Giving People Money Made Americans More Financially Secure During The Pandemic

Scott Fulford is a senior economist with the Consumer Financial Protection Bureau (CFPB). In his book, The Pandemic Paradox: How the COVID Crisis Made Americans More Financially Secure, Fulford writes that the federal government's robust response to the COVID-19 pandemic— unlike the anemic response after the 2008 mortgage crisis that led to the Great Recession—kept millions of people out of poverty and actually improved financial wellbeing at a time when millions of families could have been devastated.

From March 2020 to March 2022, the U.S. government spent $5.2 trillion on pandemic aid—the largest share of gross domestic product (GDP) outside wartime. The federal government's response was five times larger than the response to the Great Recession and had a major impact on helping people, as did eviction moratoriums and mortgage forbearance. Using data from the CFPB’s Making Ends Meet survey, where participants self-report financial well-being, Fulford writes, "The aid kept struggling families from being pulled over the financial cliff."

Fulford analyzes which policies were most effective—such as unemployment insurance reforms, the expansion of the Child Tax Credit, and Medicaid. And those that were not—like the $800 billion spent on the Paycheck Protection Act that didn’t make much of an impact on small business closures.

And he shows a potential path forward to designing a better safety net for a fairer and more productive society:

The pandemic had showed the potential for ambitious government programs to transform society. Many of the programs we expanded or introduced during the pandemic, from better unemployment insurance, to rental relief, to mortgage forbearance, to the refundable child tax credits, could continue. And our pandemic experience suggests that with them unemployment would no longer be a financial disaster, jobs and pay might get better, fewer people would get evicted or lose their homes, child poverty would decline, and financial hardships and the difficult choices that accompany them would no longer be common. Without the pandemic rush to get money out the door, surely these and other programs could be even better. The pandemic policies did not reach everyone, and the big problems of housing affordability, child care, and wealth inequality linger. But while the pandemic caused great suffering, if we learn its lessons well, perhaps it can help us prevent suffering as well.

Better Life Lab Director Brigid Schulte spoke with Fulford to better understand the data and what it could mean for transforming poverty and improving equitable family economic security and well-being in the United States. Fulford made clear he was speaking in his personal capacity as an author, and not as an employee of the CFPB. The following is a transcript of their conversation, lightly edited for length and clarity.

Brigid Schulte: I was so surprised by your key finding that during this horrific pandemic, with so much death, illness, unemployment, and struggle, people’s financial well-being actually went up! Is that paradox, as you call it, what led you to write this book?

Scott Fulford: I work at the CFPB, where I'm an economist and I run a survey there that we've branded the Making Ends Meet survey. The goal of the survey is to understand people who are on the financial edges and are trying to make hard decisions. We had a big survey that was launched in 2019 that found something like 40 percent of respondents said that they didn't have a cash buffer or could borrow or had savings enough to last them for more than about a month if they lost their main source of income.

Schulte: Wow.

Fulford: Fast-forward to March 2020, and suddenly 22 million people are unemployed. It really looks like a financial apocalypse is about to come for a huge number of people. And I was really scared. I was scared both as an economist, and, of course, we were all trying to figure out what was going on with this new virus.

We ran another survey in May 2020, and the surprise with the data we got back is that it looked like people were actually better off financially on average. Not everybody was better off. There’s always ups and downs in the economy. But overall, there was a floating up of many, many people across the income distribution, across race, across age groups. People were just better off. We saw it in credit bureau data. We started seeing this in savings account data.

The reason for the book was this big surprise: the data is telling us people are better off, but the economy is the worst since the Great Depression. How can we reconcile those things? The book is really trying to take you through what happened and then work through the policies and the individual choices that made that increase possible.

Schulte: What role did the federal government and the federal response play?

Fulford: It was a big role. But let me divide things up into two pieces. One of the things that happened was that starting around March 2020, many people just stopped going out. They stopped going out to bars, stopped going out to restaurants. I didn't travel for a year. I had some clippers, and I cut my own hair for about a year. I wasn't paying somebody else who was better at cutting hair than I am. All of those cutbacks meant that lots of people were just spending much, much less. And the drop is really significant in aggregate—a 30 or 40 percent spending fall over those next several months.

