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Maine has clearly avoided the worst of the global pandemic and accompanying economic crisis thus far, with an unemployment rate and cases per capita among the lowest in the U.S. But this could quickly come to end due to a Congressional crisis that was entirely avoidable. While our crisis and need for economic life support continues, generous unemployment benefits, the Paycheck Protection Program and other measures have or will soon come to an end. Approximately 85,000 Mainers and hundreds of businesses are seeing their lifelines cut, and a deep “double-dip” recession will soon be upon us.
This represents a clear failure by Congressional policymakers who have had ample time to develop and agree upon a response. Although the U.S. House passed a second economic recovery bill in May, inexplicably, the Senate had failed to craft its own measures until last week — days before the fiscal cliff and with complex negotiations with Democrats just beginning. Moreover, Senate Republicans have been proposing a weak measure far short of what is needed to prevent a downward spiral, let alone spur a recovery.
Macroeconomists widely agree on the playbook for responding to a recession. The only thing our representatives needed to do was follow it. With consumers and businesses unable to generate sufficient spending, the federal government must step in. Policymakers recognized this in March, passing the $3 trillion in stimulus that is now running out. This stimulus prevented a severe economic collapse. However, unless further action is taken, this past stimulus will have only succeeded in delaying an even more severe economic deterioration. According to both conservative and progressive experts, we need another large stimulus, with continuing income replacement for the unemployed, a large infusion of aid to states and municipalities to prevent millions of additional layoffs, direct funding to help schools open safely, and further assistance to struggling small businesses. Yet somehow Senate Republicans and the White House think that they’ve done enough and see no urgency in propping up an economy that is already struggling and soon to be far worse.
This misplaced frugality in the face of economic crisis is a repeat of our historic mistakes, such as FDR’s 1937 tax increase that plunged the economy back into a deep recession and the insufficient policy response to the 2007-09 recession. In the latter case, the Republican-controlled House blocked an effort to inject additional spending after the initial stimulus package put forward by President Obama proved to be too weak. As a result, it took nine years for unemployment to fall back to its pre-recession level, when greater spending could have achieved this in a fraction of the time. Just as Democrats at the time proved too cautious with initial stimulus — overestimating the willingness of their Republican counterparts to cooperate if more was needed — current Congressional Democrats are finding that they underestimated the amount of necessary economic aid in March’s CARES Act, while Republicans are again hesitant to agree to desperately needed spending.
All of this is avoidable. Many economists have long advocated for “automatic stabilizers,” which commit the federal government to spend more as soon as downturns begin without a time-consuming legislative process every time it is needed. If increased unemployment benefits or stimulus payments like those in the CARES Act were automated, they could’ve kicked in as soon as unemployment insurance claims spiked. Those who lost their jobs wouldn’t have had to wait weeks for relief while the economy continued to contract and Congress debated what to do. Moreover, these payments would end as soon as the economy improved, so policymakers wouldn’t need to set arbitrary expiration dates only to later argue about extending them. Although several House Democrats, including Speaker Pelosi, have agreed that this would be beneficial, they chose not to include it in their May economic recovery bill that instead featured more arbitrary cutoffs.
If our lawmakers have this much trouble passing a suitable economic aid package when unemployment sits above 10 percent, an election is little more than four months away, and more than 80 percent of likely swing-state voters support another round of stimulus payments, can we ever expect a timely and appropriate response to an economic crisis? Our current predicament is yet another clear indication that our existing processes for implementing macroeconomic policy are woefully inefficient and can be quite damaging to workers, businesses, and the economy.
We shouldn’t be left to wait and worry as our livelihoods hang in the balance of a political tug-of-war, while politicians break for summer recesses and re-election campaigns. It’s time for a smarter solution.
Michael Hillard is a Professor of Economics at the University of Southern Maine. Michael Cauvel, is an Assistant Professor of Economics at the University of Southern Maine.