This Will Not End Well (Gwen Moritz Editor’s Note)

The Wall Street Journal published one of the most depressing stories of this depressing year. Even the depressing headline — “No Job, Loads of Debt: Covid Upends Middle-Class Family Finances” — didn’t come close to capturing the demoralizing combination of personal anecdotes and national statistics about what is happening to formerly financially sound families as the coronavirus pandemic stretches endlessly on.

At this writing, the number of COVID deaths in our country has already topped 200,000 (roughly the population of Little Rock) and by the time you read this, the total number of confirmed COVID cases in the United States will probably have surpassed 7 million (more than twice the population of Arkansas).

But there are millions upon millions of other casualties: More than 61 million unemployment claims had been filed between March and mid-September. More than the combined populations of California and Florida have had their working lives interrupted for some or all of this crisis.

While most of the unemployment that we hear about is in the industries that have obviously been hurt most — tourism, dine-in restaurants, theaters, etc. — the WSJ’s story explored the financial ruin of white-collar professionals with above-average income and the kind of debt that has become standard for middle-class Americans.

One example: a suburban New York lawyer and her husband who were earning about $15,000 a month and spending $9,000 of it servicing mortgage and consumer debt, until the pandemic closed the courts and froze the foreclosures that were her legal specialty. Unemployment benefits, even when they were being supplemented with an extra $600 a week from the federal pandemic relief act, don’t come close to replacing that kind of income.

The Wall Street Journal pointed out that unemployment among adults with bachelor’s degrees or higher is significantly worse now (3.3 million) than at its peak during the 2008 financial crisis (2.2 million). And here’s a discouraging prediction from Roger Hochschild, CEO of credit card company Discover Financial Services: “The white-collar layoffs are still to come.”

Also worse than 2008: The amount of debt we are collectively carrying. From a trough of $11.15 trillion in 2013, when we were recovering from the Great Recession, total household debt had climbed to $14.27 trillion at the end of June. That’s a 28% increase in debt load in seven years. (Noted: The national debt increased 42% during the same period, not including the trillions borrowed for COVID relief. Congress is even more addicted to credit cards than the average American household.)

A big driver of household debt has been student loans. The total in that category has nearly doubled in the past seven years, because that’s how normal people qualify for the good-paying, white-collar jobs that allow them to qualify for more household debt. And student loan balances are highest for those young adults who are in the acquisitive stage of life — houses, furniture, cars and additional mouths to feed.

About 45 million Americans were carrying a combined student loan debt of $1.54 trillion as of June 30; by comparison, less auto debt ($1.34 trillion) is spread across more than 100 million of us.

What’s the answer for middle- and upper-middle-class households whose expenses were based on their pre-pandemic earnings and the completely reasonable expectation that they would always be able to deploy their skills in gainful work? In the short term, it should be more relief from the federal government, in the form of higher unemployment benefits and additional “paycheck protection” grants.

That kind of stimulus, aimed at maintaining adequate household income, worked fairly well in the early months of the pandemic, even as Americans were called upon to do far too little to actually get the spread of the virus under control. Unfortunately, the Senate seems to have suddenly started to worry about deficit spending again.

Middle-class earners are also more likely to have retirement savings that can be tapped without the usual tax penalty, thanks to the CARES Act. But spending retirement savings early is a double-whammy, costing not just the amount spent but all that it could earn in the future. This pandemic, then, could exacerbate the chronic illness that is undersaving for retirement even among those Americans who are — or were — most able to save.

Gwen Moritz is the editor of Arkansas Business.