Don’t Know How Much Stimulus Is Needed? Put It On Autopilot, Some Say
Democrats, some economists propose keeping extra unemployment insurance until jobless rate hits triggers. Don’t Know How Much Stimulus Is Needed? Put It On Autopilot, Some Say
One of the trickiest questions facing Congress when it takes up the debate on new stimulus later this month is just how much help the economy needs to recover from the Covid-19 pandemic.
If it is already recovering rapidly, the government may spend and borrow more than needed, pushing the national debt higher. If the recession drags on, multiple rounds of economic relief may be necessary, a process fraught with political hurdles.
Some economists and lawmakers say they have the solution: put stimulus on autopilot, so that aid to households automatically becomes more or less generous as economic triggers are hit. They say enhanced unemployment benefits could be authorized to continue until the unemployment rate falls below a preset threshold, avoiding the political fights that can slow stimulus efforts.
“There were 13 votes in the wake of the [2007-09] recession to extend unemployment benefits,” said Rep. Don Beyer (D., Va.), the vice chairman of Congress’ Joint Economic Committee. “That’s a lot of political back and forth. Any time you have to go through a tough negotiation, there are political costs to both sides, so why not take it away from that?”
A few features of current law already act as automatic stabilizers: When the economy weakens, more people qualify for food stamps and unemployment insurance, and the Treasury collects less tax revenue. When the economy strengthens, that goes into reverse, thus automatically “stabilizing” the business cycle.
The U.S.’ automatic stabilizers are weaker than in some other advanced countries. Tying these programs to economic conditions would be one way to make them more powerful, at a time when the Federal Reserve has less room to cushion the economy since interest rates are already close to zero.
At the end of March, Congress expanded those programs by adding $600 a week to regular unemployment benefits, which ranged from 31% to 54% of weekly pay in 2019, widening eligibility to contract workers, such as delivery drivers or freelance writers and extending the duration of benefits.
Senate Minority Leader Chuck Schumer (D, N.Y.) and Sen. Ron Wyden (D., Ore.) introduced a measure on July 1 that would extend the extra $600 until a state’s average unemployment rate over three months is below 11%, then gradually shrink the bonus as the rate drops further. It would also extend the duration of regular benefits from 39 to up to 78 weeks, as long as a state’s unemployment is above 5.5%.
House Speaker Nancy Pelosi (D., Calif.) has endorsed the idea of using triggers for enhanced aid, though she didn’t include them in the latest coronavirus relief package the House approved in May. That bill would extend enhanced benefits through the end of 2021 at a cost of $432 billion, pushing the cost of the overall bill to $3.4 trillion, according to the Congressional Budget Office.
The unemployment rate, which stood at 11.1% in June, is expected to fall to 10.5% by year-end and to 7.6% by the end of 2021, still well above the 3.5% recorded in February before the virus spread throughout the U.S., according to the CBO.
Tying benefits to economic triggers would cost even more depending on how the proposal is structured, said Claudia Sahm, macroeconomic policy director at the Washington Center for Equitable Growth, a left-leaning think tank, who advised House leaders on the measure. But if the economy recovers rapidly, automating the enhanced benefits means they would quickly phase out, leaving minimal impact on the debt.
Triggers could be especially useful during this recovery, whose pace depends on the virus. Strong economic data in May prompted calls from Republicans that another big aid package might not be necessary. Just weeks later, a resurgence of cases appears to have slowed growth.
While the current proposal for triggers revolves around unemployment insurance, in theory tax cuts, higher benefits for food stamps and stimulus checks could be similarly linked to the state of the economy.
The proposal is unlikely to make headway so long as Republicans control the Senate. Critics say enhanced benefits discourage workers from returning to the labor force. There is some evidence that extended benefits have that effect: A 2015 study by economists Marcus Hagedorn, Iourii Manovskii and Kurt Mitman found an abrupt stop in extended benefits in the U.S. at the end of 2013 led to higher employment the following year.
“There is a vicious cycle here that the unemployment rate won’t fall if the government keeps the benefit so high,” said Chris Edwards, an economist at the libertarian Cato Institute, who also warned such fiscal policy rules could add trillions to federal debt.
“I don’t see what the advantage is in trying to make decisions for the future now,” he said.
Mr. Beyer, who introduced a House bill similar to Messrs. Schumer and Wyden’s plan, said the triggers proposal might not make it into the next fiscal package Congress expects to pass by the end of the month, but he is optimistic. After the House passed its bill, Mr. Beyer said Mrs. Pelosi told a group of lawmakers from relevant committees to continue to explore the idea.
