A number of years ago, we first introduced the topic of a 'welfare cliff' at which more work was punished - i.e. the 'generosity' of the package of welfare benefits creates a perverse incentive not to work any harder...
As we wrote at the time, one of the tragedies of America today is that so many adults of sound mind and body do not support themselves and their families. It’s a tragedy not because they suffer material want; indeed, relatively few suffer so, because government assistance satisfies many of their material needs.
It’s tragic because one of the keys to human happiness is earned self-respect, which requires, as Charles Murray has written, making one’s own way in the world. The vast majority of poor people don’t want welfare; they don’t want handouts; they want a good job with which they can support themselves and their families comfortably.
The tragedy of the American welfare system is that it traps so many people in dependency on government, by hindering them from getting on and climbing up the job ladder, and thereby earning self-respect and happiness.
* * *
Our fear now, confirmed by excellent research from Kathy Morris & Chris Kolmar at Zippia.com, is that the 'generosity' of the CARES Act (and the fact that politicians are loathed to remove any policy that could possibly make their voters upset) has the potential to create an entire new generation of welfare serfs, subsisting on significant welfare benefits with no incentive to 'get back to work', even after the lockdowns are lifted.
DoubleLine's CEO Jeff Gundlach appears to agree...
Awareness is growing that the PPP results in many people “making”more money by not working at their prior job. That seriously increases the labor costs of “re-opening”, making it impossible for many small businesses to “re-open”.— Jeffrey Gundlach (@TruthGundlach) April 23, 2020
And now, as BizPacReview.com's Vivek Saxena details below, a Washington State business owner faced backlash from her employees after she obtained a forgivable Paycheck Protection Program loan from the federal government that has allowed her to keep them fully paid through the coronavirus pandemic.
In an interview with CNBC this week, salon owner Jamie Black-Lewis of the Oasis Medspa & Salon in Woodinville and Amai Day Spa in Bothell said her employees were furious because they were already “making” more money being unemployed.
And the reason they were “making” more being unemployed was because of a Democrat-pushed provision that was added to the CARES Act.
The provision added “a flat $600 a week to the typical weekly benefits paid by one’s state,” CNBC reported. “Those traditional benefits, which vary widely between states, replaced about 40% of one’s prior wages.”
“The measure’s improved $600-a-week payments, which run through July, aim to boost that wage replacement rate to 100% for the average worker. But some, especially lower-wage workers, can come out ahead.”
And that’s exactly what happened in Black-Lewis’s case, just as congressional Republicans had repeatedly warned.
Jamie Black-Lewis, a #Washington State business owner of two spas with 35 employees got two forgivable #PPP loans. Her employees hate her for it. Because they would rather collect #unemployment. The unintended consequence of #CARES https://t.co/qyuYOHnihy and @GregIacurci— Keith Gormezano - #Top 100 #QuickBooks #ProAdvisor (@drquickbooks) April 23, 2020
“It’s a windfall they see coming,” Black-Lewis said of the unemployment benefits her employees were slated to “earn.”
“In their mind, I took it away. I couldn’t believe it. On what planet am I competing with unemployment?
“It was a firestorm of hatred about the situation,” Black-Lewis said.
On a planet that contains naive Democrats, no doubt …
Included among the many Republicans who spoke out last month against the inclusion of the Democrat-pushed provision were Sens. Rick Scott and Tim Scott.
“We have a virus and we know people can’t work for a variety of reasons,” Rick Scott said at the time.
“We got to help them, but at the moment we go back to work, we cannot create an incentive not to work. We cannot be paying people more money on unemployment than they get paid in their job.”
“[W]e cannot encourage people to make more in unemployment than in employment,” Tim Scott added.
“This legislation would not stop at 100 percent of your income. This legislation would allow people to make more in unemployment than in employment.”
In response to Republicans’ logical rebuttals, congressional Democrats and their left-wing media allies pounced with hysteria and smears:
Graham, Sasse, Rick Scott and Tim Scott holding up bill because it provides unemployment benefits of $600 per week for 4 months.— Robert Reich (@RBReich) March 25, 2020
After they voted to give big corps $500,000,000,000.
Senators, This is a national emergency. We want people to stay home. What don't you get?
Pelosi: "49 Republicans last night voted in the Senate to deprive those on unemployment insurance of the additional $600 a week. How could it be that in this time of stress and strain and uncertainty ... that they would vote that way? ... [It's] not about workers first."— Kyle Griffin (@kylegriffin1) March 26, 2020
“Can you believe last night that almost, I think was every Republican, I think 49 Republicans last night voted in the Senate to deprive those on unemployment insurance of the additional $600 a week"— Nicholas Wu (@nicholaswu12) March 26, 2020
(Collins and Gardner voted against the amendment, Manchin voted for)
3 million filed for unemployment last week, an unprecedented surge that will crush state UI agencies.— Arthur Delaney (@ArthurDelaneyHP) March 26, 2020
Congress is passing a bill to boost benefits by $600.
Senate Republicans thought it was too much and wanted state agencies to calculate individual amounts for every worker.
Why do Republicans want to kill American citizens? People are DYING and Republicans are worried that $600 a week will make people fat and lazy! Pompeii holding up a G7 statement for racism. Hell isnt big enough.— Lisa Donohue (@ldonohue) March 25, 2020
Republicans are more worried about what unemployed & impoverished Americans will do with an extra $600 during a financial crisis than they are with what billion dollar companies will do with billions of dollars with little oversight & no strings attached— Adam Blickstein (@AdamBlickstein) March 25, 2020
Only $600 if you're beneath the poverty level?— Nathan Schneider (@NSchneiderAZ13) March 20, 2020
Once again, Republicans get it backwards and don't seem to understand that poor people need more help than those with money. https://t.co/ahC8XYPke2
As the repercussions of the Democrat-pushed measure were becoming more apparent a couple of weeks later in mid-April, Sen. Lindsey Graham warned that it needed to be fixed.
“Here’s the problem: The unemployment benefits in South Carolina are $23/hour to be unemployed,” he said during an appearance on Fox News last week.
“You’ve got a lot of small businesses trying to keep their employees on the payroll paying $16 and $17/hour. One program is undercutting the other. We’ve got to get that fixed.”
Watch via FNC’s “Fox & Friends” (disable your adblocker if the video doesn’t appear):
(Source: Fox News)
In response, again members of the left again pounced, with some even going so far as to accuse Graham of being a racist …
This is the standard racist southern argument against unemployment insurance, dating back to its adoption during the New Deal.— Michele Dauber (@mldauber) April 21, 2020
People don't get unemployment insurance unless theyre fired. Job availability is collapsing.— Kurt Eichenwald (@kurteichenwald) April 21, 2020
Is @LindseyGrahamSC really so stupid he believes people are leaving jobs for unemployment insurance they CANT get for resigning? Or is this some sort of dog whistle I'm not hearing? https://t.co/0KIidPqIxH
What happened to Black-Lewis clearly demonstrates that, as usual, the condescending left-wing elites screeching the loudest about “evil Republicans” were wrong AGAIN.
* * *
Welfare cliffs are of course not the only reason so many capable Americans languish in partial dependency on government assistance. Dreadful government schools in poor areas and systematic obstacles to getting a job, such as minimum wage laws and occupational licensing laws, are also to blame. But the perverse incentives of America’s welfare system really hurt, and the CARES Act may have been a serious tipping point.