Tag: Automatic Stabilizers

Must-read: Ben Spielberg: “How to Prepare for the Next Recession”

Posted on by Brad DeLong

Must-Read: Ben Spielberg: How to Prepare for the Next Recession: “Because interest rates are already so low…

…the Fed’s principal ammunition–the ability to further lower rates–is unlikely to have much traction when the next downturn rolls around. If we want to mitigate hardship and help the economy get back on its feet when that happens, the prudent move would be to strengthen the ‘automatic stabilizers’ in the federal budget–programs like unemployment insurance, the Supplemental Nutrition Assistance Program, or SNAP (food stamps) and Medicaid–that, without the need for congressional action, expand when the economy is weak and contract when the economy is on its way to recovery…. As they currently stand, these programs aren’t enough…. One of the biggest challenges during a recession is at the state level–many states have balanced-budget requirements, which mean that as tax revenues drop, spending has to as well, making the recession more painful…. Policy makers from both major political parties recognize the risks of inaction; Congress passed stimulus packages under the administrations of both George W. Bush and President Obama. In addition to increasing SNAP benefits, providing states with fiscal relief and enacting a Homelessness Prevention and Rapid Rehousing Program that served over one million people, the Obama stimulus funded about 260,000 subsidized jobs in 2009 and 2010. But it would be risky to depend on the same wisdom to come through in the next crisis…

Must-read: Jared Bernstein and Ben Spielberg: “Preparing for the Next Recession: Lessons from the American Recovery and Reinvestment Act”

Posted on by Brad DeLong

Must-Read: Jared Bernstein and Ben Spielberg: Preparing for the Next Recession: Lessons from the American Recovery and Reinvestment Act: “Measures that can quickly respond to a recession by bolstering the economy…

…and at least moderating the downturn’s negative impacts are important.  While the Federal Reserve lowers interest rates and expands access to credit, the President and Congress can tap various ‘stabilizers’ through budget and tax policy that can offset some of the financial losses that households experience and help them maintain higher levels of consumer spending…. The depth of the Great Recession and the slow recovery, however, serve as poignant reminders that monetary policy and automatic stabilizers don’t always do enough.  Meanwhile, state balanced-budget requirements present a serious obstacle to recovery efforts…. But while ARRA was clearly effective, many of its interventions ended too soon, as the economic need for them persisted both at the macroeconomic level (growth and unemployment) and the household level….

Moving forward in anticipation of further recessions, a stronger set of automatic stabilizers would help…. Make UI’s EB program more responsive to economic conditions by having it take effect more quickly and remain in effect until hardship and labor market weakness are alleviated sufficiently, encourage ‘worksharing’ among employees by creating incentives for it through UI, strengthen basic UI benefits, and bolster UI’s financing system. Have temporarily higher SNAP benefits (and perhaps higher SNAP administrative funds for states) take effect automatically when a trigger, possibly tied to state unemployment rates, reaches certain thresholds. Make state fiscal relief, in the form of higher federal payments to help states cover their Medicaid costs, take effect automatically, possibly via the same mechanism that is used to trigger a temporary increase in SNAP benefits. PPrepare for additional discretionary steps during downturns by establishing a dedicated fund for subsidized jobs and job creation programs and considering one-time housing vouchers that can help struggling families keep their homes, pay their rents, and avoid homelessness…