Putting American Neoliberalism to the Test: COVID-19 and the CARES Act

Paakhi Bhatnagar is an incoming Third Year International Relations student at King’s College London. She is the Editor-in-Chief of IR Today and the Copy Editor for Strife Journal. She also writes for London Student as the City News Editor. 

The once swarming streets of New York have suddenly fallen abnormally quiet. Restaurants and cafes have closed down, employers and employees face increasing precarity, and Wall Street navigates unparalleled market conditions amidst the COVID-19 lockdown. In an unprecedented move to contain this shock, the US government has unanimously passed the CARES (Coronavirus Aid, Relief, and Economic Security) Act, making it one of the largest economic stimulus bills in American history—nearly twice as large as the stimulus package for the 2009 financial crisis.

A Brief Breakdown of the Stimulus Package

This novel, two trillion-dollar stimulus package secures $600 billion for individuals and families, specifically promising $1,200 for families earning $75,000 or less per annum and an additional $500 per child in a family. A significant chunk of the bill is also cut out for large corporations with $500 billion dollars earmarked to provide economic stability to big businesses via loans and modification in tax payments for corporations. Another $350 billion are set aside for small businesses as loans with an increased eligibility provision to make it easier for business owners to qualify for these loans. In addition to this, $10 billion is allocated in grants to cover critical short-term operational costs of small businesses during the nationwide lockdown.[i]

The CARES Act is explicit in its support for households, businesses, and the public sector (such as healthcare, which has been negatively impacted by the outbreak of COVID-19). But how exactly does this bill, so heavily reliant on government spending, fit into the larger, capitalist framework of the American economy?

Yet Another Bailout for American Neoliberalism 

One thing that becomes clearer with each passing financial crisis is that the free market cannot be trusted to maintain and stimulate itself. There is no ceteris paribus in real life and the world economy is not shielded from the uncertainty of our environment. Every crisis—and the present pandemic more than ever—has compounded the belief that government intervention is a necessary component for economic sustenance.

At present, President Trump faces an important dilemma: prioritizing the health of the American public by prolonging the nationwide lockdown or privileging the protection of the American economy by preserving the interests of the elites. Both public confidence in his administration and his prospects for electability are at stake. From this situation, two things are clear: America does not have the political resources to enforce a Chinese-style total lockdown, as it is not an authoritarian regime and demand has fallen to an all-time low, the economic ramifications of which cannot be countered through reliance on the free market. In the midst of this, the CARES Act underscores the precariousness of American neoliberalism and puts to test the Trumpian ‘America First’ agenda.

While the disease might not discriminate, the COVID-19 pandemic has brought to attention the glaring income inequality and class difference in America. Those in the lower-income bracket are far more likely to be service sector workers and are now laid off or receiving significant pay cuts as a result of the drastic decrease in demand for these services. While the promise for $1200 per family earning incomes up to $75,000 does provide some cushioning for the coming economic blow, it does little to address the systemic instability that will likely follow such an economic shock. At best, this provision overtly addresses the issue of class difference and economic elitism in the US.

Another sector that is perhaps most impacted by the viral outbreak is healthcare—particularly public healthcare facilities. Most Americans at the bottom rung of the income ladder have poor access to healthcare. The CARES Act sets aside $100 billion as a Public Health Fund for public health providers and small businesses that are aiding in combating the spread of the virus.[ii] Provisions like the expansion of telehealth services and the strengthening of Rural Health Clinics in the bill address and attempt to combat this disproportional accessibility of the American healthcare system.[iii] However, the amendments made to Medicaid are far more minor and comprise mainly of increasing flexibility in the state’s ability to pay for certain critical services relating to COVID-19.

Toward a New Welfare State?

Although these provisions highlight the swift response of the government in such a testing situation, they further point to the failure of American neoliberalism within the country and beyond. The $250 billion carved out in unemployment insurance benefits elicit the unsubstantial structure of the existing unemployment schemes. In fact, the unemployment rate has hit a record high of 3.3 million in March alone—a number far bigger than what was seen during the Great Recession of both the 1930s and post-2009 financial crisis.[iv] The need to extend insurance coverage to telehealth services—the type of healthcare increasingly common in lower-income and rural households—is an act of covering up a healthcare system that systemically deprivileges the working class.

In effect, the CARES Act has unintentionally emphasized the dire need for a welfare state. Two months ago, the policies put forward in the Act would have been considered too radical in Congress, especially under the Trump administration. Deep government intervention in the economy and rapid expansion of the public sector—largely associated with socialism—was advocated only by the likes of Bernie Sanders and dismissed by most Democrats and Republicans alike. Andrew Yang’s Universal Basic Income (UBI) proposal was mocked during the primaries. The belief that the government would hand out cash to the public was a mere socialist fairytale, and the fact that America was not ready to give up its homebody neoliberalism loomed large under the 2020 Democratic Primaries. Only the severity of COVID-19 brought about this radical U-turn in the federal government’s response to the situation.

The novelty of the crisis is such that existing stimulus like quantitative easing cannot be relied upon anymore. Demand cannot be stimulated under a pandemic just by lowering interest rates. In fact, the stark drop in consumerism puts to test the flexibility and adaptability of the government and its subsequent response to manage an increasingly capricious economic environment. Adam Smith was wrong, there is no invisible hand that can placate this crisis.


[i] https://www.visualcapitalist.com/the-anatomy-of-the-2-trillion-covid-19-stimulus-bill/

[ii] https://www.congress.gov/bill/116th-congress/senate-bill/3548/text#toc-id87B2A4774FCF4B66AE8F5EBB38CF64EB

[iii] https://www.natlawreview.com/article/cares-act-offers-relief-support-us-healthcare-sector-during-covid-19-response

[iv] https://www.businessinsider.com/us-weekly-jobless-claims-record-coronavirus-unemployment-insurance-labor-recession-2020-3

Image credit: https://www.businessinsider.com/trump-rejects-bailout-that-included-aid-to-usps-report-says-2020-4




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