The COVID-19 crisis is really two interconnected crises: the public health crisis created by the pandemic and the economic crisis sure to follow.
During the public health crisis created by COVID-19, our elected leaders are understandably focused on “flattening the curve” to prevent devastating strain on our already over-taxed health care system. Their response has been to impose strict shelter-in-place orders, encouraging residents to stay home and shutting down nonessential businesses.
We are now beginning to see the economic crisis emerging on the horizon. The herald of this crisis has been the unprecedented unemployment numbers over the past few weeks. One out of every three Americans reports that at least one person in their household lost their job or took a pay cut in March. For low-income Americans, the number rises to 43%. In March, the economy shed nearly 700,000 jobs, and last week alone, 6.6 million Americans applied for unemployment benefits. The Fed now estimates that the current crisis could drive immediate unemployment to 32% and unemployment could remain more than 10% through the end of the year.
Santa Clara County and some cities recognized early that such high levels of unemployment would inevitably make it harder for residents, many of whom are already overburdened by rent and mortgage payments, and imposed a moratorium on residential evictions. Landlords and financial institutions have also been encouraged to allow deferrals on rent and mortgage payments, credit card providers have been encouraged to defer credit card bills and student loan providers are deferring payments for up to 90 days.
While these reactions mitigate the immediate economic impact of the crisis, they are going to have devastating long-term consequences. The bills that are being deferred are not being paid, waived, suspended or forgiven. They will come due, and some will come due immediately after the crisis is over. Americans who have been following the rules and sheltering in place will likely be rewarded with a massive bill and no way of paying.
Just look at the numbers here in Silicon Valley. The average monthly mortgage payments on the median priced home in Silicon Valley are more than $4,600, and the average amount paid in rent is more than $2,300. Add to that an additional monthly payment of $896 for food, $1,039 for health care and $1,379 for other necessities, and local families are looking at up to $25,000 in bills piling up. For young workers, who are facing even higher levels of unemployment, it will be even worse.
Where is all that money going to come from?
It’s not coming from savings. Fifty eight percent of Americans have less than $1,000 in savings, and those experiencing the highest levels of unemployment are also the people with the least amount of savings. That leaves more debt that Americans cannot afford. The average American household already carries a little more than $8,000 in credit card debt, the highest in U.S. history.
If this sounds a little like déjà vu, that’s because we’ve been through this before in 2008. Washington has also decided to reprise its role as purveyor of trillion-dollar bail out packages for Wall Street and large corporations, while sending some Americans a pity paycheck that won’t come anywhere close to covering their basic needs.
To their everlasting credit, the work of the county and our local cities, especially San Jose, has been a model of crisis response at a time when our national government has been nothing less than a global embarrassment.
None of our local leaders campaigned for these offices expecting to captain this ship through such a storm. I hate to ask more of them, knowing the herculean tasks already on their plates just managing the current crisis. But there is another crisis on the horizon and we are woefully unprepared for it.
We need to look ahead to the inevitable economic fallout, and come up with real answers to difficult questions. Eviction moratoriums only delay the economic pain. Paid sick leave is great, but only benefits the small portion of the population impacted by the virus itself. The current responses are simply not enough.
Thousands answered the call, followed the rules and sacrificed their jobs and economic security to protect the health of their neighbors. We need to honor that incredible act of human compassion. If we do nothing, then thousands will be left alone to suffer unemployment, debt and eviction. If we do nothing, then we are answering the selfless sacrifice of millions with betrayal. I refuse to believe that is who we are.
It’s time to prepare for the coming economic crisis. If we wait until the health crisis subsides, it will already be too late.
Michael Vargas is a business and securities lawyer and a part-time professor at Santa Clara University Law School. Vargas also chairs the American Bar Association’s committee on Business Law Education and serves on the executive board of the Santa Clara County Democratic Party, and on the boards of BAYMEC and the Rainbow Chamber of Commerce.