 In hindsight, looking back, people tend to look at the Great Recession and the response saying it wasn't enough, but we could have done more because we had a very slow recovery, unemployment stayed high for years and years, households balance sheets in terms of their home values, their savings, it was rough. And this time, you spend five times as much money, and that's just the big programs. And we get this more rapid than usual recovery that, in my opinion, was a good approach. And yet, I think when we look back on these two periods, we will probably come down to some kind of a Goldilocks assessment that we did too little after the Great Recession, and we could have pared back some what we did after COVID. Claudia Somme, I'm an economist and former Federal Reserve. I'm currently an independent economist, a consultant, and I am privileged to have a research grant from Inet. An automatic stabilizer is a way to put economic policy on autopilot, particularly in a time of a recession. We have some in the United States already, unemployment insurance is one, the dollars ramp up because there's more people who are unemployed in a recession, and that's one that just happens, and it happens quickly when people lose their jobs. There's scope to create more automatic stabilizers, tie them to economic conditions, get them going as soon as a recession hits, and that takes, well, you can plan ahead, you can get all the details figured out, and then because it's tied to some kind of economic indicator, like unemployment rate, you take the politics out of it in the moment. And that can be important for a lot of reasons. One reason that it's important for the economics and for people is you get the money out quickly. You don't have to have a big debate, and you get it out in a well-designed way because you've thought really hard about, and Congress has approved, ahead of time what we'll do in a recession. Automatic stabilizers come in many different forms. The idea of them is purely that they, as the name says, they happen automatically, and they haven't automatically given the economic conditions, and that, they take a lot of forms, some of them are much more targeted. It's often typical in recessions to increase food stamp amounts, and that's a very targeted population. It becomes a larger population in a recession, but, you know, it's very targeted to a certain group of families that don't have food security, and those benefits are always there, the food stamps. They often in recessions are increased in dollar value, and you could imagine a case where we would do this automatically, or we wouldn't have to fight over it. In that case, automatic stabilizers can also be really important, not just when you turn it on, but when you turn it off, or you phase it down. So again, that's often where the politics really come in. The food stamps are very targeted, unemployment insurance benefits often become more generous. In a recession, again, that's very targeted, and then there are some like the stimulus checks, which in the last episode, they went to the bottom 80% of households by income. So the highest income people don't get it, but 80% of households, that's not really targeting. So the argument would be that you want to do a mix of different things. The very targeted automatic stabilizers are about helping people who are in great need. So making sure they have the food they need to eat, and they can pay rent because they don't have their paycheck. And the more broad based fiscal stimulus that we do, that we could do automatically, is really about getting the economy going again. We all benefit from getting people back to work and economy. Getting out of a recession is a good thing. So you want to have a mix of the very targeted and the more general. They have somewhat different purposes, and yet it does all fit together in terms of getting us out of the recession and getting us out in a way that causes the least damage to households, small businesses, and the like. With the stimulus checks through relief payments, thinking about should we do these automatically, or what we call discretionary. And that's been the typical case with the stimulus checks, Congress sits down, the world is on fire, they're like, send out money. People like money. And it actually, it was very clear in the COVID recession, we are capable of sending money out to people. That's pretty, Treasury is pretty good at just sending out checks, which was important because they were able to get them out very quickly and to many, many families. The biggest problem that I think we lived through with the COVID recession is the politics. The politics didn't show up in the beginning. We sent out checks. These were the most generous checks that we've sent out. I mean, COVID was the worst recession we had seen in living memory. And so that made a lot of sense. Everyone is a Keynesian in a foxhole. Congress had no problem getting those checks out the door. It became complicated that an automatic program could have addressed were the second check, the third check, how big should they be? When should they go out? And they became very politically heated. I mean, frankly, they're very politically heated. The last check with the American Rescue Plan to this day as we worked pondering the second and the third check. So then President Trump had talked about we're going to send out $2,000 checks. This was to everyone, every man, woman and child in the country, except these highest income earners, that was by far bigger than the check at the very beginning of the recession. There were a lot of people, economists who debated, do we really need that much money? In talking to the press at one point, I was asked, why $2,000? What's the research? Where is this? And I mean, an expert who spent a lot of time thinking about and studying stimulus checks, I'm like, there is no, like that was just a number that I was big. So that, and I agreed, like I was in favor of the stimulus checks because $2,000 was better than zero. And the politics had said, this is the number they played into the Georgia election. These became something that was very political, the number. And that potentially, I mean, they could have been somewhat smaller. That was a big check. You would never put the biggest check at the end. You put it at the beginning. So if you had an automatic stabilizer program, and this was research that I had done before the COVID recession, you could have ways to tie it to unemployment or to GDP, like how many of these do we do? How big are they? And get this, like, oh, someone just in Congress comes up with a number. So I think that's one where if we prepare, we can make better decisions. And we can, I mean, there's always going to be political hot potatoes during a crisis. And discretionary decisions that Congress will have to make, the administration will have to make, those shouldn't be the kind of decisions that we always face, like with the stimulus checks. Those in this case should have COVID or housing issues, right? Like there were public health issues. So they should be focused on those because we can't do them automatically. But the things that we do all the time, put them on autopilot. They're reliable. People know what to expect. And they can be based on clear-headed thinking that's hard to do in a crisis. It's an important question. If you want to do automatic stabilizers, what's the automatic? And again, you want something that's tied to economic conditions, something that no one can, no one individual can go in and change. Right, again, we're keeping the politics out of this. We don't, you know, everyone would like a check, right? So you don't want something that is easily changed. And so this was research that I had done before, well, in 2019, I was part of a research volume about automatic stabilizers, and I wrote a chapter about making stimulus checks automatic based on research that they'd been very effective of helping households