A Shock-Proof America

Let’s view this moment as a turning point and build the ample social safety net Americans need.

By Jon Cowan James M. Kessler

Tagged Affordable Care ActcoronavirusEconomicsHealth CareInequalityRacismSocial Security

Over the past 12 years, we have suffered two once-in-a-century shocks that leveled the economy and drove tens of millions of Americans to the brink of ruin. We can no longer afford to pretend these economic shocks are black swan events. This leaves us with a defining choice: blithely ignore the future shocks assuredly ahead of us or realize that we are at a turning point for the nation and shockproof America and Americans against future jolts. In so doing, we can remake the economy to achieve the stability, security, and success that has eluded much of America even during the “good times,” particularly for people of color and other groups marginalized for far too long. Let us not wait for the inevitable third shock to recognize this turning point and do what we should have done right now.

Let’s begin with the obvious. This current crushing economic catastrophe was predictable and avoidable. George W. Bush obsessed about pandemics in 2005. Barack Obama planned for it in 2014. Bill Gates warned about it in 2015. Ron Klain wrote a piece about how to prepare for it in this journal in 2016. We’ve even faced previous “dry runs” with the less pervasive SARS, Ebola, and H1N1 outbreaks. But when COVID-19 arrived, it was as if we had never dreamed this could happen. Donald Trump had already jettisoned the pandemic playbook, compared the virus to the sniffles, and later toggled between touting the miracle cures of Clorox and saluting anti-vaxxers. With Trump’s dismantled, defunded, and discredited public health infrastructure, Washington has been paralyzed and flat-footed. Governors and mayors have had to step in to jury-rig our responses.

The financial shock of 2008 may not have been as neatly story-boarded, but it was predictable, too. Yet, as with the current pandemic, we ignored all the alarms. Our financial system had become too complicated, too invisibly connected to people’s lives, and too trusting of the wizards who’d created incomprehensible financial instruments delivering “magical” returns. Add to that a cesspool of bad mortgage debt and the false belief that the economy had entered into an era of “great moderation,” and the derailing of the entire economy was inevitable.

A future pandemic will come from who knows where, but chances are it will come. A next-generation 9/11 will more likely level cyber networks that underpin American life and commerce instead of the buildings that house the people behind it. Climate change is here and will also deliver shock after shock. The only unknowns are the dates.

But if we view this moment as a turning point, these shocks can be avoided—or at least mitigated. A welcome by-product of shock-proofing America will be an economy that produces far greater benefit for ordinary people throughout the diverse constellation of America, in good times and bad. And an economy that narrows the yawning wealth, income, and opportunity gaps among white, black, and Latino Americans.

Our response to past economic shocks shows both the right and wrong ways to do this.

After the 1929 stock market crash and ensuing Great Depression, Franklin Roosevelt saw a turning point. He implemented sweeping new policies that shock-proofed the institutions most proximate to the cause of the Depression: our corrupted financial system. He altered the regulation of public companies and trading of stocks to guard against future collapse. Coupled with deposit insurance to end bank runs, we got 70 years of relative banking and financial market stability.

But the New Deal did still more: It also created shock absorbers for regular people whipsawed by America’s boom and bust economy. Unemployment insurance to cushion the blow for workers losing their jobs was among the first strands of a new safety net. New wage and hour protections helped those still employed. Job opportunities were extended by bringing electricity and roads to rural communities. Workers gained the right to organize. Social Security cut its first checks.

The New Deal failed badly in some places, however, notably on racial equality, where America still refused to take on institutional discrimination. But even with its glaring omissions, the shock absorbers within the New Deal helped create a middle class that became the envy of the world. Viewing the catastrophe as a turning point was the key to that deliverance.

By contrast, the 2008 financial meltdown was seen by many as a one-off, limited problem. Yes, it led to another rewiring of the financial system to guard against future shocks. The fact that our banks are still running now is testament to the success of this latest round of shock-proofing. But despite Barack Obama’s best efforts, the remaking of the broader economy hit a dead end after the Affordable Care Act. A massive plan to wean America off fossil fuels to combat climate change withered and died. An effort to modernize the nation’s roads, bridges, rails, transit, and ports devolved, by the time of Trump’s presidency, into the running political joke of “infrastructure week.”

The Tea Party movement and an accommodating Republican Party were big factors in saying no to further progress. But so was the belief, held by many mainstream economists, that the economic shock experienced in the 2008 financial crisis would return about as often as Haley’s Comet.

We can no longer responsibly hold that view. So, here is what we must do to ensure that this moment is a real turning point. We must shock-proof the national economy and provide Americans with the shock absorbers necessary to live a secure, stable, and successful life.

Shock Absorbers for People

Imagine what this economy could create if every American was insulated from exposure to exorbitant health-care costs, could handle the occasional kick in the gut like the loss of a job, possessed savings and wealth to ease retirement and serve as an equity buffer in difficult moments, and had the confidence to know that global or technological disruption would not end her ability to enjoy a good life.

