The answer is no, but with an interesting wrinkle. A group of economists and think-tankers, of which I’m a member, have developed some promising ideas to help blunt the next downturn. But Congress doesn’t seem to be interested in debating them, raising the specter that when the next downturn hits, we’ll be stuck in Cassandra space, with awesome graphs and white papers on one side and an inadequate policy response on the other.
Before we get into the policies, let’s look at the state of the current expansion (this new explainer by economist Chad Stone is a great resource). At 10 years old, this upcycle is now tied for the longest on record. Certain aspects of the expansion have been notably strong, especially unemployment, which remains at a 50-year low. Conversely, growth rates of GDP, jobs and productivity have been middling. Most important for the living standards of working households, wage and income growth haven’t risen as quickly, and more economic insecurity than you’d expect still prevails, despite the very low national unemployment rate. An apt summary of the expansion is that it has been more long than strong. Meanwhile, tariffs and the end of fiscal stimulus (from deficit spending over recent years) pose certain head winds; GDP is tracking at only 1.4 percent.
So, when last Friday’s jobs report came in below what was expected in terms of both job and wage growth, headlines warned of a pending slowdown. Of course, it’s too early to pull the fire alarm, but it’s not at all too soon to worry about how ready we are for the next downturn. Fix the roof when the sun may be heading behind the clouds.
Broadly speaking, there are two economic ways to fight recessions — monetary and fiscal — and to be successful, they must work together. Because interest rates have remained so low in this expansion, the Fed will have less recession-fighting “monetary space” than in the past, meaning less room to cut rates. So, fiscal policy — Keynesian stimulus — will be more important than ever.
Good ideas abound, and they have two crucial attributes: First, such interventions should trigger automatically, not based on Congress’s discretion. In a recession of any depth, neither the overall macroeconomy nor vulnerable households have time for political squabbles. Instead, we want interventions that take place when needed and halt when conditions have reliably improved. Second, because states must balance their annual budgets, the federal government must temporarily help them out.
The unemployment insurance system (UI) is one of the first lines of defense, but it has (fixable) problems. Recipiency among those eligible for UI has declined, especially in states that have erected barriers to receipt, and while UI is mostly a state system in normal times, in recessions the feds kick in. However, those old enough to remember the last recession will recall numerous UI extension fights that needlessly delayed jobless people getting the help they needed. A new paper for a joint venture by the Brookings Hamilton Project and the Washington Center for Equitable Growth offers sage thoughts on how to boost UI participation and make its triggers and benefit levels more responsive to need.
During the last recession, when I was closely involved with implementing and tracking the Recovery Act, one of our most effective interventions was “state fiscal relief.” States’ budget-balancing requirements led them to take actions that make recessions worse, such as cutting spending and restricting increasingly needed human services. A new plan, also from the Hamilton project, would automatically boost the feds’ contribution to state health-care programs. “The increase in a state’s matching rate would be proportional to the amount by which the state’s unemployment rate exceeds the threshold and would phase down automatically as the state’s economy recovers [offsetting] around two-thirds of the budget shortfalls that emerge in economic downturns.” Importantly, because this income transfer simply requires the tweaking of an existing formula, it’s administratively seamless.
Because the lowest-income households are most vulnerable to downturns, a suite of policies must ramp up to protect them. In a paper from a few years ago, Ben Spielberg and I proposed increasing SNAP benefits, subsidized jobs (both of these ideas worked well in the last downturn, but they should trigger automatically next time), and a one-time bump-up in housing vouchers.
How can we get Congress to act on these ideas before the next downturn? Of course, such advocacy would be met by “if it’s not tax cuts, don’t bother me” from some conservatives, but, history teaches us that one definition of a Keynesian is a Republican in a recession. Remember President George W. Bush’s stimulus checks from 2008?
The politics are challenging both because planning ahead doesn’t come naturally to politicians (see climate change), and tweaking federal-state revenue sharing formulas isn’t exactly the stuff of protest movements. What’s more, it’s not clear these ideas will be sufficient. But we won’t be any better prepared if we don’t try.