Opinion: Fix these 3 things so federal and state governments can offer more targeted help during the next recession


The COVID-19 pandemic had a devastating human impact. It also posed an extraordinary threat to the US economy: a rapid, forceful, creative and highly successful response to fiscal and monetary policy.

While the lessons of this recession continue to unfold, the next recession may come sooner than we expect. Now is the time to identify the lessons of the economic policy response to COVID-19, to take advantage of what worked, and to prepare for the next recession.

The US economic recovery after the severe recession of 2020 was stronger than initially anticipated and stronger than the recoveries of other advanced economies. Notably, few companies failed. Remarkably few people lost their homes or were evicted. State and local budgets are in good standing. And despite the huge increase in federal debt, long-term interest rates remain low, in part due to Federal Reserve actions.

The large fiscal and monetary response – $ 5 trillion in federal spending plus zero Fed interest rates and $ 5 trillion in quantitative easing – shows that fiscal and monetary policy can stabilize a crisis economy.

Of course, all this fiscal and monetary stimulus contributed to an unwanted rise in inflation. It is too early to tell if history will judge that the answer was too great; if inflation drops over the next two years without too much pain, the response to the pandemic is likely to be seen as a historic success.

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A sound, comprehensive and inclusive social security system provides effective relief to troubled households as well as the necessary macroeconomic stimulus. For example, people who lose their jobs and receive unemployment benefits quickly spend much of the money they receive, increasing demand. Generous enough social security benefits, such as unemployment insurance, nutrition and Medicaid programs, can reduce the need for help from businesses, landlords, tenants, and even state and local governments.

Generous unemployment benefits seem to discourage work less than previously thought. The federal government supplemented the usual unemployment benefits with $ 600, and later $ 300 a week, and made benefits available to workers and others who were not previously eligible. It has been argued that these benefits deterred people from taking up employment when employers were eager to hire them. At least during the pandemic, evidence suggests that these effects were quite small.

Making some of the benefits of the COVID era permanent (such as expanding eligibility for unemployment benefits) is the kind of policy we could enact now to ensure a strong enough security network and avoid the need for emergency legislation in the next crisis.

In the future, household support should better reflect the state of the economy and the needs of households. Congress allowed the programs to expire prematurely in the summer and fall of 2020, and probably provided too much of a boost in the winter and spring of 2021. The federal unemployment benefit supplement fluctuated up and down with little connection to the state of the labor market. Most households received a significant single stimulus payment in the spring of 2021, when more targeted and persistent support would have been better.

Congress, therefore, should develop policies that respond automatically when economic conditions justify it: more money when the economy gets worse, less when it does better.

Increasing administrative capacity now, before the next recession, will allow for a stronger response. We learned that the federal government could offer stimulus payments to households electronically very quickly, but we also learned that it is difficult to quickly launch completely new programs (such as tenant assistance) or modify existing programs (such as l unemployment insurance).

Federal and state governments should modernize computer systems, improve communications between agencies and levels of government, and invest in data systems so that they can be more agile in the coming crisis.

We cannot be sure that Congress will always move as fast as it did in the spring of 2020. Recent experience shows that it can, but we cannot leave economic security to the ever-changing political winds. Before the next crisis comes, we should do at least three things: improve existing social security programs, such as unemployment insurance, expand automatic stabilizers that meet economic conditions, and improve administrative infrastructure so that we can plant us effectively, temporarily and appropriately. programs quickly in the next crisis.

Wendy Edelberg is the director of the Hamilton Project at the Brookings Institution. David Wessel is the director orf the Hutchins Center for Fiscal and Monetary Policy at the Brookings Institution, and Louise Sheiner is the center’s policy director.



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