stimulate the economy. So as I was working on this, I needed a trigger, right? I made the case we want to send these out. We want to make it automatic. It would be better. Well, when do we do it? And if you're sending out hundreds of billions of dollars, the federal government would like to do that when it actually is a recession. Most people would be okay if they got an extra check, but, you know, the idea is you need something highly accurate. So I had worked with the unemployment data, knowing that a small increase in unemployment rate is bad news, because often it becomes a dynamic of its own. If you lose your job, you go and spend less, which means the person at the store can lose their job, and they spend less. So it starts out slowly and then it typically snowballs. So I spent a lot of time with unemployment rate data, looked at the data as the policymaker would have seen at the time, not after revised, and came up with a recession indicator that is highly accurate. So from the 1970s on, it works perfectly. You take the three-month moving average at the unemployment rate, just to smooth out the bumps and wiggles that we see for month to month. You compare that latest number to its low over the prior 12 months, and if it's increased a half a percentage point, we're in a recession, then the first two, three months of a recession. And that's been the case back to the 1970s. It actually goes pretty accurate going all the way back to World War II. So now it's an empirical pattern. It's called the someral, but it is not a lot of nature. It doesn't have to, it might not work. I mean, it might break this time, because everything else is broken. But the idea of it, I think the logic of it makes sense, and once the unemployment rate starts rising, it keeps going. And that's the dynamic. A half a percentage point is a very small increase. Typically after it triggers, it will rise in a typical recession, two to three percentage points. So that's not what we want to have right now. And the idea of the someral is you trigger, you get the payments out right away with the goal of making it a less severe recession with less unemployment. See, at the very beginning of a recession, when, and a recession is a widespread contraction, right? Like people broadly cut back on spending, investment broadly cuts back. That's what we think of as a recession. What happens also in a recession, which makes a lot of sense, is people lose their jobs. So you have households pulling, losing their jobs, and then other people being afraid of losing their jobs. And so in general, either by necessity or out of this concern, people will pull back on their spending, and that consumer spending is 70% of GDP in the United States. So once you lose the consumers, you've lost the economy. But households react differently. And one thing that is a common problem in the United States, and this was the case for many decades, we're never ready for a recession because there are many families that live paycheck to paycheck. So the stimulus checks are designed to get that money out, and again, to get people from cutting back on spending so much, to get them to spend. And in particular, when you get it to these people who have thin financial buffers, it can give them, I mean, they tend to really react, like if you're living paycheck to paycheck and you've lost your paycheck, getting other income, but if it's in the form of a stimulus check or unemployment benefits, that can do a lot to keep your spending going. It's not just spending them. Many households, frankly, it's more common than spending them, are to mostly use them to pay down debt and to save them. And we absolutely saw that during the COVID recession. There was a notable drop in a lot of debt that households had. Credit card debt was paid off, payday loans, I mean, there were some non-bank loans that were paid off. So that's giving people a cushion for the future. So a benefit of the stimulus checks is you give people money and they can decide what they need as opposed to the government deciding what do you need. When we think about the lessons in terms of fiscal policy over the past several decades, the ink is not dry, right? The latest episode with the COVID recession and recovery was a notable sea change in how we approach fiscal policy. It's not entirely clear right now whether it was a net positive or not, because right now we're in this position where we have higher than usual inflation and a very strong job market, lower than usual unemployment. So we have one really good thing and one really not good thing. Fiscal policy does stand out in the United States. We went big. I mean, this was a swing for the fences, almost around $5 trillion went out within a year of major relief packages that had things like the stimulus checks, the unemployment insurance benefits, benefits for small businesses. I mean, there was just this for state and local government. There was just this massive list of relief that went out in programs. And some of it was really fine tune programs like the extra food stamps. You can't get kicked off of Medicaid. You had the student loan pause. So we just went all in on helping people. Now the clearest comparison would be back to the great recession. And there we spent about a trillion dollars to fight that recession. The great recession with the collapse in the housing market and the financial crisis, that was a very different kind of recession than this one with COVID. And yet they were both really severe recessions that hit people very hard. And there was a market difference in the fiscal response, the amount of help that went out to families. And then as we went along, we actually went into a period of austerity where Congress was cutting back budgets, right? So I mean, this was like night and day in how we responded. In hindsight, looking back, people tend to look at the great recession and the response saying it wasn't enough. But we could have done more because we had a very slow recovery. Unemployment stayed high for years and years. Households, balance sheets in terms of like their home values, their savings. It just, it was rough. I was at the Federal Reserve then forecasting consumer spending and looking at household finance and it was depressing to see just how grinding it was. And it was unusually grinding, right? Like the recovery should have happened faster and it just, it didn't. And this time, you spend five times as much money and that's just the big programs. And we get this more rapid than usual recovery. But it also came with, like I said, the inflation, which we would have had high inflation anyways. Europe, other advanced economies do too. It's entirely arguable that, I mean, you could, you can absolutely make the case that inflation in the United States was higher than it would have been if we hadn't had the rescue plan or these big fiscal programs. But we're going to have high inflation anyways. The rescue plan gave people something of a buffer. That in my opinion was a good approach. And yet I think when we look back on these two periods, we will probably come down to some kind of a Goldilocks assessment that we did too little after the great recession and we could have pared back some what we did after COVID. And frankly, this goes back to my really being attached to the automatic stabilizers is, OK, how do we calibrate this? Like, it's really hard in the moment and with the politics to get that, to fine tune that. And I think the reason we can look at either episode and say too little, too much, is because we compare it to the economic data. So let's do that as we're living it, as opposed to afterwards. But it's tricky. And I spent a lot of time thinking about this. I think it's much more straightforward to know when to turn it on. It's much harder to know when to phase it out in terms of the special relief. But that's a research question. It's a policy question. It has an answer. We just don't know it yet.