When revenues and expenses don’t add up in times of crisis, governments often turn to budget cuts and other austerity measures to balance their accounts. But economists widely agree that the most valuable lesson from the Great Recession is that austerity made the recession worse and slowed down recovery. Mike Konczal joins the show this week to explain why, in a recession, stimulus is particularly powerful and austerity is particularly harmful.
Mike Konczal is the Director of Progressive Thought at the Roosevelt Institute, where he works on financial reform, unemployment, inequality, and a progressive vision of the economy. He is a columnist at Vox, a contributor to The Nation, and a contributing editor at Dissent.
Twitter: @rortybomb @rooseveltinst
Further reading:
A forward-thinking policy response to the coronavirus recession: https://rooseveltinstitute.org/forward-thinking-policy-response-coronavirus-recession/
The stimulus plan that we need now: https://www.thenation.com/article/economy/coronavirus-stimulus/
With a uniquely fragile economy, stimulus is not enough: https://bostonreview.net/class-inequality-politics/mike-konczal-felicia-wong-uniquely-fragile-economy-stimulus-not-enough
Portugal dared to cast aside austerity. It’s having a major revival: https://www.nytimes.com/2018/07/22/business/portugal-economy-austerity.html
Worst recovery in postwar era largely explained by cuts in government spending: https://www.epi.org/blog/worst-recovery-in-post-war-era-largely-explained-by-cuts-in-government-spending/
What have we learned about austerity since the Great Recession? https://www.americanprogress.org/issues/economy/reports/2014/05/30/90621/what-have-we-learned-about-austerity-since-the-great-recession/
The United States is not ready for a recession, but it can be: https://www.americanprogress.org/issues/economy/reports/2019/09/27/475075/united-states-not-ready-recession-can/
Austerity is hammering state economies: https://www.americanprogress.org/issues/economy/reports/2012/06/21/11672/austerity-is-hammering-state-economies/
Nick Hanauer:
In tough economic times, governments need to make up for a crisis in the private sector by spending more. The idea that the United States is up on a cliff where it might fall off is nowhere reflected in the financial data.
David Goldstein:
Our economic immune system tells us when things are bad, we need to stop spending and that just makes the economy worse.
Mike Konczal:
Not everyone can save at the same time, and this is why austerity is such a terrible idea.
Speaker 4:
From the offices of Civic Ventures in downtown Seattle, this is Pitchfork Economics with Nick Hanauer where we explore everything you wished you’d learned in econ 101.
Nick Hanauer:
I’m Nick Hanauer, founder of Civic Ventures.
David Goldstein:
I’m David Goldstein, senior fellow at Civic Ventures.
Nick Hanauer:
So Goldie, one of the most interesting things about the circumstance that we’re in with the pandemic and the giant economic contraction that’s going on, which is something that’s happened to the country before and is that people’s natural inclination during these sorts of circumstances is to hunker down, is to withdraw.
David Goldstein:
Right.
Nick Hanauer:
And the way in which that plays out in politics often, certainly it’s the preference of places like the Seattle Times is to cut the budget, to tighten our belts. What’s interesting about that is that while that’s the instinct for most people, it turns out to be exactly the wrong thing to do. It’s the opposite of what you should do. In a recession, what you should do is spend more collectively, not less and that can be the role of government. This is why austerity is such a terrible idea, even though it’s sort of the principle idea of neoliberal orthodoxy.
David Goldstein:
Well, to borrow from COVID-19 itself, I think austerity is the economic equivalent of a cytokine storm; your body’s own immune system overreacting just instinctively, “Oh no, look at this. I need to attack everything,” and that’s what causes a lot of the symptoms that lead to decline. And yeah, our immune system, our economic immune system tells us when things are bad, we need to stop spending. I know it’s what I do personally.
Nick Hanauer:
Yeah.
David Goldstein:
And that just makes the economy worse.
Nick Hanauer:
That’s right.
David Goldstein:
Because if everybody stops spending at once, there’s no economy.
Nick Hanauer:
That’s right. Well, on an individual basis, businesses for instance may need to cut back and individuals may feel the need to cut back. This is precisely when you need to step in and act in the opposite way, is to support the existing programs and ideally, to even spend more. We’re lucky today to get to talk to my console from the Roosevelt Institute who is one of the foremost experts on this issue of austerity and why it makes no sense. He’s going to share a lot of the data around that with us.
Nick Hanauer:
But to preview that data, just to say that the world and the country have run a bunch of natural experiments on this idea of austerity because there are countries that were extremely austere in the global financial crisis in countries which refuse to do that, like Portugal being a great example. You could just see the results afterwards and during, and the differences are stark. Same in our country; there were states in the global financial crisis that cut their budgets and hunkered down and states which refused to do that and you can just see the results. We’re lucky to get to talk to Mike about this stuff because it is definitely going to be one of the most consequential political and economic conversations that this country has during this moment.
