Open Letter to Lawmakers: “On Recovery Policy”

From Scholars Strategy Network, an open letter:

Economists’ Letter on Recovery Policy
Dear National Lawmakers,

As you consider a new package of aid to support the nation during the ongoing COVID-19 pandemic, now is an appropriate time for the federal government to consider economic research carefully in order to provide well-targeted, significant relief to state governments and to individuals experiencing economic hardship. Support for state budgets, and for safety net programs, most notably funding for the Supplemental Nutrition Assistance Program (SNAP) and for Unemployment Insurance, are wise ways to do this.

Unlike the federal government, states cannot issue debt to support operating expenses. Economic theory and history show that significant state and local government spending cuts can exacerbate recessions and weaken recoveries. Facing dramatically reduced tax revenues, states and localities will be forced to cut budgets for essential programs that support health, education, public safety, and public transportation, and that reduce poverty and hardship — unless federal support is provided.

Cutting state budgets is pro-cyclical, that is to say, it removes spending from the economy at a time when private sector demand is already reduced, making a robust recovery more difficult. Providing funds to states is a wise investment to hasten recovery.

SNAP and Unemployment Insurance provide food and funds to individuals and families in need. This funding, too, can contribute to a more rapid recovery, since low-income individuals are likely to spend new resources immediately, fostering economic activity. And, of course, these programs directly help individuals in need. State Unemployment Insurance funds have been dramatically depleted, while SNAP benefits have never been high enough to fully address food insecurity, and are especially inadequate in the current context.

Evidence indicates that the effects of COVID-19 fall hardest on Black and Latinx communities, and other people of color, as well as people with pre-existing health conditions, and people in poverty. These measures would provide some important relief.

A robust recovery package should address these issues with significant funds.

First Signatories:

Peter Diamond
Institute Professor Emeritus
Massachusetts Institute of Technology

Darrick Hamilton
Executive Director of the Kirwan Institute for the Study of Race and Ethnicity
Ohio State University

Elizabeth Oltmans Ananat
Associate Professor of Economics
Barnard College, Columbia University

Matthew Kraft
Associate Professor of Education and Economics
Brown University

Carolyn Heinrich
Patricia and Rodes Hart Professor of Public Policy, Education and Economics
Vanderbilt University

Alicia Sasser Modestino
Associate Professor of Economics and Public Policy
Northeastern University

Michael Klein
William L. Clayton Professor of International Economic Affairs
Tufts University

Economists who want to sign on, go here:

21 thoughts on “Open Letter to Lawmakers: “On Recovery Policy””

    1. Moses Herzog

      No word yet on whether the military service member at Fort Sill thought their child dying was a “liberal hoax”, “fake news”, or “liberal media bias”. I’ll try and update with video of the funeral, and maybe Bruce Hall or sammy can provide some excellent commentary on whether the casket looks real or not.

  3. Barkley Rosser

    This certainly looks reasonable. I would have signed it if askeed.

    My guess is that we might see a change of mind among the GOP senators and even Trump when it finally hits them that the state fiscal crises will also be happening big time in such major GOP states as Texas and Florida and Arizona, among others.

    1. Willie

      Their minds will only change when it clearly harms their personal chances, ambitions, and status. Yeah, that is cynical, but Moscow Mitch’s behavior is utterly beyond the pale. The rest fall in line like good little yes men. Trump is far enough down the hole he keeps digging that he will not notice. He will fire any advisor who tells him anything except alternative facts.

  4. Moses Herzog

    It looks like the end of Jeff Sessions’ political career tomorrow. Wonder how he’s feeling about associating with donald trump if we asked him tomorrow night at about midnight Eastern time??

    I see it as semi-fascinating as far as the end of one of the old line politicians, I’m kind of curious the results in spite of myself. The reality is it really doesn’t make a difference as his lack of morality is no different than Sessions and whoever wins probably beats Jones. So as usual we have the American electorate getting just what they ask for. Being treated like crap and fleeced because someone waves a flag, a Bible, and a gun.
    https://www.nytimes.com/2020/07/05/us/politics/tommy-tuberville-senate-hedge-fund.html

  5. Moses Herzog

    Meet the next head of the CDC, Chuck Woolery
    https://twitter.com/chuckwoolery/status/1282499347117215745

    Chuck Woolery’s credentials in epidemiology and disease containment are impeccable. He is the former host of “Love Connection”. And he’s an expert on self-lubricating catheters and high quality tanning lotion. These were the most high tech products available in America before MyPillow came along.
    https://www.youtube.com/watch?v=ghuAo_REMkU

    https://www.youtube.com/watch?v=wua4Y5H4K3I

  6. pgl

    “Cutting state budgets is pro-cyclical, that is to say, it removes spending from the economy at a time when private sector demand is already reduced, making a robust recovery more difficult. Providing funds to states is a wise investment to hasten recovery.”

    Important point. Given that Sammy does not get this – can we require him to write this on his chalk board 500 times before he is allowed to write another clueless comment?

