FDR’s New Deal helped lift America out of the Great Depression by focusing on three R’s: relief, recovery and reform. Can a similar approach alleviate California’s recession hangover?
In many ways, it already is.
In 1959, before the U.S. Census Bureau collected official poverty estimates, the national poverty rate peaked at 22% before steadily declining in the years to follow, slightly rising with recessions. As of 2020, the national poverty rate is 11.4%, according to recent data from the U.S. Census Bureau.
National poverty rates are calculated by establishing income thresholds for family sizes using the Consumer Price Index (CPI) and adjusting annually for inflation.
As of 2020, 37.2 million people are in poverty in the U.S. — about 3.3 million more than in 2019. 2020’s single percentage point increase in poverty occurred after five consecutive annual declines in the national poverty rate.
However, the official poverty measure does not include government programs designed to assist low-income families. An alternative measure is used to determine the impact of these programs on alleviating poverty levels, called the Supplemental Poverty Measure (SPM).
When accounting for social safety net benefits and federal pandemic relief efforts, the poverty rate was 9.1% in 2020. This rate is 2.6 percentage points lower than the 2019 SPM rate of 11.8% and was the first time since recording began that the SPM rate was lower than the official poverty rate — indicating 2020’s expanded assistance programs aligned with a lower poverty rate.
Here in California, an estimated 6 million people were in poverty between 2018 and 2020, representing the highest numerical amount in the nation, according to the SPM.
Between 2017 and 2019, the estimated number of California residents living in poverty was 6.7 million. 704,000 residents rose above the poverty threshold in 2020, a 1.8% improvement. California had the greatest numerical drop in the nation of residents in poverty and the eighth greatest percentage point drop.
The state’s expanded experimentation with safety net programs in response to the COVID-19 pandemic in 2020 contributed to better outcomes for impoverished residents and helped pull approximately 700,000 Californians above the poverty line.
Unemployment insurance to the rescue
California’s pandemic response was marked by its focus on the New Deal’s first R: relief.
Two programs played critical roles in reducing poverty both in the U.S. and in California in 2020 — unemployment insurance (UI) and stimulus payments.
UI is a joint federal and state program that provides temporary financial support to unemployed workers who are unemployed through no fault of their own. In March 2020, amid record job losses and the onset of the 2020 recession, Congress approved a bill offering a $600 weekly unemployment supplement to eligible workers while also expanding eligibility requirements to include previously excluded workers, such as independent contractors and self-employed individuals. Although the benefits expired a few months later, the administration reintroduced it in August 2020 at a rate of $400 per week.
Nationally, UI benefits directly contributed to pulling 5.5 million Americans out of poverty in 2020, according to SPM data. When looking back a year earlier to 2019, UI benefits contributed to pulling half a million Americans out of poverty. Ten times as many Americans avoided poverty status due to UI in 2020 than in 2019.
Here in California, UI benefits helped 940,000 Californians avoid poverty in 2020, according to the Public Policy Institute of California (PPIC).
Stimulus checks keep poverty in check
A second social safety net program helped improve poverty nationally and in the state of California in 2020 to an even greater extent than UI — federal stimulus payments. Across the U.S., stimulus payments contributed to 11.7 million people rising above the poverty threshold in 2020, according to the SPM.
In California, 1.58 million residents were kept out of poverty due to the federal payments, according to the PPIC.
These programs illustrate the kind of relief Californians are hurting for in the wake of the 2020 recession. California’s high cost of living has earned it the dubious reputation of being a high-poverty state. The high cost of housing tends to exceed the boost families receive from UI benefits and stimulus payments.
Although California’s expansion of social safety net programs in 2020 did help reduce poverty in the state, with the share of residents living in poverty improving by 1.8%, some of these programs have since concluded, leaving millions of residents vulnerable anew.
For example, the federal Pandemic Unemployment Assistance (PUA) program helped unemployed Californians who were not usually eligible for regular UI benefits, such as business owners, self-employed workers and independent contractors. PUA benefits ended September 4, 2021.
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Better results in 2020, but will they last?
Though pandemic-related federal unemployment benefits have expired, the jobs market has not recovered from the triple-whammy of the recession, pandemic and financial crash in 2020.
1.3 million fewer California workers are employed as of July 2021 than before the 2020 recession. These jobless Californians now devoid of unemployment benefits will need to establish an income of some sort to remain housed, whether they are homeowners or renters.
For agents and brokers, legislative steps toward alleviating poverty means more people can form households and become homeowners. California’s homeownership rate remains second-to-last in the nation, only behind New York. When poverty levels drop, more home sales are possible. Naturally this increase in home sales leads to more agent fees.
The state’s housing crisis — consisting of low inventory and high home prices — puts pressure on Californians of all income levels. But homes priced in the low tier are harder to come by due to high demand from first-time homebuyers. This is exacerbated by meager construction levels in the low tier since developers stand to rake in fewer profits when building lower-income housing.
More residential construction and looser zoning regulations will boost the state’s inventory and ease home prices. Unsustainably high home prices are part of the reason many Californians are in poverty or near it, and also why many Californians are leaving for other states. A healthy and diverse population is needed for the housing market to thrive.
If California’s pandemic response is any indicator, a little relief goes a long way.
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At what cost though? These (mainly) Federal programs added trillions (trillions!) to the national debt. This does not bode well for our (and our children’s) economic future.