Below are four of the most common and predictable shocks in people’s lives. Those shocks can be absorbed—but only if we expand and modernize our social safety net.

On health care, we need to finish the job of the Affordable Care Act: get to universal coverage and limit people’s costs. Auto-enrolling every person who qualifies for free coverage through Medicaid or the Obamacare exchanges would cover half of the 30 million uninsured in America. Providing a one-stop auto-application for the uninsured eligible for partial government subsidies would cover millions more. And providing an auto-backstop health plan that kicks in when an uncovered person shows up at an urgent care setting covers the rest. That’s universal coverage that builds on Obamacare. It’s not exactly an easy political lift, but nowhere near as hard as tearing down America’s health-care foundation for a single-payer, Medicare for All system.

We must also cap what people pay for their health care—their premiums, co-pays, and deductibles—no matter where they get their insurance. Simply take the out-of-pocket limits already in law thanks to Obamacare exchange plans and expand them to all plans and for all incomes on a sliding scale to make health care universally affordable.

There is no reason—except worry about government expense—that the cost shock of health care cannot be absorbed. The rough ten-year price tag to cover everyone and cap their costs is about $3 trillion. It’s worth paying to end the shock and stress caused by health-care bills, once and for all. And it would mean the world for black and Latino families who are disproportionately uninsured or underinsured.

Next, nearly everyone is going to experience losing a job or encounter some other tumble in their lives. Yes, it’s a shock; but it need not mean devastation. America’s safety net is deliberately tight-fisted, punitive, and maddening to navigate because it is based on a faulty premise: Generosity beyond starvation rations breeds slothfulness.

It’s faulty because Americans work longer hours per week, more weeks per year, more years per life than just about anyone in the world—no matter where we fall on the income ladder. So let’s reward that work ethic with a safety net that keeps people in their homes, with their car, and not drowning in credit-card debt when a shock inevitably comes along.

Next, take our unemployment insurance system…please! If you’re lucky enough to live in the most generous states in the country, your benefits are still miserly—typically, a maximum payment limited to an annualized wage of just over $30,000, which expires after just half a year.

Let’s bump the wage replacement rate of unemployment from a Dickensian 50 percent to a “whew, I won’t be kicked out of my home” 75 percent. Let’s permanently extend benefits to gig and part-time workers and increase the base level of wages that can be replaced. Unemployment should also come with a voucher to earn a credential for new job skills from a quality higher education program.

And receiving safety net benefits shouldn’t be a maddening “Where’s Waldo” exercise, in which eligibility is complicated and hidden. Instead of just raking in your taxes, the IRS should take on a new mission: being a shock absorber for you by maximizing the benefits Americans receive in SNAP, the earned income tax credit, and other safety net programs.

Retirement is the most predictable shock of all, yet even before our current crisis, we had half of working America clocking in each day at a job that contributes nothing beyond Social Security to help a person retire. And the situation is worse if you’re a person of color; 59 percent of working age black people don’t have any retirement savings, and it’s a staggering 65 percent for Hispanic people.

So let’s make sure that everyone—not just the wealthy and upper middle class—has wealth and assets that grow over time so people profit from the long-term growth of the world economy and possess equity buffers they can deploy during difficult times. Senator Cory Booker has promoted Baby Bonds that give every child something to start with and can one day pay for college, a home down payment, a business startup, or retirement.

Senators Chris Coons and Amy Klobuchar, along with Representative Scott Peters, have an idea to require every job to kick in a minimum employer contribution to a private retirement account that is separate from—and in addition to—Social Security. Even a modest employer contribution of 50 cents an hour would amount to $230,000 in savings in today’s dollars over the course of a lifetime. That would absorb a lot of shocks and make a huge difference, especially for women and people of color who are more than twice as likely to be poor in their retirement years.

Finally, because of the hypersonic speed of the digital economy, people in areas dependent on a few industries can get a shock simply by living in a certain region of the country or in a minority community cut off from opportunity by longstanding inequities. They need wider options to be able to earn a good life in the place they call home. Universal broadband deployment is the most basic step we could take, along with subsidies so low-income people have the hookup and the hardware to be digitally connected to the economy.

We must connect all regions of America to capital so businesses can start in more places. So let’s allot money to every state to use as venture capital to grow local businesses, with an emphasis on minority- and women-owned enterprises, who are currently locked out of private venture money. And we should further subsidize small business lending, so banks say yes to more small business loans.

There’s still more we should do to reimagine our social safety net in this digital and global era. Automatic stabilizers for state and local governments to keep employing people in the face of lost revenue is another needed shock absorber. A bigger earned income tax credit would make low-wage work pay better. Criminal justice reform is sorely needed to incarcerate fewer and make sure those who served time have genuine opportunity once they’re released. Childcare must be more affordable, all employees should have paid leave, and collective bargaining should be easier to accomplish. Meanwhile, college is too expensive and the quality too spotty. But these policy changes would absorb many of the shocks people routinely face and give people more confidence and hope about their futures.