    1. 2slugbaits

      Sammy does not get this

      It’s useful to ask why so many conservatives don’t understand that cutting state and local budgets is pro-cyclical. This is where there might be an opportunity for academic economists to help conservative non-economists. In my experience a lot of conservative non-economists (viz., sammy, Bruce Hall and CoRev) see government spending as purely parasitic on the private sector, which they consider the only true source of economic value. So less government spending means less gets eaten up by parasitic bureaucrats, thereby leaving more for the truly productive members of society. That’s a pretty common view and it’s hard to shake people from that line of thought because it agrees with naive intuition and everyday experience. The government is like your lazy brother-in-law who is a drag on the household economy. Ultimately this is a very Marxist view of economics because of its reliance on some version of the labor theory of value, but it also aligns with a kind of pseudo-Austrian brand of economics that many conservatives find appealing because of the political libertarianism that goes along with Austrian economics. My experience is that most conservatives who admire Hayek and von Mises are only familiar with their political writings and couldn’t explain “roundaboutness” if their lives depended on it. When you combine some variant of the labor theory of value alongside Austrian political theory you don’t just get a confused intellectual muddle; you also get today’s MAGA hat wearing conservative. Academic economists should explain to non-economists why the labor theory of value is wrong and why governments do add value and are not parasitic.

      1. pgl

        “In my experience a lot of conservative non-economists (viz., sammy, Bruce Hall and CoRev) see government spending as purely parasitic on the private sector, which they consider the only true source of economic value. So less government spending means less gets eaten up by parasitic bureaucrats, thereby leaving more for the truly productive members of society. That’s a pretty common view and it’s hard to shake people from that line of thought because it agrees with naive intuition and everyday experience. The government is like your lazy brother-in-law who is a drag on the household economy.”

        That may be what they think which is why they should read this:

        https://www.cbpp.org/research/some-basic-facts-on-state-and-local-government-workers

        “By far the largest share of state and local government workers are the nearly 7 million teachers, aides, and support staff working in the nation’s elementary, middle, and high schools. (See Figure 1). Other prominent categories of state and local employment are protective services (including police officers, fire fighters, and correctional officers), higher education, health care (including nurses and other workers at public hospitals and clinics), and transportation (including road maintenance workers and bus drivers).”

        OK – this is the 3rd time this week I have referenced this but Our Usual Suspects probably are ignoring this and all reality.

        1. Bruce Hall

          pgl, on the contrary, I do think that increased government spending during economic downturns makes sense; it’s just that the piper is never paid back during the really good times.

          To me, the basic functions of the (federal) government is to provide a cohesive national framework supporting our Constitution (integrity, as in the state of being whole and undivided), establish and maintain the military for national defense, have federal law enforcement for federal laws, and seek to address issues between the states. The bureaucracy is what has been built up over the centuries to maintain continuity within the context of ever-shifting political, social, and global situations (supposed to be apolitical, but seldom is). Congress, the Presidency, and the Supreme Court are the massive beams upon which everything else swings and rotates.

          But there is another practical aspect that has evolved and that is the “piggy bank” of the nation. If it functioned as conservatives wanted, deposits in excess of withdrawals would be made during good times while the opposite occurred during bleaker times.

          What seems to be the case is that the government has become the money river constantly turning the economic water wheel to make the economy keep running and the accounting of deposits and withdrawals are no longer relevant. The money river keeps flowing and the economic water wheel keeps turning and, miraculously, the river never runs dry and can run increasingly faster and the water wheel runs increasingly faster providing endless services and benefits to increasingly larger segments of the population.

          There is seldom a question about whether the government is the most efficient and efficacious means to provide those endless services and benefits as it simply assumes that role. “See, we haven’t gone broke yet, so all must be well.”

          No, with regard to government spending and programs and benefits, it doesn’t seem to make much difference whether Trump is president or whether Biden or Sanders or Xi is president; more spending buys political approval and fixes all that is wrong with a market economy. Sure we have some hybrid situations such as charter schools of choice which are paid by state treasuries on a less per pupil basis than fully public schools, but somehow manage to outperform publics schools in places like Harlem. We have other hybrid situations where the military outsources functions to contractors because the military as constituted can’t get the job done quite as well. But, for the most part, we muddle along with agencies like the IRS who sends millions of dollars of “stimulus” checks to dead people.

          If we can only tax enough rich people enough, why we will never have to worry about the river running dry and a good time will be had by all in good times and bad… and there will never be an accounting and we will have NIrvana.

      1. Menzie Chinn Post author

        sammy: Governments provide “public goods” (defined in economic terms) for which markets do not necessarily work to deliver optimal allocations. State/local governments are also liquidity constrained. If private firms were similarly positioned, then the answer to your question would be “yes”. Have you ever taken a course in public finance?

        1. pgl

          As we have tried to point out to Sammy many times, much of what state and local governments do is called education. As in paying 7 million teachers. Of course in Sammy’s world educating our children is a Communist plot.

        2. pgl

          “Have you ever taken a course in public finance?”

          Better question – does Sammy even know what public finance even means.

  7. Dr. Dysmalist

    Sammy, our host referred to public goods as economists define them. You really need to learn what this means. I’ll do part of your work for you: pure public goods are those goods which are both nonrival and nonexclusive in consumption. These terms are well-defined in econ, and ad far as I know, have undergone some refinement but almost no change in definition in 40 years.

    Since you have shown that you won’t accept what is said by on this blog by those who with much more education and experience in economics than you have, I strongly suggest that you look these up yourself. As I said, they are well-defined, and there’s an extensive literature on the subject. I suspect that’s the only way you will learn something constructive about this.

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