:format(webp)/cdn.vox-cdn.com/uploads/chorus_image/image/65089487/1163077940.jpg.0.jpg)
Michael Bennet’s presidential campaign has not exactly set the world on fire. But with a new plan released Wednesday, he’s become the first candidate to tackle a critically important topic largely absent from the campaign so far: how to prevent and recover from the next recession.
Dozens of different aspects of public policy influence average people’s economic well-being. But in a practical sense, the influence of the business cycle is pretty overwhelming. The presidency of George W. Bush was an economic disaster for most Americans because it started with a small recession, had a fairly weak recovery in its midsection, and then ended with a giant recession.
Under President Trump, by contrast, so far the typical family has enjoyed rising wages and incomes and is better off in a material sense than it was under President Obama — not because of any specific policy initiatives Trump has undertaken, but simply because the slow, steady recovery that began during Obama’s second year in office has managed to continue.
Subscribe to Today, Explained
Looking for a quick way to keep up with the never-ending news cycle? Host Sean Rameswaram will guide you through the most important stories at the end of each day.
Subscribe on Apple Podcasts, Spotify, Overcast, or wherever you listen to podcasts.
:format(webp):no_upscale()/cdn.vox-cdn.com/uploads/chorus_asset/file/19104938/VOX_todayexplained_twitter_profilephoto_1.png)
Beyond the narrow dollars and cents, the state of the labor market has far-reaching implications for everything from criminal justice to racial equity to the performance of the higher education system. But even as politicians express interest in all of these topics, few of them have directly tackled the core question of how to use fiscal and monetary policy to create the overall economic conditions in which progress can be made.
Bennet’s program is not conceptually stunning, but it is well-grounded in cutting-edge thinking about what’s likely to work. And it’s shining a light on a topic that tends to make or break presidencies without getting the attention it deserves in policy debates.
Automatic stabilizers to cure recessions
Fiscal stimulus — government action to increase the budget deficit and get more money circulating in the economy — is a time-tested and well-proven means of stabilizing the economy.
But the congressional politics of getting the job done is tricky at best.
Consequently, one of our most effective anti-recession tools is what’s known in the business as automatic fiscal stabilizers — stimulus programs that come online automatically when the economy stumbles.
When the job market weakens, for example, more people become eligible for SNAP benefits. That has humanitarian and child welfare benefits, but it also prevents the weaker job market from creating secondary and tertiary downturns in the grocery store and agricultural sectors. Similarly, Social Security benefits keep flowing to retirees even though the payroll tax revenue that pays the benefits tends to collapse. If the program were structured so that outlays were limited by incoming revenue, then job losses would lead to cutbacks in seniors’ spending, which would lead to more job losses and more cutbacks.
Bennet wants to significantly expand fiscal stabilizers in a number of ways:
- Expand SNAP benefits by as much as 15 percent during downturns and automatically have the federal government pick up a larger share of the tab for unemployment insurance benefits when a state’s unemployment rate is elevated.
- Make the federal match for Medicaid and CHIP spending more generous during downturns, so that state governments don’t need to respond to recessions by laying off teachers and raising college tuition in order to fund the health care safety net.
- Create a “fast track infrastructure fund” — a special pool of money that state and local governments could tap during a downturn if they do the advance planning needed to get projects off the ground quickly.
But perhaps the most interesting idea in the Bennet platform is the simplest: endorsing a proposal by Federal Reserve staff economist Claudia Sahm to just cut everyone a check when the unemployment rate rises.
Traditionally, policymakers had worried that this kind of program would be poorly targeted — sending a healthy chunk of change to reasonably affluent households who don’t necessarily need the money and might not even spend it. The experience of the Great Recession has, however, convinced many people that the question of technically optimal targeting is less important than solving the problem of finding fast, feasible, and politically sustainable means of stimulating the economy.
Sending checks to everyone is a potentially powerful boost to the economy, and if you need a bigger boost, it’s trivially easy to send bigger checks. And the fact that everyone gets a check means you could potentially avoid some of the political pitfalls of stimulus programs that engender disputes about who really “deserves” help.
The flip side is that it’s hard to have an effective economic recovery unless you have a supportive Federal Reserve.
A central bank that puts workers first
The Federal Reserve’s basic work — trying to make sure that neither unemployment nor inflation gets too high — is essentially a kind of balancing act.
But over the past generation, the unemployment rate has often soared far above what government economists think is the sustainable level and only rarely been below it. During this same period, high inflation has basically never been a problem. On its own, that’s a good thing. But in context, it’s a sign that monetary policy has been off balance — consistently missing its target in one direction rather than another.
:format(webp):no_upscale()/cdn.vox-cdn.com/uploads/chorus_asset/file/19084949/fredgraph_2.png)
Bennet acknowledges this and says “we need a monetary policy that prioritizes the typical American worker” by being more willing to run risks on the inflation side in order to achieve the benefits of full employment.
The president does not directly control monetary policy, but Bennet is making a firm commitment to appoint Federal Reserve Board members who share this orientation (something the Obama administration only did fitfully) and calling for the creation of a national commission to assess whether formal changes need to be made to the Fed’s framework in order to accomplish this goal.
Realistically, my guess is that relatively little in the way of formal changes is actually needed here. The Fed’s professional staff is aware of how to be more hawkish on unemployment, but its perception for most of the past decade has been that neither the presidential appointees on the board nor the country’s elected officials writ large particularly want to see that happen. Trump has shifted that perception to an extent, and a successor who thinks clearly and forcefully about the subject could make a big different just by making smart appointments.
A debate Democrats should have
A refreshing thing about this Bennet proposal is that appointing Federal Reserve Board members is an actual power the president has. And while presidential appointments to the Fed can be blocked in the Senate, the president is still given a fair amount of deference in these kind of appointments. A White House that is committed to finding well-qualified full employment hawks will in fact be able to put some on the board, but one that doesn’t care about this won’t.
The fiscal policy proposals are a tougher lift, but one can at least imagine this being the subject of bipartisan legislation, with Bennet’s safety net concepts balanced with more GOP-friendly measures on business taxes.
More to the point, managing macroeconomic conditions is a big nondiscretionary part of every president’s job. And precisely because disagreements about fiscal and monetary stimulus aren’t the main axis of partisan political conflict in the United States, it’s a subject that leading Democrats plausibly disagree with each other about.
It’s the kind of thing, in short, that ought to be part of the 2020 primary debate. Bennet has thrown down the gauntlet by offering a plan, and it’s a good one. Other contenders should join him.