The second thing that happened is that the federal government passed the CARES Act on March 27th, 2020, which really transformed policy during the pandemic. It was a nearly $2 trillion package, and it had some really big pillars—one of which was that it vastly expanded unemployment insurance. [Edit note: Pandemic-era unemployment insurance included gig, contract and self-employed workers, who are not covered under traditional state-run unemployment insurance programs. While eligible workers typically receive between 30 and 50 percent of their most recent earnings in unemployment insurance, the pandemic-era programs also gave workers an additional $600 a week. Pandemic unemployment also expanded the amount of time eligible workers could collect unemployment insurance to 39 weeks, up from a maximum of 26 weeks.]

So those 22 million people who were unemployed, when they did eventually get unemployment insurance, it was much larger than it would have been in their state before the pandemic, and sometimes more than they had been making while employed, which had some unfairness to it—for instance the employed person who still had to go into the grocery store and do checkout was now earning less than the unemployed person who'd been furloughed from a similar wage job.

We also just sent out checks to almost everybody, which put a bunch of money into people's pockets. This meant that for the unemployed, their income, for the most part, didn't go down. There were people who slipped through the cracks, but most people who were unemployed had incomes that were fairly stable. People who were still employed, their incomes actually went up, and everybody else was saving, and most people were saving a lot more.

The combination of those meant that there was this huge accumulation of cash savings. And it turns out that when you're saving more, you can pay down your credit card debt. You're not going to go delinquent. You're not going to miss the mortgage payment. You can afford to fix things when they break. And so all of these combinations of things meant that overall financial well-being—pretty much every way you measure it—went up. People just were much better off financially.

Schulte: You mention the CARES Act of March 2020. There was another bill in December. Then, in March 2021, came the American Rescue Plan Act, or ARPA. How long did that better financial well-being last for people?

Fulford: Things bottomed out, and financial well-being stopped improving and started maybe declining sometime in 2021.

Schulte: Why?

Fulford: Some of it is that the pandemic policies ended. The refundable Child Tax Credit in ARPA only lasted for six months. For eligible families with children, it had been a fairly large monthly income infusion, on average. And just that by itself makes a big difference when you've got a monthly income coming in and then you don't.

People started feeling more comfortable about going out again, and there was a lot more spending. And so the combination of government pandemic aid trailing off and savings being used up meant that people were no longer in this financial reset situation the way they had been before.

Schulte: What are the lessons we should be learning from that?

Fulford: The thing which I found surprising was just how effective the [pandemic aid] policies were. And maybe I shouldn't have been surprised. If you throw a lot of money at a problem—and the U.S. is a very rich country, and we can borrow a lot, and we have the ability to throw a lot of money at a problem—it turns out, a bunch of things can change. We learned that there were some places where throwing money didn’t provide much benefit. And there were others where, if you give targeted money, it can really improve people's lives and needn't be that expensive.

For instance, we gave $800 billion, one of the largest total amounts, to small business owners. Certainly there are some small businesses that would not have survived without it. But the net effect is that small business owners as a group, which was already a wealthy group, got wealthier. It didn’t really prevent many business closures. The program could have spent at least half as much and had exactly the same effect on small business closures. So it was really just a gift to people who happened to own small businesses.

On the flip side, it turned out that those unemployment insurance benefits were a great deal. Maybe we could have targeted them a bit better, maybe made them more proportional to income. But they really did help people maintain their spending and save. So when things started to open up, lots of people who wanted to spend had the means to do so, which was a really big deal for the overall economic recovery, which has been fabulous.

The pandemic revealed that our unemployment insurance system, without federal intervention and without a lot of money being spent, is just inadequate. We don't replace enough income. We don't cover enough people, and we don't cover enough for them for long enough.

We've got lots of child poverty, and figuring out a way to have children living in households that have the financial resources for them to be able to thrive is really important. The refundable Child Tax Credit made it clear that you can make a big difference in child poverty. When it expired, well, we made a choice not to prioritize it. We’ve chosen to have higher child poverty than we could have. Because it’s very clear that if you get that child tax credit, you could lower child poverty.

