Jason Furman, the former chairman of the White House Council of Economic Advisers under President Obama, has some advice for Congress: Start preparing for the next recession now.
In a Wall Street Journal op-ed, Furman argues:
“Congress should pass a law immediately that would automatically trigger stimulus if the labor market deteriorates, with unemployment rising rapidly. The package should include not only tax cuts but also relief for states, as well as extra help for people most hurt by recessions. The legislation should be permanent, the measures lasting as long as needed in the next downturn and set to trigger in future ones as well.”
Furman writes that, while the U.S. economy is still “in good shape” and doesn’t need the stimulus right now, some red flags have popped up, including a worldwide economic slowdown and risks from President Trump’s trade policy. Furman notes, as others have, that the Federal Reserve will have much less room than usual to lower rates and provide an economic jolt in the event of a slowdown now.
He recommends that Congress adopt a stimulus plan tied to a rule named for economist Claudia Sahm: “A downturn is probably occurring if the three-month average of the unemployment rate has risen by at least 0.5 percentage point above its low point in the previous 12 months.” The rule, Furman says, has been a reliable indicator of every recession since 1970, “with virtually no false positives.”
If that alarm is tripped, Furman says, “Congress should adopt Ms. Sahm’s idea of a trigger for stimulus payments to households. The most equitable and efficient payment would be a flat sum that phased out at higher incomes, but a payroll-tax cut would be a decent alternative.” As part of its stimulus plan, Furman adds, Congress should also automatically extend unemployment benefits and other safety net programs and increase federal matching for Medicaid in states with high unemployment rates.
“These economic interventions would occur only when needed, unlike the needless stimulus from tax cuts and spending increases in 2018,” Furman writes. “They would also last as long as needed, unlike the stimulus that was cut off prematurely in 2012 despite an unemployment rate still at 8%.”
Read Furman’s full op-ed at The Wall Street Journal (paywall), or read Jonathan Chait’s argument for why Democrats need to act now, while Trump is still president, at New York magazine’s Intelligencer.