US politicians and media are today reporting approximately 1,700 confirmed or presumptive cases of the coronavirus or COVID-19. The actual number, however, is almost certainly much higher. Perhaps as many as 10 times that number may be affected, according to some sources. How has it gotten this bad?
There is the problem of reporting only tested cases so far, and there is still a lack of available tests even to verify all those who are infected yet asymptomatic. There are even cases where symptoms were shown, but were initially determined not to be cases of COVID-19 infection, due to defects in early test kits. Meanwhile, those without symptoms or who are pre-symptomatic are not being tested at all.
The real costs to workers
Average working class folks (particularly Americans) cannot afford to voluntarily quarantine themselves for any reason, even if they do have symptoms. They will continue going to work. They must keep working, after all, in order to survive in this economic system.
Consider the typical scenario in the US: 40 percent of American workers would be unable to cover an unexpected emergency expense of $400. This represents 165 million people, or half of the American workforce. These workers live paycheck to paycheck, and cannot afford to miss any days of work. Millions of them have no paid sick leave either.
The United States is the worst of all advanced economies in terms of providing paid sick leave. Even union workers, with some benefits in their contracts, have at best only six days of sick leave.
Paid leave or not, many American workers will be required to provide a doctor’s slip indicating the nature of their illness during this pandemic. But doctors are also refusing to hold office visits for patients who may carry infections. Working folks cannot do anything about that, so many of them will be forced to visit hospital emergency rooms if their condition deteriorates.
This raises another problem: A trip to the emergency room costs the average American at least a $1,300, and more if special tests are required. If a worker has no health insurance (30 million Americans still don’t), that’s an out-of-pocket cost they will not be able to afford, and they know it. This leaves many without a viable option, meaning millions of working people will go without testing, consequently spreading the virus further.
Even if one does have health insurance coverage, the deductible today is usually $500 to $2,000. Most don’t have that kind of savings to spend either, not to mention the co-payments they must keep up with. So even those who are insured may take a pass on going to the hospital to get tested, even if they show symptoms of the virus.
The media doesn’t help either. Reports tend on infections belonging to those who are young, middle-aged, and in reasonably good health, without other complicating conditions who will likely survive the illness. There has been less focus on older folks, those with serious pre-existing conditions, or compromised immune systems, who are more likely to die from the virus. Workers hear more about mild cases, than the severe cases belonging to the marginalized, which influences their decision to refrain from seeking testing or medical attention.
Then there is the further complication concerning employment if one does decide to visit the hospital. If someone is found to be infected, they will be sent home for 14 days of voluntary isolation. As I have previously written, this could threaten a new financial crisis, as employers will have no obligation to continue to pay their workers while they stay at home (unless they have some minimal paid sick leave which the vast majority are not provided). Nor do employers have any legal obligation to keep their workers employed if it is determined they are not likely to return to work after 14 days (or even less). Thousands of working Americans may lose their jobs, simply for taking basic precautions in the midst of a global pandemic, due to the whims of their bosses.
In this capitalist system, there are many economic incentives that could compel American workers to keep the illnesses confidential, to continue going to work, and to avoid a visit to the hospital. This would have dire consequences and threatens to spread the virus further over a longer period.
Additionally, another financial toll for the working class will be the costs for childcare. Right now, schools are beginning to shut down, even where no cases are yet confirmed. When they shut down, kids must stay at home. But most working class parents cannot afford nannies or babysitters. Moreover, not everyone works in an occupation or at a company that supports “working from home.” Should parents then send the young kids to the homes of their grandparents, who are of course more susceptible to the virus? With their kids required to stay home, parents will be forced to miss work, and even risk losing their jobs. This affects millions of American families with children between the ages of six and 12 years old.
In short, wages lost due to voluntary isolation, forced quarantining after hospital testing, the cost of hospital emergency room visits (whether insured or not), the unknown cost of the tests themselves, or the cost of paying for nannies or babysitters for young school age children, all result in a massive out-of-pocket expense for most workers.
Economic contagion channels
What this all means for the US economy is obvious. Household consumption was already weakening at the end of last year. Most consumption was driven by accelerating stock valuations, which affect those in the top 10 percent of the population who own stocks; or by taking on more credit, something that primarily affects the middle class and below.
Over $1 trillion in credit card debt is what has been largely driving middle-class consumer spending. Mainstream economists argue that defaults on credit card debt are only 3 percent or so, and thus not a problem. But that is simply a gross average across all 130 million American households. Breaking down the data, for families with middle incomes and under, credit card default is around 9 percent. This is a dangerously high number, on par with the consumer debt levels that were held just before the start of the 2007 financial crisis.
