a $3 trillion stimulus bill that awarded American workers the most generous unemployment benefits in the developed world (however temporarily) in the first place.
So if a sudden outbreak of bipartisan comity doesn’t secure cash-strapped Americans their due relief — and if Donald Trump’s threatened defiling of the Constitution doesn’t either — panicked investors just may force the White House to surrender to Pelosi.