I had the pleasure of providing some background information for a provocative piece that Talmon Joseph Smith recently wrote for the New York Times about some analysts’ and economists’ tentative arguments about the possible end of the business cycle, given the apparent soft landing of the US economy after more than a year of steady rate hikes. I even have a quotation in it, about how I’m sometimes freaked out by how optimistic I feel about things, at least economically.
I’d be lying if I said that reading that line in the paper of record didn’t make my stomach do a flip or two. I’m superstitious on the best day, and I feel baseline uneasy about any positive outlook I might have for the US or world economy at large. My mind may have even flashed to Gob Bluth saying over and over again, “I’ve made a huge mistake” as I saw bemused reactions to the piece on social media: “so … uh… what makes this time different?” “just wait for that Minsky moment!” “these economists really think crises are over?”
So, some clarification. First of all, read the piece! No one thinks the economy is immune from external shocks; I certainly don’t. When economists and analysts discuss the possibility of a softening business cycle, what we’re talking about is what happens after the shock. There’s also nothing saying that business interests won’t somehow bring about a recession of their own volition; I have many ambivalent feelings about crypto and other asset bubbles, and I was on tenterhooks for the duration of the Silicon Valley Bank fiasco (about which more later). Here’s what I feel optimistic about: in contrast with 2008, the US’s federal government and the Federal Reserve together mobilized lots of spending, massive liquidity provision, and novel methods of stabilizing volatile asset markets to prevent fears about the domestic and global economy from bringing about those feared changes. Solidly mainstream economists have discussed how their fears that expanded unemployment insurance might tank labor markets after the pandemic have publicly announced their errors, and recommended that policy makers consider similar measures next time around. Even the fickle Fed, which spent more than a year raising rates and likely helping cause instability for a bunch of mid-size banks continued to provide ample support for banks and international central banks (a selection of them, anyway) worried about their solvency in the days and weeks after SVB’s failure.
If we compare these responses with government and Fed responses to the 2008 Global Financial Crisis, there’s a wide gulf. The scope and the range of the Fed’s responses to crises since 2008 dwarfs that earlier response, which was, itself, remarkable at the time. The federal government’s interventions have supported households, small businesses and banks, and large businesses and banks. As mentioned, mainstream economists that I ‘did not have on my bingo card’ came out, on the record, in support of expanded unemployment insurance, and have levied more than fair criticism of the support that went to firms who did not, um, use the funds for what they said they would. And to anyone smirking about Minsky moments, it would be worthwhile to remember Mike Beggs’s always germane writing about those moments, and the fact that the Minsky Moment is the rescue, rather than the crisis itself.
There’s also the point Talmon Smith makes about the makeup of the US economy, and the sheer mechanics of spending and GDP and what translates as a recession. We all observed the massive decrease in spending in March and April of 2020, and then almost immediately, there was a big rebound in all kinds of spending. Many firms in the service industries – coffee shops, restaurants – and other retailers figured out how to make the remote commerce thing work. Purchase of goods from online retailers boomed past anyone’s imagination. Large swathes of unemployment payments allowed furloughed waitstaff and other workers to keep spending. All of this contributed to the recession being two months. Two months! It took a while for consumption to reach its pre-March trajectory, but it’s incredible that we’ve actually rejoined our pre-2008 trajectory as other sectors of the economy have rebounded. I’m always struck by this when I walk through US GDP data with my macro students, and I do it a bunch of times each semester.
Something that didn’t make it into the piece that I think is really important is that while I think it is excellent that policy makers are quick to use these tools during crises, I wish that policy makers in the government and at the Fed were more sanguine about deploying these tools for the social benefits that would follow outside of crises. Jamie Galbraith is right that we shouldn’t dismiss perceptions that the economy is not perfect for everyone, even if many metrics, like wages for the lowest income brackets, have shown huge improvement since 2020. I’d like the Fed to make dollar swap lines available to way more economies’ central banks. The end of the Child Taxcare Credit was a huge policy failure. I want more targeted credit facilities, and I’d really like the Federal Reserve to do something about liquidity risks likely to flow from climate change. I think that subsidies for housing, education, and more should be constant phenomena. I also think that a uniform and federally administered unemployment insurance system would be a gargantuan improvement over the US’s state-level hodgepodge of systems that range from the overtaxed and slow to the frankly awful, before we can move on to expanding unemployment payments more generously as a baseline. I also think that we should raise corporate taxes and minimum wages, pass more union friendly legislation, increase all manner of social benefits and on and on.
Ultimately, none of this is mutually exclusive with my being more optimistic about the potential for the US government to respond to economic crises in ways that lessen the long-term hardship created by the initial recession. We should have more debt relief for students, and lower tuition levels for public education in any event. We should have more unemployment for people, whether we’re in a once-in-a-century pandemic or not. We should have more policies that have been proven to shrink the poverty rate (which should, itself, be recalculated to better serve households across the country). At the same time, it’s a very good thing to be able to count on a government to do more to support its population. What really freaks me out is the prospect of losing a government that thinks that this is a good thing, on net. But that’s another story!
Nina Quinn Eichacker 