Saturday, Aug. 24, 2019 | 2 a.m.
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Financial markets are sending their loudest recession warning signals since 2007, when the United States was about to enter the Great Recession. And while an “inverted” yield curve is not a guarantee of recession, policymakers in Washington, D.C., have already begun preparing their economic stimulus packages. But like every spending plan in D.C. of late, those plans far exceed prior stimulus responses — including by replacing what previously has been temporary stimulus with policies and spending programs that would last forever.
The last major fiscal stimulus package was the American Recovery and Reinvestment Act of 2009. Known informally as the “Obama stimulus,” the legislation funded “shovel-ready” transportation projects, more generous welfare benefits, and a host of other spending and tax relief measures. The stimulus cost more than $800 billion, or more than the annual Pentagon budget. And while several subsequent bills extended or supplemented measures included in the stimulus, major policies were indeed temporary.
However, especially in the eyes of the public, the stimulus did not keep its promise to create jobs. As unemployment soared to 10%, Americans asked “where are the jobs” and threw House Democrats who supported the plan out of the majority.
Nonetheless, yesterday’s temporary stimulus advocates are doubling down by now proposing to create even larger “automatic stimulus” that would operate permanently in the future.
As laid out in a recent policy guide whose authors include key architects of the 2009 law, automatic stimulus would revive past stimulus policies like federal aid for states, stimulus checks for individuals, expanded food stamps, bigger welfare checks, longer unemployment benefits and added shovel-ready transportation funding. But automatic stimulus would include two key differences.
First, once enacted by Congress, the policies and programs would be permanently authorized, instead of depending on Congress to pass temporary legislation. Some new permanent stimulus programs — like “employment subsidies” and jobs for the long-term unemployed already reflected in congressional legislation — would even operate when the economy is not in recession.
The second difference is that these programs and benefits would automatically grow when the economy contracts. To be clear, spending on certain government programs expands automatically during recessions under current law. For example, more people already collect means-tested programs as household incomes fall in recessions. Automatic stimulus, however, envisions significant changes to the underlying operating guidelines of programs based on deteriorating economic indicators. So not only would more people qualify for benefits, but the benefits they receive would be greater. That means more weeks of unemployment benefits, greater food stamps, and aid for states and more would automatically flow whenever the unemployment rate rises above pre-determined levels.
Without knowing the depth of future recessions, it is impossible to know how much all this would cost. But to its supporters, the advantages of automatic stimulus over the temporary 2009 stimulus law all head in the same direction — toward even greater spending.
According to proponents of automatic stimulus, that temporary 2009 law arrived too late, “discontinued prematurely,” and was “not sufficiently large” in the first place. Proponents also acknowledge the obvious: even if automatic stimulus is enacted, “there will likely still be a need for discretionary policy.” That is, there will always be political demand for temporary stimulus as Congress is under pressure to “do something” whenever recessions strike. Automatic stimulus supporters also appear to rely on budget loopholes to keep from having to pay for this permanent rise in entitlement spending. Previous temporary stimulus bills have regularly been designated as “emergency spending,” absolving them from being paid for by equivalent spending cuts or tax hikes.
Proponents’ primary case for automatic stimulus rests on the fear that a dysfunctional Congress and administration won’t agree on appropriate temporary responses when future recessions strike. That fear is largely misplaced. In every recession in recent decades, Congress has approved temporary stimulus to boost spending and hiring. With the notable exception of the 2009 stimulus law, past bipartisan cooperation also served as an important brake on the more extreme policy preferences of either party.
Fear of dysfunction, or concerns the 2009 stimulus law didn’t spend enough, are not sufficient reason to abandon that longstanding practice and important policy restraint.
Matt Weidinger served for more than two decades as a staff member of the House Ways and Means Committee. He now works as a resident fellow in poverty studies at the American Enterprise Institute. He wrote this for InsideSources.com.
