The Extremely Boring Idea That Could Save the Economy

A little over a year ago, a group of progressive policy experts published a book of essays titled Recession Ready, which offered a simple, compelling, and modern theory about how to deal with economic catastrophe. “Recessions are both common and devastating,” it warned. Instead of trying to fight downturns on a case-by-case basis, waiting until disaster strikes to write a bespoke stimulus bill, the authors argued that Congress should plan ahead by putting in place more “automatic stabilizers”—policies that are preprogrammed to kick into gear and support the economy when it slumps.

The United States has a number of automatic stabilizers in action already, though we don’t always think of them as such. Safety-net programs like food stamps and unemployment insurance, for instance, fit the bill. They are designed primarily to help Americans in times of need, but as a result they also add ballast to the wider economy at moments of crisis by boosting household spending power and aggregate demand.

But Recession Ready’s contributors wanted to take the concept much further. The government could redesign unemployment benefits and food stamps to increase in value when unemployment spikes. Washington could send households cash, deliver more aid to states, and increase infrastructure spending during periods of weakness—all automatically. In many ways, the book reflected the lessons and scars of the Obama era, when the White House spent years battling recalcitrant Republicans on Capitol Hill for more fiscal stimulus while the economy languished. And rather than praying for responsible leaders in Congress to save the day through white-knuckle, down-to-the-wire negotiations, it argued, you could set up the better part of a recession-fighting machine ahead of time, allowing it to run on autopilot whenever the need arose.

Now that we’re muddling our way through the coronavirus crisis, the book’s case seems more urgent than ever. At the moment, about 30 million Americans are set to lose crucial unemployment benefits that have been sustaining them through the pandemic—for the simple, mind-numbing reason that Congress couldn’t hit an arbitrary deadline. Lawmakers have known for months that the extra $600-a-week payments Americans are depending on were set to officially expire on Friday. And yet Republicans waited until the last minute to introduce a badly insufficient, and arguably dangerous, bill to deal with the next phase of pandemic relief, which Democrats rejected.¹ As a result, Congress skipped out on town without a deal, and out-of-work Americans will now see their incomes slashed in the midst of our worst economic collapse on record. Anyone with a working neuron should see this as lunacy.

We could have avoided this nationwide facepalm if unemployment benefits were designed to rise and fall with the health of the economy, in the first place. “Automatic stabilizers prevent you from cutting off things too soon,” George Washington University professor Jay Shambaugh, who co-edited Recession Ready, and served on Obama’s Council of Economic Advisers, told me. “The idea that the unemployment rate is higher than at any point in the Great Recession and we’re about to pull support from the economy—that’s just ridiculous.”

Using automatic stabilizers to recession-proof the economy would have other advantages, too. Take speed, for starters. Lawmakers moved quickly to pass the CARES Act this March, but that wasn’t necessarily typical. After Lehman Brothers collapsed in 2008, the country had to wait five months into the Great Recession for Obama to be sworn in and then sign his stimulus package. A well-designed stabilizer could get money out the door much faster, perhaps as soon as the unemployment rate or jobless claims significantly ticked up.

Another plus: With automatic stabilizers in place, we wouldn’t have to worry about Congress failing to cover all of its bases. So far, Democrats haven’t been able to get anywhere near enough aid to states into the coronavirus relief bills, and as a result, many are facing looming budget crises. It’d be better if that aid was simply loaded and ready to go.

Programs also tend to work better if they are in advance and tested, instead of thrown together on the fly while the world is burning. Had Congress decided ahead of time that it wanted to let freelancers get unemployment benefits, or try to pay people their full wages after losing a job, or send out checks to nearly every American at a moment’s notice the next time the economy crumbled, we might have had good systems in place to do them. Instead, we’ve run into all manner of administrative and logistical headaches, from laid off workers waiting months for their benefits to the Treasury sending out prepaid debit cards that people threw away because they looked like junk mail. (The entire structure of the flat, $600 unemployment bonus that’s so controversial was essentially a workaround to deal with the limits of antiquated state computer systems.) It’s good that Congress can improvise when called up. But it would be nice if our parachute actually deployed properly the next time the economy was in freefall.

There are clear political upsides as well, at least for Democrats. With stabilizers in place, a potential president like Joe Biden wouldn’t have to worry about as much about a Republican Congress attempting to undercut his administration by refusing to pass stimulus measures during a recession. That could also yield economic benefits: Businesses might be less likely to lay off workers at the start of a downturn, and families might not cut back spending as much, if they know Washington will support the economy whether or not there’s gridlock on Capitol Hill.

Automatic stabilizers won’t entirely eliminate the need for Congress to act when the economy tanks, since each recession has its own unique root causes that usually need to be addressed. In 2008, there was a housing crash and financial crisis; today, there’s a pandemic that’s shut down normal life. Lawmakers will still have to come up with solutions to tomorrow’s calamities as they arise.

What stablizers would do is spare our elected officials the need to reinvent the wheel every time a crisis comes up, by making the basic, well-established steps for fighting a recession an automatic routine that doesn’t require a massive partisan fight to enact. “When we went around talking to people on the Hill about this book, we kept trying to say to them, ‘This isn’t everything you would do in any situation.’ What we picked as topics are the things we always do,” Shambaugh told me. Having a recession-fighting regime in place would also free up politicians’ attention to focus on the really unique, complicated problems they need to address. “Last time it would have left more space to think about housing. This time it would have left more space to think about test-and-trace, about the proper way to deal with the health care system around this. And what do we do about businesses that we are telling to shut down, because that’s just different.”

Recession Ready left a deep impression among some Democrats in Washington, and in many ways, it helped shape the party’s response to the coronavirus crisis. Two of its contributors, Washington Center for Equitable Growth economist Claudia Sahm and former Obama chief economist Jason Furman, were among the most vocal proponents of mailing checks to families (or, more often, wiring direct deposits). One crucial reason Democrats pushed for enhanced unemployment benefits so aggressively in March is that, prior to the crisis, two senators, Ron Wyden of Oregon and Michael Bennet of Colorado, were working on bills to bulk up UI benefits and make them a better stabilizer. When House Democrats were hashing out their own phase four coronavirus bill, the HEROES Act, in May, many argued for tying unemployment benefits to the unemployment rate, and Speaker Nancy Pelosi briefly entertained the idea before nixing it due to cost. But Wyden and Senate Majority Leader Chuck Schumer recently picked the idea back up, introducing a bill that would have extended the $600-a-week payments, and only decreased them incrementally as joblessness fell. The unity task force between Joe Biden and Bernie Sanders’ campaign also included a revamp of unemployment insurance in their recommendations.

But if Democrats take control of Washington after November, they should be willing to go further by setting up recession-fighting weapons like cash payments and infrastructure spending to fire off automatically when necessary, too. They also can’t let the idea get eclipsed by other, shinier priorities. There’s nothing particularly sexy about stabilizers. (Even the word suggests the exact opposite of excitement.) It’s probably not going to get a large part of the base revved up, or even make an immediate difference in people’s lives, any more so than a temporary stimulus package. But after two economic cataclysms where Congress has failed to what was needed, in part because of Republican obstruction or incompetence, Democrats owe it to the country to make sure that we aren’t in the same position a decade from now. We know the essential mechanisms to fight a recession. We should set them and forget them.