Beware Washington's New Plan for Permanent Pandemic-style Stimulus
It’s no secret that government grew at an astonishing pace during the pandemic. Unemployment claims quickly soared from two million to 33 million per week, as unprecedented $600-per-week federal bonuses and other expansions pushed unemployment spending to $900 billion. Stimulus checks, food stamp increases, housing expansions, new monthly child checks, and open-ended state aid all saw similar record pandemic payouts. With the expiration of Democrats’ American Rescue Plan and the demise of Build Back Better, that extraordinary expansion has now mostly run its course. But with another recession on the horizon, some in DC have begun planning the revival of pandemic benefits—this time on a permanent basis.
A little-noticed Washington conference last month headlined by Treasury Secretary Janet Yellen reviewed these proposals, which can be found in a new book, Recession Remedies, just issued by the left-of-center Brookings Institution. That volume argues for reviving pandemic-style benefits, including by making unemployment “benefit generosity and duration…a function of economic conditions.” As Yellen summarized, “Preparing for the next recession means not only improving existing stabilizers but expanding their reach to other forms of social support.”
What does that mean, exactly? A companion Brookings volume called Recession Ready offers key details. Released before the pandemic, it argued that the Obama stimulus was “not sufficiently large” and “discontinued prematurely.” But that could be overcome in the future by permanently applying unemployment rate “triggers” to automatically start and maintain a spate of stimulus benefits–expanded unemployment benefits but also stimulus checks, federal aid to states, bigger food stamp benefits, more welfare checks, and even elevated infrastructure spending. The authors argue that instead of letting future policymakers match temporary benefits to current needs, today’s lawmakers should design both the expanded programs and unemployment rate triggers that would permanently determine what benefits would automatically flow, to whom, and for how long.
The Biden administration has expressed support for this approach, especially on unemployment benefits. In an April 2021 fact sheet, the White House said that the president “wants to work with Congress to automatically adjust the length and amount of UI benefits unemployed workers receive depending on economic conditions.” Yellen and Labor Secretary Marty Walsh reiterated in August 2021 that the president “is calling on Congress to take up the issue of long-term UI reform as part of the reconciliation process,” which should “automatically expand benefits in a recession.”
Democrats in Congress didn’t add unemployment reform to their already troubled reconciliation bill. But an April 2021 discussion draft from Senate Finance Committee Chairman Ron Wyden (D-OR) proposed “modernizing” unemployment by nationalizing the federal/state extended benefits program and permanently applying generous new state unemployment rate triggers. And in December 2020, Wyden and Majority Leader Chuck Schumer (D-NY), introduced legislation that proposed continuing pandemic unemployment benefits so long as state unemployment rates remained elevated. Had that passed, it would have continued pandemic unemployment benefits well beyond their Labor Day expiration — in 20 states in October 2021 and in 12 states in March 2022 when job openings hit a new record. Those dozen states include large blue states like California, Illinois, Michigan, New Jersey, New York, and Pennsylvania with almost a third of the US workforce. In Alaska, California, and New Mexico, benefits would have continued to flow until July.
The cost of all that? Untold billions of dollars, all added to the debt and billed to federal taxpayers. Even worse, a similar automatic response applied to unemployment and other benefits wouldn’t prevent Congress from adding further temporary benefits in future recessions. As Recession Remedies admits, “automatic stabilizers are only a default; policymakers might still need to bolster them — if the stabilizers do not provide enough or sufficiently targeted support.”
In the end, proposals to create a new era of permanent automatic stimulus threaten far greater future federal spending, taxes, and control. It’s no surprise that stimulus proponents want to lock in pandemic-level benefits into the future because, for some in Washington, record benefit expansions are never enough. But with federal debt now eclipsing $30 trillion and even some Democrats admitting the massive pandemic response has contributed to 40-year-high inflation, taxpayers especially should beware of this latest effort to never let a serious crisis go to waste.
Matt Weidinger is a Rowe Fellow in poverty studies at the American Enterprise Institute.
