This is a continuation of a series of articles reacting to the impacts of the shutdowns from the coronavirus, and more importantly, the reactions from the federal government and the Federal Reserve.

Today, I will discuss another portion of the CARES Act, the unprecedented $2 trillion legislation that sailed through Congress with little opposition.

In particular, I would like to focus today on the extended unemployment benefits that were included in this massive bill.

When I first read about a large portion being devoted to extended unemployment benefits, I thought Congress was just extending unemployment benefits in the future instead of expiring as normal.

Unfortunately, it goes way beyond this.  There is a “bonus” amount for people who qualify for unemployment benefits in the form of $600 extra per week.  This is absolutely insane.

This is $600 per week. It is not per month.  This is on top of whatever unemployment benefits are collected based on state law. The additional $600 also doesn’t count as income when determining Medicaid benefits.

This means that many people collecting unemployment will be “earning” over $40,000 on an annual basis.  Does anyone see a problem here?

Many people will be collecting unemployment benefits in excess of what they were actually making when they were working.  There’s nothing like a government program to provide incentives.

If your employer is struggling and cuts your pay by 10% to get through this tough time, it is possible you might have been better off getting fired.  I’m not saying you should wish to be fired, but I can definitely see where many millions of people will look at being laid off as positive.

This is another example of what a joke this $2 trillion stimulus bill is.  It is going to stimulate non-productivity.

Productivity is What Matters

One thing I will have to remind people of throughout this crisis and beyond is that our living standards are based on productivity.  It doesn’t matter how much the government and Federal Reserve shift resources around.  They can create money out of thin air.  They can hand large checks to people.  But none of this creates productivity.  If anything, it is incentivizing people not to produce.

There is a large focus on employment, but the focus is on the dollar earnings of people. Ultimately though, our living standards depend on productivity that meets consumer demands.

It may seem great that someone who was previously making $30,000 per year at a job is now getting somewhere around $40,000 per year to do nothing.  And maybe it is good temporarily for that person.  But that is lost productivity, and someone has to pay for that person to consume while doing nothing.  Someone else’s productivity has to be stolen away to provide for those who aren’t producing.

This means fewer goods and services will be available.  It means a drastic reduction in living standards.  Even for the person getting $40,000 (on an annual basis), if you don’t count the fact that the person doesn’t have to work, this person will also be worse off in the long run.

There may be a select few who get wealthier due to having a business that sells a product in high demand.  There may be a few who get wealthier in the financial markets while most everyone else gets poorer.  But overall, there will be far less in terms of goods and services in our society, even when the virus has gone away.

I can’t emphasize enough just how much damage is currently being done to the economy.  There was already a massive bubble and massive dislocations.

If nearly everything just shut down for a month or two and nothing was done, it certainly would be hard for a lot of people, especially those with little savings.

But the damage being done by the Fed and the government is incalculable.  We will be facing tough economic times for a long while.