A bipartisan gang of four prominent economists has put forth an economic recovery plan based on four proposals that they see as absolutely essential in the coming months: income support for the unemployed, pandemic employment benefits for low-wage workers, support for small businesses, and state and local fiscal relief.
The only problem? The economists are not optimistic about how open the Trump administration will be to their plan.
“The administration [is] in a very different space with capital gains, tax cuts, and restaurant meal deduction. So I’m just not that hopeful about the administration’s support of our plan,” said Jason Furman, one of the authors of the new plan. He is also an economics professor at Harvard University and was one of President Barack Obama’s top economic advisers.
The recovery plan was co-authored by Furman; Timothy Geithner, Obama’s Treasury Secretary; Glenn Hubbard, a professor of economics at Columbia University and one of President George W. Bush’s top economic advisers; and Melissa Kearney, a professor of economics at the University of Maryland and the director of the Aspen Institute’s bipartisan Economic Strategy Group.
Furman said that members of Congress are more likely to support their plan than members of the Trump administration. He added that there are fewer differences among economists from different political parties than there are among politicians. This is why he said there is broad agreement from economists on both sides that more fiscal action needs to be taken by the federal government in order to slow down the recession and bring back jobs.
Some conservatives have fought further government spending, arguing that more spending would slow down the recovery by keeping people unemployed and would contribute to increasingly unsustainable levels of debt.
Furman responded to this criticism by saying, “I think the costs of inaction are larger than the cost of action.”
“There is zero evidence that the debt is a problem right now. In fact, the real interest rate is currently negative. So the government is having no problem at all borrowing,” Furman said.
Furman also said that there is no evidence that federal government spending slows down economic recovery. Furthermore, his group’s unemployment insurance proposal tailors the spending such that it is designed to make sure people who can’t find a job are protected while still giving people an incentive to go to work.
Kearney says that a key difference between the Trump administration’s approach to economic recovery and her group’s plan is their assessment of uncertainty.
“I’d like to be optimistic that we’re going to have a rapid, V-shaped recovery. But even if we implement robust fiscal policies, given the uncertainty of the virus, there’s a prospect that we’re going to have a long, slow recovery.”
Therefore, Kearney’s plan would automatically scale up or down depending on how the macroeconomy reacts. The plan is appropriately flexible, she said.
“If the unemployment rate stays very high, drops down, and then comes back up, automatic triggers would be in place to make sure that enhanced and expanded [unemployment insurance] benefits would go into place at the right time,” said Kearney.
Automatic triggers are key to the plan’s philosophy and approach — instead of relying on Congress to legislate for every issue and problem that might arise, said Kearney.
One area of spending that the group is in agreement with the Trump administration on is infrastructure. Furman said that infrastructure investment was very important but was outside the scope of this particular plan because it’s not urgently needed to combat the pandemic shutdown effects.
“I would also like to see more money for child care, more cash checks. I’d be perfectly fine with Congress doing those, but they weren’t as high a priority for our group right now,” said Furman.
The group had a staunch conservative in Hubbard, who worked in the Bush administration, and Furman was pleasantly surprised by how much they had in common and how little friction they had when putting the plan together.
“I think a lot of what we were proposing was common-sense economic ideas. But if it was about capital gains taxes, I think Glenn would want those rates to be cut, and I would want those rates to be raised. Neither one of us thinks capital gains has anything to do with responding to the emergency though,” Furman said.
Instead, the scope of their plan was about dealing with the economic emergency due to the pandemic over the next 12 to 36 months.
If there’s not enough financial support from the federal government, Kearney expects that there will be millions fewer jobs and many more struggling households. There will also be drastic spending cuts at all levels of education, which she said “would be a disaster.”
She said that providing federal money to state and local governments was particularly important because community colleges and institutions of higher learning often rely on state governments for funding.
