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Tag: economic policy
How Trump’s Policies Made Us More Vulnerable To Recession

How Trump’s Policies Made Us More Vulnerable To Recession

Reprinted with permission from Alternet

As the coronavirus send the United States and the entire global economy hurtling toward recession, President Donald Trump and his defenders have claimed the administration’s policies have left the United States better prepared for the downturn. But in reality, the president’s effects on the course of the economy thus far have been greatly exaggerated, and many of his policies have actually put Americans at greater risk in the event of financial catastrophe.

To understand why Trump’s policies have put us at risk, you have to appreciate the best possible policy response to a recession: automatic stabilizers.

Many automatic stabilizers are actually very familiar to most people. The category includes, for example, SNAP (commonly called food stamps) and unemployment insurance.

These policies are critically important because as a recession worsens, they automatically start ramping up. As more people lose their jobs, more people go on unemployment, and the program starts paying out more money. When more people on short on cash and need help buying for food — a common occurrence in a recession — they apply for and get SNAP to feed their families. The government starts doing exactly what it should do in a recession: spending public money to make up for the private shortfall in spending.

The best policies are “automatic” in the sense that lawmakers don’t have to change the law in a recession for the programs to spend more money; they respond to the need, and if there’s more need, the programs spend more money.

This is a great way to fight a recession because it provides support to the people who are hurt worst by the downturn. That’s good for humanitarian reasons, but also in crudely economic terms because it means the money the government is almost guaranteed to be spent back into the economy. If you give money to people who are doing OK in a recession, they might just try to save it for later.

Since recessions are defined by a reduction in economic activity, policies that can efficiently promote economic activity will help soften the blow and speed the recovery. And since these policies ramp up automatically, there’s less uncertainty about how much support there will be, which can help reassure businesses and investors that the recession won’t be as severe as it might otherwise be. And you can skip entirely the interminable debates and political gamesmanship endemic to the U.S. Congress.

But because of the anti-government and anti-welfare ideology that still poisons the GOP and conservative movement, under the Trump administration, many automatic stabilizers have been significantly weakened.

For example, in December 2019, the Department of Agriculture Secretary Sonny Purdue announced a plan that could kick almost 700,000 people off the rolls of SNAP. It imposes stricter work requirements on the program, which makes it harder for adults who don’t have jobs to get support. Purdue framed this as an effort to fight back against “dependency” on government:

“We need to encourage people by giving them a helping hand but not allowing it to become an indefinitely giving hand,” said Secretary Perdue. “Now, in the midst of the strongest economy in a generation, we need everyone who can work, to work. This rule lays the groundwork for the expectation that able-bodied Americans re-enter the workforce where there are currently more job openings than people to fill them.”

The administration has worked in other ways, too, to limit access to the program. Even in good economic times, these kinds of rules can impose large burdens on people who, for whatever reason, struggle to get or keep a job and need help buying food. If a recession hits, these restrictive measures are even worse. As recently as last week, BuzzFeed reported that the administration had considered delaying the implementation of the rule but had decided to push forward. On Monday, a federal judge halted the change, as Chicago Tribune reported:

“Especially now, as a global pandemic poses widespread health risks, guaranteeing that government officials at both the federal and state levels have flexibility to address the nutritional needs of residents and ensure their well-being through programs like SNAP, is essential,” wrote Chief Judge Beryl Howell of the U.S. District Court for the District of Columbia.

…

Howell halted the rule’s implementation until the court makes a final decision on its legality, saying it will likely be deemed “arbitrary and capricious” because it didn’t appear to consider the hundreds of thousands of submitted comments that raised concerns. The USDA had estimated 1.1 million people would be newly subject to the work rules and nearly 700,000 people nationwide were likely to lose food assistance as a result of the change. Some 36 million Americans are enrolled in SNAP.

But as the Tribune pointed out, tens of thousands have already been kicked off the rolls of SNAP because of similar federal rules under the Trump administration.

The problem goes far beyond SNAP. Catherine Rampell at the Washington Post reported that under Trump — as well as before him — states and the federal government have weakened other policies that could serve as automatic stabilizers:

Elsewhere, the administration has been demanding states add additional paperwork requirements for enrollment in both Medicaid and the Children’s Health Insurance Program, causing eligible families to lose coverage.

