It's now or never! Even in light of Congress's recent stimulus package, Congress still must send out more money, starting with $2,000 checks and extended support for the unemployed. The speed and breadth of the recovery, and its effects on Americans, continue to hang in the balance.
Anything less would be tragic. Millions remain unemployed; more businesses are closing permanently; state and local governments have laid off one million workers in education. Yet, concerns in Congress among conservatives and moderates about the deficit remain a key sticking point. The federal budget deficit was $3.1 trillion in fiscal year 2020 and total U.S. debt is roughly equal to GDP—the first time that has happened since World War II. Debt is on track to rise further, even without more fiscal relief.
Fears about future negative effects of deficit spending are being put ahead of the current suffering of millions of Americans. It's wrong, and it's dangerous. The faster we get everyone back to work, the better. What's more, the interest the United States must pay to borrow is low, making it easier to make payments on our deficit spending.
Sadly, hand-wringing over the deficit is all too common in Congress. The bogeyman of inflation and skyrocketing interest rates looms large every time the debt rises. In reality, it's an ironclad aversion to federal spending and big government that drives the obsession with U.S. debt levels. Who pays for that ideology? Americans, especially those hit hardest during crises like COVID-19. They don't benefit from tax cuts for the wealthy, and they are hurt by the middling support from Congress.
Today, as a result, we are reliving the train wreck that slowed the recovery from the Great Recession. And the wealth of many families had barely recovered from the Great Recession before COVID-19 even arrived. The COVID-19 recession is especially tragic because people on the sidelines of the labor market had finally gotten jobs over the past few years. Their gains have vanished.
Congress and President Joe Biden can, and must, act. The federal government is the only institution in the United States that can spend more than it takes in. It can do trillions of dollars more in deficit spending. In contrast, families and businesses can only spend what they earn, with limits on how much they can borrow. State and local governments must balance their budgets. They all need money to get through this crisis. Only Congress must help.
Fortunately, it knows how to spend money effectively. Last spring, I and other policy experts contributed to Recession Ready, a volume with the best ways to fight recessions. We know what works. Getting money out fast, going big and going broad is the recipe for success. Last spring, Congress delivered. They passed a $2 trillion relief package.
As the old saying goes, "We are all Keynesians in a fox hole." During an intense crisis, members of Congress will set ideology aside. They will spend if they have no other choice. Last March, it looked like Washington had learned the lessons of the financial crisis in 2008.
Economic relief at that time stopped the economic freefall. Numerous studies, including my own, show that direct payments bolstered spending and helped many put some money aside. The halt on evictions and the ability to delay mortgage payments allowed many families to make ends meet, even as their income fell. The payroll protection loans to small businesses and extra weekly jobless benefits were a lifeline to workers and businesses alike. Employment rebounded as temporary workers were recalled. About half of the 20 million jobs lost in the spring have since come back. Then progress began to stall.
Unfortunately, most of the initial money from Congress expired last year. It took a surge in the pandemic this fall for Congress to do more, and the latest package was less than half the money. Until it is safe for life to get back to normal, we will need support from Congress. Congress must commit to do whatever it takes until Americans are back on their feet. An effective way to accomplish that goal is to put relief on autopilot: Vote now to continue continuous direct relief until the unemployment rate is back down near its level last February.
But won't the economy recover on its own without more money? Yes, eventually. But why make American families wait? Yes, it will cost money. But the costs of doing too little are enormous. The costs of doing "too much?" The economy recovers quickly again, and we get to an even better, more equitable place than pre-COVID.
Our elected officials in Washington, D.C. must be good stewards of taxpayer dollars. They also must help struggling families who need assistance. While the deadly pandemic and severe recession is with us, Congress must spend more.
Claudia Sahm is founder of Stay-at-Home Macro.
The views expressed in this article are the writer's own.