Shock-Proof America

Providing these shock absorbers to individuals will help, but they will not be enough if our economy pulls a Thelma and Louise every decade and drives off the cliff. Thankfully, many of the big shocks to the broader economy are predictable, and, once again, we can greatly lessen their impact if we use this turning point moment to address our most obvious macro vulnerabilities.

Clearly, we must prepare for future pandemics. Coronaviruses have “high mortality [with] no drugs or vaccines in the pipeline,” warned the then-Chairman of the Forum on Microbial Threats at the National Academy of Sciences in 2015. “New variants are constantly emerging,” he added. The bottom line is that the likelihood of our children dying from a Russian nuke is close to nil but from a subsequent novel virus is entirely possible.

Much has been written on what a future government pandemic response should be. And much of that was elucidated by the Obama Administration, back when expertise and planning mattered in the White House. We will not list preparations here, except to say they must include a national security level effort to develop universally applicable vaccines and cures.

And while we’re on the subject of science, if you don’t yet believe a climate-induced economic shock is coming, we have 259,823 square acres of charred California land that may interest you. On climate change, we need two sets of shock absorbers: one set for avoidance and one for mitigation.

We can avoid a climate shock only with a massive effort that gets America to net-zero carbon pollution by 2050. A jobs-producing, FDR-size infrastructure package, combined with a JFK-size vision for the future, could move our transportation and energy systems to carbon-free travel of people, goods, and energy.

A clean energy innovation network will make sure the next generation of technologies and fuels are made in the United States. Let’s not pick favorites among carbon-free energy; but let’s invest heavily and let a thousand flowers bloom among proven, promising, and distant technologies: solar, on- and off-shore wind, electric vehicles, agricultural carbon removal, advanced nuclear, carbon capture for power and manufacturing, hydrogen fuel, and even machines that remove carbon pollution directly from our air.

Clean energy standards on electricity, manufacturing, and consumer products should be reinstated and then tightened. And we must finally put a price on carbon pollution—using the money we raise for jobs and clean energy investments.

But even doing all of that, climate shocks are upon us now. We can mitigate them by making communities—particularly the minority communities most impacted—less vulnerable to floods, storms, and wildfires caused by extreme weather. A new Conservation and Resilience Corps could put Americans to work restoring wetlands, removing fire-fueling undergrowth, retrofitting buildings, fixing water infrastructure, rebuilding shorelines, and constructing public transit to protect us from worsening, more frequent natural disasters.

Beyond climate, a cyber shock of some form is also inevitable. As the current crisis shows, we are singularly dependent on the Internet infrastructure to communicate, eat, work, learn, get medical care, conduct commerce, and protect the nation. Meanwhile, criminals and nation-state actors probe our cyber infrastructure for vulnerabilities every moment.

So far, we have been lucky. Ransomware attacks, like North Korea’s WannaCry, may have disabled global shipping, disrupted hospital care, and caused billions in losses, but they were still no more than a blip to the average American. But these attacks are certain to get bigger. In fact, a U.S. alert has identified state-sponsored actors in China and Iran for malicious hacking into research efforts on a coronavirus vaccine.

Whether it’s from malevolent actors scheming to level America’s economy through malware; a cascading, systemic failure ravaging fragile, outdated digital systems; or a catastrophic natural disaster that knocks out large portions of the physical infrastructure on which the Internet relies, America is also woefully ill-prepared for a digital shock that could snap the electronic tether to which we are all clinging.

We need to prepare our cyber systems by not only prioritizing security, but also by ensuring diverse, distributed, resilient systems. The approach that China is taking, for example—creating a walled-garden, centrally controlled system—leaves it vulnerable to single point or systemic failures. The U.S. market-based approach that has provided heterogeneity in our technology networks is more resilient if we commit to the investments necessary to protect it. We ought to consider the nascent cyber-insurance market and think about how to prepare companies for a future cyber shock so we are not so reliant on taxpayers for massive bailouts of essential services.

We also need a serious and aggressive human-centric strategy to cyber security—one that identifies the individuals behind malicious attacks and holds those perpetrators and the countries and organizations that stand behind them accountable. Right now, for every 1,000 cyber crimes in America, only three result in an arrest. That means we have a crime in which perpetrators have almost total impunity. Our cyber enemies in the world know they are unlikely to face any consequences for their activities. That must change.

Law enforcement agencies must move from analog to digital and be equipped to bring global malicious hackers to justice. This means putting more technologically proficient cops on the beat, improving our ability to conduct worldwide manhunts, and securing global agreements that turn nations that provide safe haven to perpetrators into economic pariahs.

We can prepare for these predictable technological and environmental shocks before they hit us. Would it be expensive? Yes. But so are the “once-in-a-century” economic shocks that now occur once-in-a-decade. We have reached a turning point. Ignoring the inevitable only makes the preventable inevitable. Let’s remake our economy by shock-proofing it. We’ve been warned. Twice.

Read more about Affordable Care ActcoronavirusEconomicsHealth CareInequalityRacismSocial Security

Jon Cowan is president at Third Way, a center-left think tank.

James M. Kessler is vice president for policy at Third Way.

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