The administration also recently announced a proposal to convert part of Medicaid to block grants. This would mean states would get a capped annual amount of federal dollars for the program. It would also limit states’ ability to expand enrollment during a downturn.

Then finally there’s the unemployment insurance program, yet another policy designed to serve as a safety net both for individual families and the macroeconomy as a whole. In theory, it allows jobless people to keep paying bills and patronizing local businesses.

…

This problem clearly pre-dates Trump. Even so, his administration has since encouraged states to add more bureaucratic hurdles — including by doing more widespread drug testing as a condition of benefit receipt. This appears to be a solution in search of a problem, based on the handful of states that have experimented with similar programs before. It’s also expensive, and it slows down benefit receipt.

And it’s not just public health insurance that has been diminished under Trump. After his extensive efforts to undermine Obamacare, the uninsured rate began rising under his administration after consistently falling under his predecessor. This, too, will impose greater burdens on Americans in a recession — especially a recession driven by a public health threat.

Rampell also noted that Larry Kudlow, director of the National Economic Council under Trump, had touted the benefits of automatic stabilizers in the face of a recession without acknowledging how significantly they had been diminished.

Now, it does appear as if Congress and the administration are prepared to move forward with some non-automatic stabilizers to fight the coming recession. This could potentially be stimulus spending in the form of direct cash to families, which would likely be the best option. But many argue that Democrats — who generally favor such policies — should only agree to go along with such a plan if Republicans agree to make the policy automatic. That way, if a recession happens under the next Democratic president, the same beneficial counter-cyclical measures could ramp up without Congress needing to act. Because as Republicans proved in 2009, if a Democrat is in the White House, the GOP is much less willing to spend money to benefit the American people.

Former Fed Chair Yellen Says Trump Doesn’t ‘Grasp’ Economic Policy

Former Fed Chair Yellen Says Trump Doesn’t ‘Grasp’ Economic Policy

Former Federal Reserve Chair Janet Yellen wasn’t renominated to a second term as the head of the U.S. central bank because President Donald Trump wanted to make his own mark on the institution — despite the fact that her replacement holds broadly similar views and she was widely seen as a steady hand at the helm of monetary policy.

And in a new interview published Monday, Yellen had critical — though measured — words about the president and his limited understanding economic policy. Speaking with MarketPlace editor Kai Ryssdal, she was asked to react to Trump’s norm-breaking vocal attacks on the current Fed Chair Jerome Powell.

“President Trump’s comments about Chair Powell and about the Fed do concern me, because if that becomes concerted, I think it does have an impact, especially if conditions in the U.S. for any reason were to deteriorate, it could undermine confidence in the Fed,” she told Ryssdal. “And I think that that would be a bad thing.”

She was also blunt in her assessment of Trump’s understanding of the Fed’s role and economic management more broadly — an area of policy in which the president believes himself to be an expert.

“Do you think the president has a grasp of macroeconomic policy?” asked Ryssdal.

“No, I do not,” said Yellen. “I doubt that he would even be able to say that the Fed’s goals are maximum employment and price stability, which are the goals that Congress has assigned to the Fed. He’s made comments about the Fed having an exchange rate objective in order to support his trade plans, or possibly targeting the U.S. balance of trade. And, you know, I think comments like that show a lack of understanding of the impact of the Fed on the economy, and appropriate policy goals.”

The former fed chair was also critical in the interview of Trump’s aggressive trade policy and liberal use of tariffs.

“I think my own view is that those shifts are likely to be adverse for the U.S. economy, to the extent that some of these things are bargaining chips, with the hope of lowering trade barriers generally,” she said. “I suppose the outcome of that, if it’s successful, could be positive …

“It’s a big ‘if,’” said Ryssdal.

“It is a big ‘if,’” Yellen replied. “And when I continually hear focus by the president and some of his advisers on remedying bilateral trade deficits with other trade partners, I think almost any economist would tell you that there’s no real meaning to bilateral trade deficits, and it’s not an appropriate objective of policy.”

She also said she would have liked to have served a second term as Fed chair and that she misses working there, though she has confidence in current chair Jerome Powell.

Read the full interview here.

IMAGE: Federal Reserve Chair Janet Yellen holds a news conference following the Federal Open Market Committee meeting in Washington in this file photo from September 17, 2015. REUTERS/Jonathan Ernst/Files

Will Debate Be Hillary Clinton’s Moment Of Economic Truth?

