On the latest Facing the Future, I was joined by Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities, and Concord Coalition Executive Director, Bob Bixby. We discussed economic and budget developments since COVID-19 — including what policymakers should be considering in an additional economic relief package — how the current crisis might impact the long-term budget and economic picture and how national demographic trends are impacting fiscal policy.
[Note: Portions of this week’s Facing the Future can be seen in the video clips posted below.]
Although he does not enjoy being negative, Bernstein said he does not think the economy is out of the woods yet as the nation responds to the COVID-19 pandemic.
“Where 80 percent of the U.S. population lives, commerce is once again retrenching – reopenings are moving into reverse,” Bernstein said. “As Fed Chair Jerome Powell said, the virus will dictate the course of the economy.”
“We put the economy in deep freeze, for a set amount of time, to give ourselves time to control the virus and start looking for a vaccine,” he added. “We failed on virus control … it’s the most important economic fact of what we’re going through right now.”
“We face a double risk,” Bernstein said. “One is that because of our failure in virus control, the economy is now flatlining … and, two, Congress has lost the urgency around the fiscal interventions.”
On how to help manage the virus in order to get the economy back on track, Bernstein pointed to masks, testing and contact tracing. And he said he thinks another relief package by Congress is needed and hopefully on its way.
“The fiscal policy response to this pandemic-induced recession has been very effective,” he said. “And it got out the gate quickly.”
But Bernstein has concerns with the recent lag by Congress, what might be contained in the next piece of legislation and the possibility that the expanded-unemployment insurance (UI) benefit may be allowed to expire.
“Many of our interventions helped preclude business failures, evictions, foreclosures,” Bernstein said. “Because people were getting these benefits, which are now at risk of expiring.”
“The major objection to the $600 plus up, which is not a crazy objection, is that there are a lot of people, actually about two-thirds of recipients, who can make more on UI than they can from work,” he said. “So, that’s a big work disincentive, however, you’ve got to have work to have a work disincentive, and right now we have an 11 percent unemployment rate and lots of places where the job market is this extremely unforgiving game of musical chairs.”
He is open to the idea of maintaining the current benefit level through the end of the year and then revisiting the issue, but he is also sympathetic to the idea of tying any tapering-off of the expanded benefit to state or local economic conditions and job availability.
On long-term fiscal and economic policy, Bernstein said policymakers should be pursuing reforms that bolster resilience to shocks.
“I see an economy … buffeted by fundamental shocks to the system,” he said. “Our economy gets thrown for a massive loop, regularly … that ain’t the way it ought to be.”
“The thing that I want to see … as the economy closes in on full employment, our fiscal conditions should be improving, not worsening,” Bernstein said. “And what we saw at the end of the last expansion, before the pandemic-induced recession, was the opposite of that, unemployment was going down and the deficit was going up.”
“I do believe deficits matter, but I have a two-sided version of that,” he added. “At times like now, you want to ask yourself, are they big enough to offset the demand contraction; on the other side, you want to get back to what I described a second ago, as we’re closing in on a full-capacity economy you want to see some consolidation.”
Bixby joined the program to explain how national demographic trends are impacting fiscal policy and key areas of the federal budget. He said there are two main things to focus on when it comes to the broad picture of our aging population: the budgetary effect and economic impact.
“It’s going to take much more of a portion of the federal budget for Social Security, Medicare and Medicaid,” Bixby said. “That either means you raise taxes to pay for that increase or you cut other things, and one of the things that’s easy to cut because it’s discretionary and funded each year is investment.”
“The problem there is if you cut investments, you’re cutting the lifeblood to the economy that is supposed to be supporting all of these retirees and younger generations trying to make a living,” he said. “So, it’s not a good strategy to cut investments; it can be a negative feedback loop.”
Bixby also said that investment spending as a portion of the budget has fallen over the years, dedicated revenues for Social Security and Medicare will be less able to pay for outgoing benefits and workforce growth and productivity have fallen.
“The take on general revenues is increasingly getting bigger and bigger,” he said. “And talk about a feedback loop because, if you’re not growing the economy, all of these programs that are more expensive become even more difficult to afford.”
“We really do need to think about changing policies that will accommodate an aging population,” Bixby added.
Hear more on Facing the Future. I host the program each week on WKXL, NHTalkRadio.com (N.H.), and it is also available via podcast. Join me and my guests as we discuss issues relating to national fiscal policy with budget experts, industry leaders and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, iTunes, Google Play Music or with an RSS feed. Follow Facing the Future on Facebook and watch videos from past episodes on The Concord Coalition YouTube channel.