How the pandemic could affect income inequality

A $2.2 trillion stimulus package to help keep the economy alive amid the coronavirus outbreak that has put millions of Americans out of work was signed into law on March 27. The Coronavirus Aid Relief and Economic Security Act, or CARES, contains $560 billion that directly benefits individuals in the form of cash payments of up to $1,200. The legislation also expands unemployment and paid sick/family leave benefits, offers forbearance on federally backed mortgages, waives penalties on some early retirement withdrawals, and offers student loan relief and protections for renters. 

Bedding and blankets belonging to homeless people on the ground underneath an underpass

Income inequality was already a concern among academics, lawmakers, and citizens alike before the pandemic, so the economic measures being taken now raise complicated questions about what policy will look like on the other side of the coronavirus outbreak.

The economic havoc wreaked by the coronavirus pandemic is an outlier, historically speaking. It’s nothing like the Great Recession, the Great Depression, the oil crisis of the late 1970s or the dot-com bust of the late 1990s. Those economic fires were ignited by internal factors, explains Benjamin Lockwood, Wharton professor of business economics and public policy.

The pandemic is causing external pressure on the economy. It’s not something fundamental about the markets or asset values, so it can’t be fixed through regulation. The best solution, Lockwood says, is to fix the public health crisis first through wider testing for the disease, shelter-in-place orders, and other actions designed to contain COVID-19.

The pandemic presents an “unusual situation” for government policy because typical remedies to encourage hiring and consumer spending will not be effective without prioritizing health and safety, he notes.

“Really, it’s getting through this issue and solving the public health crisis itself,” he says. “That will be the best thing for the economy in the long run.”

Read more at Knowledge@Wharton.