Some other lessons we should be learning, when I think about this, I focus on the extent of people with disabilities who are in the labor market. They’re often people who find it hard to get good jobs. They need more accommodations and that makes it harder for employers to say, ‘This is the person we’re going to go with.’ But with really large labor demand, their labor force participation went way up. Some of that was because they were able to work from home. But also just because there was a lot of demand. Employers were willing to figure out how they could make things work.

That’s really exciting. It really shows how we can build a better society.

You know, people think a lot about inflation these days. But on average, wages have been going up as prices have. Meanwhile, the economy overall has been growing really rapidly and is back on trend. In real terms, last fall, the U.S. GDP reached where it would have been if you had just projected out its growth rate between 2009 and 2010 and 2019. So it's as if the pandemic didn't happen.

That's just an amazing recovery. It is world beating in a very direct sense. Nobody else has done that.

Schulte: You mention inflation. Some critics blame the federal government’s pandemic spending for rising inflation.

Fulford: During the Great Recession, there was a 5 or 6 percent permanent drop in GDP. And if you add that up every year, that's a $23 trillion loss. Versus now, the overall economy is back on trend. When it comes to inflation, other countries also had high inflation. We’ve had less inflation than Great Britain. It isn’t as if the small difference that some extra spending in the American Rescue Plan Act made inflation. It’s pretty clear that it was a supply-driven problem.

Schulte: So where are we now?

Fulford: In many ways, it's really gone back to looking a lot like things looked like in 2019. In a broad sense, 2019 was a pretty good economy. Unemployment was low. But remember, there were still about 40 percent of people who had difficulty paying bills and didn’t have a lot of savings. Delinquencies are rising again. Credit card debt is about as high in real terms as it was in 2019. People, on average, are back to the kind of financial stress they were facing in 2019, which was pretty high for lots of people.

A good way of thinking about the overall income in the United States is that we are a wealthy nation on average, but nobody is the average. Some people earn and have wealth that's a lot larger than others. I focus on wealth because wealth is what helps you have a buffer against a shock and achieve the life you want to lead. The Federal Reserve’s Survey of Consumer Finances finds that the bottom 50 percent of the population has approximately zero net wealth.

What that means is that lots and lots of people are just exposed to expense shocks that can be really devastating in their lives. Like losing your job. Or your car breaks down, and you can’t get to your job. And because you don't have very much wealth, because maybe you don't have a family with wealth to draw on, you can't fix your car, so you can't get to your job. That can create this negative spiral, which keeps a lot of people at that zero wealth point because it's just really hard to accumulate enough given all the demands.

Wealth inequality may have gone down briefly during the pandemic. Still, almost all of the wealth is owned by the top 50 percent. And most of that is owned by the top 10 or the top one percent.

We are a very unequal society. If we're an unequal society and where you're born is where you’re stuck, that's a very different thing than if we're an unequal society where people can make their own way in life and where we've got equality of opportunity—even if we don't have equality of outcomes. That matters a lot. If we don't have equality of opportunity, and we don't have equality of outcomes, or at least we are very unequal in the outcomes, that is a very big structural problem.

Schulte: If you could wave your wand and solve inequality and poverty, and improve family financial well-being, and incorporate the lessons from the pandemic, what would you do?

Fulford: One big thing that's worth focusing on is the cost of housing. That's not to say that the cost of housing is a problem everywhere, but it is a big problem in big cities, which are where the jobs are. It’s very hard to find affordable housing. I’m an economist, so I’m a big proponent of, ‘Well, that sounds like a supply problem, let’s build more.’ And that doesn’t seem to be happening in many of our big cities.

The other is child care. I have two kids, and, for me, the pandemic was about child care. My wife and I had secure jobs that we were able to do at home. We were actually more productive as a work unit per hour. But our child care was very in and out. And I think my wife and I have developed a sort of post-traumatic stress disorder. I find it very difficult not to work when I've got child care, because I worry tomorrow I might not have child care and I'm going to have to stay home with my kids.

I think that experience has been true for many women with children going back to the labor force. It's been very clear that whether I can work depends on child care. Child care is the key policy I’d like to change.

Exactly what that policy should be is complicated —maybe it’s making child care more affordable through direct government payments, or maybe it’s figuring out why it’s hard to supply more child care. But getting more of it is one of the crucial constraints that a lot of working families with children face. That goes across the economic spectrum.