Will Debate Be Hillary Clinton’s Moment Of Economic Truth?

By Peter Coy, Bloomberg News (TNS)

NEW YORK — Hillary Clinton has drifted noticeably leftward on economics to fend off attacks from Sen. Elizabeth Warren, who did not enter the race for the Democratic presidential nomination, and from Sen. Bernie Sanders of Vermont, who did.

On Oct. 7 she even came out against the Trans-Pacific Partnership, a 12-nation free-trade deal that her former boss, President Barack Obama, has made a centerpiece of his second term in office. That took away a potential bludgeon from Sanders, who had battered her fence-straddling on a trade pact that he says is “designed to protect the interests of the largest multinational corporations.”

“You can see or sense a shift left relative to when she was Senator Clinton,” says Princeton University economist Alan Blinder, who is an outside economic adviser to the Clinton campaign. “It’s not a huge shift but it’s a shift.”

But Tuesday’s candidate debate in Las Vegas is likely to show that when it comes to the economy, Clinton is no Sanders. She remains a mostly centrist Democrat with a detailed set of policy proposals, while Sanders is a self-described democratic socialist who speaks in broad strokes about taking on “the enormous economic and political power of the billionaire class.” Those two poll-leading candidates for the Democratic nomination will get the most scrutiny in the debate, which will also feature Martin O’Malley, Jim Webb and Lincoln Chafee. (Vice President Joe Biden looms as a possible challenger as well.)

The two leading candidates for the Democratic nomination are “telling very different stories about what’s going wrong and how to fix it,” says Mike Konczal, a fellow at the Roosevelt Institute in New York. “Bernie is talking about CEOs and the 1 percent and big finance and big corporations. Hillary’s trying to thread the needle with a story that’s all about that but also about opportunity and growth.”

The most extreme candidates tend to attract attention in debates, but governing happens in the messy middle. Clinton is likely to make that point, implicitly or explicitly when she takes on Sanders in Tuesday’s debate. “Plans for big, new government spending, even if we think they’re right on the economics, aren’t going to happen,” says Heather Boushey, executive director and chief economist at the Washington Center for Equitable Growth. “What could the Democrats do in the absence of a majority in Congress, and in the absence of having a magic wand?”

Clinton and Sanders aren’t miles apart on everything. Both want a higher federal minimum wage, although Clinton is stumping for $12 an hour over the next few years while Sanders wants $15. Both have big plans to make college more affordable. Both oppose the Keystone XL pipeline. And both say more should be done to crack down on Wall Street abuses.

But Sanders is a bigger spender. He wants to expand Medicare to cover all Americans, thus creating a single-payer health insurance system. That and other initiatives would cost $18 trillion over 10 years, the Wall Street Journal reported last month. (Sanders has disputed the number.) “I find that absolutely astonishing,” says Douglas Holtz-Eakin, president of the Republican-oriented American Action Forum.

Clinton was a leading advocate for broadening health coverage when she was first lady during Bill Clinton’s presidency in the 1990s, but she doesn’t favor anything as expensive as Medicare for all. She wants to protect the Affordable Care Act, lower out-of-pocket expenses, and reduce the cost of prescription drugs.

Clinton wants to cut taxes on “hard-working families,” eliminate the “carried interest” provision that benefits hedge fund managers and enact the “Buffett Rule” to ensure no millionaires pay a lower effective tax rate than their secretaries. Her college plan, which she estimates will cost $350 billion over 10 years, “will be fully paid for by closing tax loopholes and expenditures for the most fortunate,” her website says. Sanders is less specific — mentioning an estate tax and a speculators’ tax — but it’s obvious that his spending plan would have to be paid for with bigger tax hikes than Clinton envisions.

Sanders is also well to the left of Clinton on what to do about Wall Street. Clinton, who was a U.S. senator from New York before becoming Obama’s secretary of State, is trying to court the Sanders crowd without alienating wealthy donors in the financial industry. On Oct. 8, she proposed a “risk fee” on the biggest banks as well as a tax on high-frequency trading. She also called for the reinstatement of a rule to regulate derivatives called swaps that Congress repealed last year.

Says Blinder, Clinton’s outside adviser: “You don’t find Hillary Clinton looking to burn the house down but rather to improve the furniture or maybe even the structure of the house.” Sanders is readier with the matches, saying on his website that “it is time to break up the largest financial institutions in the country.”