Then there’s auto debt. As of 2018, reportedly 7 million Americans turned in their keys on their auto loans. As with credit cards, auto debt defaults may also rise in 2020 as a result of the economic slow down. Student debt is also rising, and today sits at over $1.5 trillion. Defaults on student loans are much higher than reported as well, since actual defaults (defined as failure to pay either principal or interest) have been redefined to mask the real financial burden of paying back the loaned-out sum.
Add to all of this, the likelihood of massive layoffs later in the spring, as global supply chains face cuts in production and trade due to the pandemic. More job losses means lower wage income, less household spending, and an inability to deal with the costs of the virus for most working class families.
Let us not also forget the price gouging for certain products that is beginning now to appear, both online and in-stores, reducing working-class real incomes and consumption. Meanwhile, certain industries are already taking a big hit, and layoffs are looming in the travel and entertainment industries. In places where the effects of the virus are already pronounced, a big decline in spending in leisure sectors has also begun.
The two big economic contagion channels impacting employment thus far are supply chain production and distribution reductions, and local demand for certain services.
But a third major channel has just begun to emerge: that’s financial asset deflation in stocks, oil and commodity futures, junk and leveraged loans, and currency devaluations.
Stock price collapses are leading to businesses shelving investment and even cutting back production. That means more job losses, reduced wages, less spending, and an overall economic slowdown.
The collapse of oil and commodity prices also leads to energy industry layoffs. More importantly, this will lead to energy junk bond market collapse, potentially spreading to all junk bonds, leveraged loans, and even BBB-grade corporate bonds (which are really redefined junk bonds, not investment grade bonds).
Workers are aware that all of this could lead to longer-run economic stress. In the short run, they should consider possible wage losses if they reveal or report they have the virus, or have gotten tested. The rational response may be to tough it out and continue to go to work, heightening the threat to others.
This is already going on. Hundreds of thousands with and without symptoms are not being tested; nor will most of them volunteer to be. The infection rate is therefore already much higher and will continue to rise. So, out of economic necessity and to avoid personal economic devastation, many workers will continue with their routines as usual. It doesn’t have to be this way.
Trump’s response: No help for the working class
US policy has been, is, and will continue to be a disaster. Trump’s cuts to health and other vital services have seriously hampered the initial response. Tests had to be sent to Atlanta and the CDC for processing. Early test kits often failed. Only now are they getting to the states; far too late to have a positive initial effect on the spread of the virus. Initial legislation of $8.3 billion just passed by Congress provides for ‘reimbursement’ for voluntary testing, with no clarification if that covers the $1,300 average cost of a hospital visit.
There could be, however, a government response that financially supports workers and allows them to be properly tested and treated. I, for one, am not holding my breath.
An alternative policy response
Why doesn’t the US government offer free testing? Why hasn’t emergency legislation been passed by Congress or the states to require employers to provide at least 14 days of paid sick leave, like most other advanced countries? Why hasn’t the Trump administration floated tax credits for working families to cover the full cost of child care if they have to stay home in the event of school shutdowns?
While business-investor tax cuts will almost certainly be the official government response, few of the above measures for working class Americans are likely to materialize. In the US, working class folks always get the short end of the economic stick. Congress has passed trillions of dollars in tax cuts for the top one percent, but raised taxes on the working class. Companies with billions of dollars in annual profits pay nothing in taxes, and actually get a subsidy check from the government to boot. Just ask Amazon, IBM, innumerable financial institutions, pharmaceutical companies and more.
It can be expected that the COVID-19 virus will have a large negative impact on the standard of living and wages of millions of working class American families. They will have to bear the burden of the cost with little help from their government. Businesses and investors will get bailed out once again while workers get left behind. Consumer spending, the only area holding up the economy in 2019, will take a big hit. That means the likelihood of a recession starting in the next quarter is 50/50.
In fact, the investment bank, Goldman Sachs, has just forecast that the effect on the US economy in the coming second quarter of this year will be a collapse of profit growth to zero.
Dr. Jack Rasmus is the author of several books on the USA and global economy. He hosts the weekly New York radio show, Alternative Visions, on the Progressive Radio network, and is shadow Federal Reserve Bank chair of the ‘Green Shadow Cabinet’. He also served as an economic advisor to the USA Green Party’s presidential candidate, Jill Stein, in 2016. He writes bi-weekly for Latin America’s teleSUR TV, for Z magazine, Znet, and other print and digital publications.