And if Democrats win control of the White House and Senate in November, “It wouldn’t surprise me if we do it in January,” he said.
‘Fed Accounts’ For All — With Automatic And Recurring Payments Triggered By Economic Crises
The next coronavirus relief package must fix the flaws of the first, and here’s how free bank accounts for all Americans at the Federal Reserve fit into that solution.
Wealthy interests have thrived during the pandemic. The CARES Act authorized trillions in spending to support wealthy people and corporations. Most of the money was used to guarantee liquidity for banks and hedge funds, backstop corporate balance sheets, and purchase debt to save commercial loan markets. Overall, 82% of the $170 billion tax provision included in the stimulus legislation benefited individuals making more than $1 million per year.
The results this spending are in. The Dow industrials and the S&P 500 have been on the rise for weeks, and the Nasdaq Composite is at an all-time high, while the aggregate net worth of billionaires has increased by 20% in the last five months.
On July 31, the $600 lifeline in extra federal unemployment benefits expires, and the $1,200 checks authorized by the CARES Act will be long gone. And despite having received direct aid, most states and cities will be facing a cash crunch, which could lead to massive layoffs and cuts to critical social services. If these issues were not enough, President Donald Trump is demanding that school districts bring students back, without the billions in resources needed to do so safely.
The federal government’s job is to spend to stimulate the economy during a crisis, and we know this strategy works. Now Congress must do the same for working people and for communities across the country.
Without dramatic congressional action in the coming days, the American economy is poised to drive off a cliff.
Thankfully, members of Congress are negotiating another stimulus package. But this next one must fix the flaws of the first. This time, the stimulus package must prioritize recurring aid and structural reforms for working people and local governments.
The next stimulus package must extend the unemployment benefit and provide a recurring guaranteed income of $2,000 per month, create free bank accounts at the Federal Reserve — “Fed Accounts” — for every American, and supply state and local governments with ongoing cash payments and ensure that future economic crises trigger automatic payments.
The federal government’s job is to spend to stimulate the economy during a crisis, and we know this strategy works. Now Congress must do the same for working people and for communities across the country.
Before the pandemic, many Americans were barely making ends meet. Only four in 10 Americans had $400 in the bank to weather an emergency, millions of households were living check to check, and many were spending more than a third of their income on housing. This was an economy with historically low unemployment and soaring stock markets. The coronavirus forced its brittle underbelly to the surface.
By providing to every American a $2,000 monthly guaranteed income, America will be a more resilient nation. Monthly cash payments will ensure people can pay rent and buy food, provide the peace of mind needed to socially distance today, and better prepare everyone for the next disaster.
According to the Federal Reserve’s data, 22% of Americans are underbanked or unbanked. About 40% of the unbanked used some form of predatory service such as a check-cashing service, pawnshops, an auto title loan, payday or paycheck advance, or a tax-refund-advance product. For perspective, currency exchanges typically charge 3% to cash a government check (one that has zero chance of bouncing), 1% of a utility bill to pay that bill, and up to 400% on a payday loan.
Put another way, billions of dollars’ worth of income and future wealth is being extracted from communities because we do not treat access to banking as a public utility like water or electricity.
When it came time to disburse the CARES Act checks, millions of people had no way to receive the help. Many waited weeks. Some are still waiting. The creation of free Fed Accounts will ensure everyone has a public option for a free bank account and to receive their guaranteed income for no cost via government keystroke.
Finally, Congress should pass a structural reform where states and cities receive recurring countercyclical aid when there is an economic crisis. State and local governments have watched revenues plummet because of the coronavirus, and there are additional risks on the horizon.
With continued unemployment and a possible wave of defaults on residential and commercial rents and mortgages, income- and property-tax revenues are under threat. States and cities are required to pass balanced budgets by law, even if it means harming the people they serve. Historically, they have had to do all three and, in doing so, hurt recovery efforts in the long term. By supporting local governments with recurring aid, the federal government will fuel the national economic recovery.
These are reasonable demands. It is unreasonable to think people and communities can weather the pandemic without additional help. Yes, these items will cost money — but inaction will result in more death and cause permanent damage to the economy.
The clock is ticking.
Large Percent Of Global Stimulus Is Not “Green”
With only 2.5% of government spending going to green activities, we’re squandering a chance to create jobs and cut emissions.
The exuberance of vaccine rollouts in rich countries is masking an ugly reality. Greenhouse gas emissions are already creeping higher than before the pandemic as economies come back to life.
That shouldn’t be a total surprise. Even as governments around the world have spent trillions of dollars to aid their nation’s recoveries, only a tiny fraction has gone toward initiatives that would also cut pollution.