The other Democratic candidates who will appear on stage in Las Vegas have had a hard time getting traction in the polls. O’Malley, like Sanders, is to the left of Clinton. His campaign calls for the separation of “commercial and speculative banking” within five years. Chafee says he wants to remove “excessive loopholes and tax cuts for wealthy citizens and corporations.” Webb, campaigning to the right of Clinton, says the U.S. should begin “examining shifting our tax policies away from income and more toward consumption.”

Neera Tanden, a long-time ally of Hillary Clinton who is president of the Center for American Progress, says all the candidates in the Democratic debate — and the Republicans as well — are wrestling with the same few questions. “We need to make sure we have growth, but we want to make sure the growth we have is more fair. Wage stagnation is a very fundamental challenge.”

(c)2015 Bloomberg News. Distributed by Tribune Content Agency, LLC.

U.S. Democratic presidential candidate Hillary Clinton speaks at the Community Forum on Substance Abuse at The Boys and Girls Club of America campaign event in Laconia New Hampshire, September 17, 2015. REUTERS/Faith Ninivaggi

Hillary Clinton Draws Contrast With Republicans As She Lays Out Economic Plan

Hillary Clinton Draws Contrast With Republicans As She Lays Out Economic Plan

By Evan Halper and Michael A. Memoli, Tribune Washington Bureau (TNS)

WASHINGTON — Hillary Rodham Clinton used an economic policy speech Monday to make an early contrast with her potential Republican opponents, promising to “rely on evidence more than ideology” in an effort to restore financial security for Americans left behind in the recent economic recovery.

Clinton, the front-runner for the Democratic nomination, said that boosting middle-class wages was the “defining economic issue of our time” and proposed to overhaul the tax code, promote corporate profit-sharing and advance paid family leave to build what she called a “growth and fairness economy.”

“I want to see our economy work for the struggling, the striving and the successful,” Clinton said in her address at the New School in New York. “We’re not going to find all the answers we need today in the playbooks of the past, we can’t go back to the old policies that failed us before, nor can we just replay the successes.”

Corporate profit-sharing was an example of the “new ideas” Clinton said she’d promote as president, saying it would give workers a stake in the success of their employer as a way to “boost productivity and put money directly in employees’ pockets.”

The emphasis on profit-sharing comes amid concerns by Clinton and the many economists advising her that too much of the American economy has become focused on fast earnings for those in top income brackets, to the detriment of rank-and-file workers.

Clinton’s speech represented the first look at what aides say will be a detailed agenda, to be rolled out in the coming weeks, that seeks to push capital toward more durable growth, creating incentives for investments in infrastructure and research, for example, while closing what her advisers say are tax loopholes that promote excessive risk-taking in the markets.

She also promoted familiar Democratic priorities such as pay equity for women, paid family leave and affordable child care, something she said was not a “luxury” but a “growth strategy.”

Her proposals take aim at a problem vexing economists: how to pull America out of a prolonged period of stagnant middle-class wages, even at a time when productivity is on the rise.

Income disparity has become a central issue in the race for the White House, and Republican candidates have ideas that differ from Clinton’s. Former Florida Gov. Jeb Bush is building his economic agenda around a plan to boost growth of the country’s gross domestic product to a sustained 4 percent a year.

Calling inequality a “drag” on the entire economy, Clinton targeted Bush directly for saying last week that Americans needed to “work longer hours” — a portion of the former Florida governor’s discussion of economic solutions that his campaign said critics have taken out of context. Clinton said Bush “must not have met very many American workers,” and challenged him to repeat the claim to nurses, teachers and others who she said “do not need a lecture. They need a raise.”

Discussing tax reform, Clinton called a plan from Sen. Marco Rubio of Florida that would slash taxes on top incomes a “budget-busting giveaway to the super wealthy,” the kind of plan that was typical of the “bad economics” Republicans would propose.

And she attacked the newest GOP contender, Wisconsin Gov. Scott Walker, for “stomping on workers’ rights” by seeking to undermine the strength of public employee unions.

“I will fight back against these mean-spirited, misguided attacks,” she vowed, saying the decline of unions was responsible for a third of the increase in income inequality. “If we want to get serious about raising incomes, we have to get serious about supporting union workers.”

(c)2015 Tribune Co. Distributed by Tribune Content Agency, LLC.