A few thoughts on the recovery plan that President-elect Biden is announcing tonight.

THREAD:
It is *very* large. Together with the December legislation it would be around $2.8T, which is about $300b per month for the nine months it is in effect.

For context in November GDP was about $80b below pre-crisis trend and compensation was about $20b below pre-crisis trend.
The motivation appears to be more "bottom up" (what the health situation, households, states, etc.) need than "top down" (how big is the output gap, what is the multiplier, what is needed to fill it).
From a bottom up perspective, we're finally seeing ambitious amounts on the virus itself. Extending UI is critical, nutrition assistance and TANF, and the checks are an additional form of insurance but the targeting could be improved.
Importantly, it also has the start of a permanent reform to the social safety net, most notably a $3,000 per child allowance ($3,600 for younger children) which would dramatically reduce child poverty & also an expansion of the childless EITC. Should be extended/made permanent.
From a top down perspective, advocates of stimulus often point to multipliers like 1.5 or higher. In this case the hope has to be that the multiplier is *much* lower otherwise this would bring us way past what the economy can produce this year.
If much of the money in this bill is saved then it will put households and states in a better position to continue to spend in 2022, 2023 and beyond--easing some of the chronic demand shortages.
The biggest missing item is permanent automatic stabilizers that would last as long as needed and scale up/down as appropriate based on economic circumstances. I very much hope this gets added in the Congressional process.
The bill itself is a lot of dollars/month but still ends at the end of September. Automatic stabilizers would ensure it lasts as long as needed.

Automatic stabilizers would also scale up/down as needed based on circumstances.
This package would be the largest response the United States has ever undertaken to an economic crisis, together with the December bill and the subsequent rebuilding package would be larger than CARES. It is more than anywhere else in the world.
If we control the virus could be a wild year for the economy: there is $2T in excess saving, lots of pent up demand, this would be added on top of that, and the Fed is committed to keeping rates low over the next year. Hopefully will be wild in a good way, not in a 2020 way.

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More from @jasonfurman

1 Dec 20
In our new paper @LHSummers and I argue that low interest rates present a challenge for monetary policy and financial stability but an opportunity for fiscal policy--if we choose to seize it. A thread summarizing the paper. piie.com/system/files/d…
We all know interest rates have fallen. Many theories for why, what matters is do they stay low. Market expectations going forward are stunning:

--72% FFR < 0.25 in 2025

--1.4% FFR expected in 2030

--2% ten-year Treasury rate in 2030
This raises 3 concerns:

1. Less scope for monetary policy in recessions

2. Increased financial stability risks (e.g., investors "reach for yield")

3. Maybe even demand shortfalls in normal times.
Read 12 tweets
29 Nov 20
President Biden will have an economic dream team. I am thrilled for him, for them, and most importantly, for the country. One tweet for each member, starting with the most important economic agency (that I ever ran):
Ceci Rouse: An outstanding economist & wonderful person, she brings deep knowledge & commitment to the most important issues the country faces including how to raise wages, reduce discrimination and improve education. She is also experienced with previous stints at NEC and CEA.
Jared Bernstein: A stalwart of economic policymaking. Jared is a keen analyst and passionate advocate for working people who is also trusted and respected across the political spectrum. He brings macro, trade, labor & more to the role.
Read 9 tweets
20 Nov 20
I did a talk in the excellent @MarkusEconomist Academy series yesterday on “Do Debt and Deficits Matter Anymore.” You can watch the video, see the slides, or read this longish thread for a summary.


dropbox.com/s/lb2btgbadotw…
Short version my points:

1. Don’t worry re debt in current emergency. But do ask whether scarce resources meet a cost-benefit test.

2. Best metric is real net interest/GDP, look ahead ~one decade

3. Target 1% of GDP in real net interest/GDP, which is 150-200% of GDP in debt
Before getting to my points some context. Macro policy in 2018-19 was extraordinary, more like the response to a moderate to severe recession. That this was needed to generate reasonable growth is due to long-term decline in interest rates.
Read 20 tweets
14 Nov 20
We are 10m jobs short, virus is spreading, millions are a weeks away from losing benefits, we should not wait any longer to act. The idea that we can get a better deal if we delay until February is both wishful thinking and ignores the suffering now. nytimes.com/2020/11/14/bus…
No legislation signed after 1/20/2021 can help anyone in November or December of 2020 or even much of January 2021.

Also means schools get nothing now etc.

So delaying until next year by definition can’t get more for people when they most need it.
If your goal is to get more for people in Feb/Mar/Apr/etc. next year also have more leverage now: (1) McConnell more reluctant to give Biden a win; (2) vaccine distn will strengthen hand of arguing to just wait and (3) pressure of GA won’t motivate McConnell.
Read 5 tweets
12 Nov 20
My guess is my corner of twitter agrees with the substance of my latest @WSJopinion arguing for more stimulus/relief. So let me flesh out the underlying political argument--everyone will need to compromise to get this done and better this year than next. wsj.com/articles/the-e…
My comments are filled up with blame for President Trump and Leader McConnell. A lot of that is justified. But blaming them, however justifiably, does not help anyone if nothing ever passes. Instead need to figure out how to pass something. Which is going to require compromises.
Maybe the Democrats win both Georgia Senate seats in which case they could come back and try for more. But when you're worried about a problem should place a lot of emphasis on making it as unbad as possible in the bad case not as good as possible in the good case. So better now.
Read 6 tweets
2 Nov 20
What reduces economic activity: (i) the virus leading people to choose to distance or (ii) government required distancing.

Research on services in March/April has found it is much more (i) than (ii) than many people thought.

BUT, mistake to think is always/everywhere 100% (i).
1. Manufacturing and construction mostly shutdown when it was required to and continued when it was allowed to. That is a smaller share of GDP than services but clearly a case of govt policies reducing economic activity (for better or worse, may be worth doing to save lives).
2. In some cases govt required social distancing may be like an investment that pays off: less economic activity today but better virus control & more activity in the future. In this case one would see a short-run tradeoff between activity & govt social distancing, but worth it.
Read 11 tweets

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