Many politicians, including U.S. president Joe Biden, have adopted the phrase “build back better.” But they have yet to deliver on the promise. That’s the conclusion of a new report from the University of Oxford and the United Nations Environment Programme (UNEP). Researchers found that, out of the $14.6 trillion in spending announced by the 50 largest economies in 2020, only 2.5% has been for green activities.
And that limited stimulus isn’t evenly spread across the globe. “The vast majority of the green spending has been driven by only five countries,” said Brian O’Callaghan, project manager of the economic recovery project at the University of Oxford and a lead author of the report.
Much of the initial spending, about $11 trillion, was directed toward rescuing ailing firms, providing loans to small businesses and cash to individuals. Economists mostly agree that was necessary to avoid an even worse outcome.
But much of the rest of the stimulus money could have been better spent. “There was a rush to support companies without thinking through whether one could attach some green strings,” said Inger La Cour Andersen, executive director of UNEP.
These conditions could perhaps ensure that companies bailed out with taxpayer money were required to set emissions targets in line with, say, the Paris Agreement. It did happen a few times. Some European airlines, for example, were forced to cut short-haul flights when they accepted government funding during the pandemic.
While some economists argue that setting such rules can get in the way of recovery efforts, the vast majority, including many influential minds at central banks, argue that spending on green activities can help create just as many jobs as supporting high-emitting activities.
One reason for the failure may be that governments did not have “ready made pathways for green investments,” said Andersen. Countries can get better by learning from each other when it comes to what types of green spending are most effective.
That is why O’Callaghan’s team also launched the Global Recovery Observatory. It tracks stimulus spending across the world and has so far lodged more than 3,500 policies in its database. Using real-world examples, the group’s economic advisors can help policy makers shape green spending policies to suit their specific needs.
The tracker can also help civil-minded bodies hold governments to account. With real numbers to as a reference point, it will be easier to identify governments that claim to be pushing for a green recovery but aren’t actually doing enough.
The world economy shrank by as much as 3.5% in 2020, according to the International Monetary Fund. That’s the single largest drop in global gross domestic product since World War II, and it means the recovery will take a few years. So there’s still time to push stimulus spending in a greener direction.
Millions Of Americans Are Missing Out On Stimulus ‘Survival’ Checks
An estimated 8 million Americans were cut from the most recent round of Covid-19 relief payments, in the interest of targeting money to those who need it most.
Last year, Russell Robinson and his family received about $2,000 in stimulus money. He was looking forward to another check for $2,000 that President Joe Biden in January promised would arrive soon.
But after Democrats slimmed down eligibility for the checks, he, his wife and three children didn’t make the cut this time. It’s not that Robinson needs the cash. The risk consultant, 43, from Kansas City, Missouri, remained employed throughout the pandemic.
“Ultimately I’m complaining about about making too much money,” Robinson said. “But it’s still disappointing.”
Robinson is one of millions of Americans who received federal coronavirus relief money in 2020 but aren’t eligible under the bill passed this week by Congress and signed Thursday by Biden.
To Robinson, Democrats broke a promise they made in December when they called the $600 checks a “down payment” on a later round. Though he doesn’t need the extra money, Robinson said the lack of a check will have an impact on others. “It will make a huge difference to a mother of three,” he added. “It’ll be something they remember for the next election.”
The $1,400 direct payments are the largest single amount yet during the pandemic, and the total amount spent will be larger than either round of stimulus funding passed in March and December. Eligibility, however, was cut back after Democrats including Joe Manchin of West Virginia and Jeanne Shaheen of New Hampshire pushed to make sure the funding wasn’t sent to people who didn’t need it to keep the lights on.
The more-restrictive cutoffs did what the lawmakers pushing for them intended to do: keep the cost down. By instituting the lower thresholds, lawmakers shaved about $12 billion off the cost of the package.
Despite signs of recovery, millions of people in the U.S. are still without work. The unemployment rate in February fell to 6.2%, roughly the same rate it was at the 2003 peak of the dot-com bust aftermath and well below the 14.8% rate in April, but still far from the 3.5% a year ago.
Under the eligibility rules of the bill, individuals who earn as much as $75,000, or couples making $150,000, plus their children or adult dependents, qualify for the full $1,400 per person. Single parents with at least one dependent who earn $112,500 or less also get the full amount.
The payments phase out much more quickly than in previous rounds: An individual with income of $80,000, or a couple with $160,000, get nothing. Democrats had billed the checks as “survival checks.”
