This week on Facing the Future, we hear from labor economist Betsey Stevenson, former member of the Obama administration’s Council of Economic Advisors, currently a professor of public policy and economics at the Gerald Ford R. Ford School of Public Policy at the University of Michigan. In a recent paper for the Peter G. Peterson Foundation, she takes a look at social science research showing public trust in government at an all-time low, and recommends actions by Congress that could stabilize our economy, generate more revenue, and avoid the dangerous game of chicken we play every few years, holding our financial system hostage as politicians debate raising the federal debt ceiling. Concord Coalition policy director Tori Gorman joined me for the conversation.
While public approval ratings of presidents go up and down, the percentage of Americans who trust in Congress has for the last 20 years or so hovered in the mid teens to the mid 20s. This has mirrored a great national political divide as Washington has descended into partisan bickering. Still, in looking at social science research about trust in government, professor Stevenson has noticed an outlier trend with some of the more recent numbers.
“There’s a business cycle fluctuation in trust in institutions, so people are really happy with institutions when the economy tends to be booming, and then they become less happy when we enter a recession,” said Stevenson. “Our hope was that as we came out of the 2008 recession, our trust in institutions would rebound. And what has been a complete outlier over the last 10 years is that it didn’t. We saw just a remarkable period of economic growth, we should have seen trust in institutions rebound in a period in which the economy rebounded in a quite striking way. And yet, despite the strong economic growth that occurred through 2019, not only did we not see trust in Congress rebound or increase, but we saw it actually fall further. So I think this marks a really unusual time in which Amerians’ trust in institutions of the United States – whether we’re talking about Congress, or the Presidency, or businesses or courts – you can look across the institutions that shape our society, and people have less confidence in them.”
There are many factors contributing to the great political polarization of American society, and its effects can be seen in Congress and many other places. Stevenson argues that some of the mechanics for how Congress enacts the federal budget and how our system is set up to process fiscal and economic policy contributes to that divide and distrust. It’s what she calls our ‘cognitive dissonance.’
“I’m a big government person, I like to see a lot of social safety nets,” said Stevenson. “I think Social Security has been amazing for older Americans, it means that older Americans have been the least likely group to be in poverty since it was implemented. But we’re one of the lowest tax revenue countries among the advanced economies, and we are not low when it comes to spending. And that’s our cognitive dissonance. You can’t choose to not raise the money, and then spend it. You have to come together and then make the choice.”
With a few changes in process, Stevenson says we could have our political arguments without the potential for such a high degree of economic damage. Case in point is the periodic fight over raising the federal debt ceiling. A divided Congress and the Presidential administration are at it again, just like they were in 2011 when we came days away from defaulting on federal debt payments for the first time in history and the U.S. saw a credit rating downgrade.
“Treasury will get to the point where they can no longer do extraordinary measures, and they will start to delay debt payments, and then all of a sudden Congress will swoop in and raise the debt ceiling. That’s a terrible outcome,” said Stevenson. “What it says is the full faith and credit of the US government is less trustworthy than it was before. And one of the things we’ve had going for us is that our government has been the most trustworthy government in the world in terms of paying its debt back. I wouldn’t give that up lightly, because we won’t get it back very easily.”
Stevenson proposes – as I have said for years – getting rid of the debt ceiling. Or at the very least: change the trigger consequence from defaulting on federal debt payments leading to high interest rates and a global financial crisis as it is now, to automatically higher tax rates, which are politically unpopular but will bring in needed revenue.
“People say the debt ceiling forces us to have an important conversation when we’ve borrowed a certain amount of money, let’s take a good look at our spending and our tax system. I would get rid of it, but for people who want that, we need a different trigger,” said Stevenson “What’s a sensible trigger? A sensible trigger would be across the board tax increases. What Republicans and Democrats can agree with is they hate that idea. Why do they hate that idea? Because it could happen. And they all believe that nobody will sink the boat of the United States, so the debt ceiling breach will never actually happen. But playing chicken repeatedly with the US financial system seems really dumb. Play chicken with taxes – if we have a trigger of across the board tax increases, that’s the only thing that will actually also truly address our fiscal situation. They could do across the board spending cuts as well, but as long as they’re going to exclude all sorts of entitlement payments or non-discretionary, mandatory spending, you couldn’t really get it done through cuts. I think the fact that they don’t want to talk about changing the trigger is really evidence of how dishonest the debate about the debt ceiling truly is.”
Looking at current economic trends, Stevenson says she still sees labor force participation and the service industry sector that have not fully recovered from the devastation and disruption of the COVID-19 pandemic.
“Our seasonal patterns are all totally off. We’re not behaving as consumers in our same seasonal patterns. The reallocations that are occurring are so big that they are swamping any kind of seasonal pattern,” said Stevenson. “A couple of months into the pandemic, household spending on goods was above where it had been in 2019. And then it just surged and people gorged themselves buying goods. Those purchases meant we had to hire a lot of people into the goods industry, the tech sector, people who were providing the things we wanted in 2020 and 2021. What did we not want? Services. We didn’t want to see people, go to restaurants or travel. That return to travel, restaurants and dining out has actually been a smooth upward trend for the last two and a half years. We’re still recovering. Those numbers are still higher in the last couple of months than they were six months ago. We’re shifting away from goods and back to services. That’s still going on, and those shifts are bigger than we like to buy presents for people at Christmas”
Hear more on Facing the Future. I host the program each week on WKXL in Concord N.H., and it is also available via podcast. Join our 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, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.