The think tank Institute on Taxation and Economic Policy estimates that 280 million people would receive a full or partial payment under the new criteria, compared with 288 million who received all or some of the second $600 direct payment approved in December.
Steve Wamhoff, the institute’s director of federal tax policy, said that the lower-income families who received the full amount of the two earlier stimulus checks would be receiving the full $1,400 from this round.
“All the people who need help are going to get help,” Wamhoff said.
Some said that they would have pumped the money right back into the economy, making the relief payments more akin to stimulus money.
Mikki Sethman had planned to use the funds to pay for trips to attend some of her daughter’s softball games at the University of Idaho, but she isn’t eligible. She says she’ll potentially dip into savings or go into debt to fund her trips, if she decides to go.
“Our check was going to go directly to helping the economy,” said Sethman, 46, a school teacher who lives near Los Angeles. “We were going to be the plane tickets, we were going to be the booked hotel rooms. Now we have to decide which games we can attend, and which ones we can’t.”
Others who aren’t receiving the checks this time say they could have used the money, but missing out wasn’t going to push them over the edge.
Samuel Suarez, 37, from the suburbs outside Raleigh, North Carolina, just missed the cutoff for this round of stimulus. He has come to terms with the fact that he and his wife won’t receive the infusion of cash this time around. He was laid off shortly after the pandemic but found another job and was helped out by unemployment insurance.
Suarez, who has two children, says the stimulus payments would have been useful as discretionary income, or as an emergency fund were he to be laid off again.
“We do alright, but we’re not rich by any stretch of the imagination,” he said. “Our income goes awfully quick when you’re spending half of it on your house and daycare.”
Is This The Last Charge Of The Stimulus Brigade?
The U.S. is closer to spending big on infrastructure. Beijing is pumping more credit into its economy. The IMF and the EU are doling out cash. What effect is all this money going to have?
Two likely events have just complicated the global economic outlook for Fed Chair Jerome Powell as he prepares for his speech on Friday at the Jackson Hole virtual central banking symposium.
First, the U.S. House of Representatives backed President Joe Biden’s $3.5 trillion budget resolution, moving it an important step toward passage. It includes $550 billion to spend on infrastructure. Secondly, the Peoples Bank of China just signaled it is going to pump credit into the world’s second largest economy.
A trillion here, a trillion there and pretty soon you are talking serious money funneled into the world economy.
Money is akin to water: It seeps through cracks and across borders. The monetary stimulus from the quantitative easing programs of the major central banks acts to lift all boats globally. Big Chinese stimulus will surely have an effect on the U.S. economy, just as how America spends has an effect on the People’s Republic. The Fed’s economists now have to figure if these potential factors compel the U.S. central bank to ease up on its own stimulus.
For the first time in living history, governments and central banks have acted in concert to combat the sharp pandemic recession. (For some, perhaps too close a collaboration.) But more may be required: Recession has been stopped in its tracks and reversed, but big spending — and the potential for runaway inflation — is just getting going.
Apart from the U.S. Congress’s and Xi Jinping’ prospective influence, there are two known knowns for central bank chiefs to consider. On Monday, the International Monetary Fund is unleashing the largest ever allocation of its special drawing rights ($650 billion). This will be targeted primarily towards emerging markets where it will have a seismic effect on vaccination programs in the poorer countries. Also, the European Union will finally put to work the first grants released from the 800 billion-euro ($938.7 billion) NextGeneration EU recovery fund.
This might be coming too late to lend support to U.S. growth which is appearing to be more transitory than high levels of inflation, if recent economic data is any guide.
So if Powell comes off as too hawkish in his speech, he risks tipping the world’s markets in to a taper tantrum tailspin akin to 2013 and 2018. But if he dithers and delays too much, the window to curtail monetary stimulus — the Fed’s $120 billion monthly QE splurges — will slam shut.
And then there’s the fiscal stimulus effect: The Federal Open Market Committee has to guesstimate how much more money is going to be pumped into the U.S. economy by the Biden administration. Not an easy task. All that money will eventually have an inflationary effect.
The PBOC statement has already had a dynamic turnaround effect on crude oil, iron ore and Chinese tech stocks, showing raised hopes of a sea change in China stimulus. It could be a major turning point after the Chinese credit impulse fell dramatically this year.
All this global monetary and fiscal stimulus may convince Powell to chew things over and decide he needs more time to assess their quantitative and qualitative effects. Unconventional monetary measures — such as QE — have had a waning effect over time but they do grease the wheels for government spending to work more smoothly. Until he knows how much more is coming down the pipe, he will be deeply reluctant to turn off the taps. The life of a modern central banker is not an easy one. There are no prizes for a misstep.
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