David Goldstein:
Right. To point out, of course that one of the reasons why this is so important is that we’re not just talking about the short term. There are longterm irreversible negative impacts on the economy based on the policies that we enact now.
Nick Hanauer:
Right.
David Goldstein:
Economics is path dependent. If we have a slower recovery than we otherwise would, that impacts the future economy and the wellbeing of the American people far out into the future because even if you have 2% growth instead of 3% growth in any year, even if in every subsequent year you have 3% growth, you’ll always have less growth.
Nick Hanauer:
Correct.
David Goldstein:
Here in Washington state, Nick, the Republicans are proposing budget cuts and tax cuts, tax cuts in the face of this. Right now, the editorial board seemed to be letting them dominate the narrative.
Nick Hanauer:
That’s right. The same thing has to be true across the country. Our listeners must be experiencing this unfolding debate over questions of budget cuts, or the term for that is austerity, as we begin to deal with the impacts of the pandemic on the economy. Certainly in our own state, that conversation has risen to the fore, the almost always wrong Seattle Times arguing that our legislature should go into special session and cut the heck out of the budget. This podcast will be devoted to explaining why that’s not just a terrible idea, it’s actually the opposite of what we be doing; that austerity will make this recession worse and longer and we should be spending not saving, and should be a really interesting discussion.
Mike Konczal:
My name is Mike Konczal. I’m a director at the Roosevelt Institute where I work on post neoliberal economic thought and inequality and unemployment. I’m the author of the forthcoming book, “Freedom From the Market,” out next February from New Press.
Nick Hanauer:
One of the themes that we have been sort of exploring on the podcast, Mike, is that pathogens are inevitable, but pandemics are not. The pandemics are a consequence of governing incompetence, wishful thinking, and a lack of preparation. But here we are facing down the biggest sort of political, economic and health crisis in a hundred years. The country is quickly mobilizing around what to do. We were excited to have you on mostly to talk about the number one thing we shouldn’t do, which is budgeting austerity. We’d love you to talk about it and help us explore why it’s a terrible idea.
Mike Konczal:
Absolutely. I’d love to hate to talk about it.
Nick Hanauer:
Yeah. So what is austerity?
Mike Konczal:
Austerity is a move by the government. It could mean a lot of different things, but generally means a move towards retrenchment, towards spending less and putting less final demand in the economy for goods and services when the economy is not near full employment., when we’re in a recession, when we’re in a recovery. It almost always is counterproductive as it makes the situation worse and even worsens the debt and deficit issue as it happens. It more generally means disinvestment from the public sphere and they’re often interconnected because sometimes conservative and reactionary forces will use a downturn to try to privatized or otherwise, starve public services of goods. But primarily when we’re talking about, and especially when we’re going to be talking about in the next year or two, it means focusing on the debt and deficit when there are people who are unemployed and that there are services and goods that could be made if there were purchases to do them.
Nick Hanauer:
Right. So budget cuts is austerity.
Mike Konczal:
Yes.
David Goldstein:
Can we make a distinction, Mike, between state and federal governments when it comes to budgets? States can’t print money and the federal government can, so there are different constraints there.
Mike Konczal:
Yes. For our country like the United States, which issues its own currency, which has debt in its own currency, that’s not true of many other countries, especially a lot of developing countries. The means of being able to combat things are vastly different. States, as you said, do not have their own state currencies. Also, many of them have state constitutional requirements to balance their budget or they have certain kinds of limitations about taking on short term debt to keep their economies moving, but that’s exactly what the federal government can do. Importantly, the states really are, and we can talk about why the states really are on the front lines of this and they’re going to feel the brunt of this very harshly unless the federal government takes steps to ensure that doesn’t happen.
David Goldstein:
Right. Especially in a time of historically low interest rates, there’s really almost no cost to the federal government borrowing money.
Mike Konczal:
Yeah, absolutely. The CBO, the Congressional Budget Office, which does a lot of predictions on unemployment and interest rates for the federal government, they are often accused of being a little too conservative. They tend to think that debt is much more present of a threat and that the recovery might be a little better than it was, especially during the great recession. They just said basically, we’re going to be above 10% and at times, about 15% unemployment during next year, not 2020, but 2021. But meanwhile, interest rates even after the trillions of dollars have just been spent will be lower, which is to say that the market will want the government to spend more. Interest rates are declining and crucially for real interest rates adjusted for inflation, they’re actually negative. The markets want to pay the government in a real sense to take actions to try to prevent this from spiraling into a depression or a prolonged recession, which is terrible for everyone, not just everyday people, but also businesses.
Nick Hanauer:
One of the ways I think it’s most useful to understand these debates in is when you’re talking about these strategies, you’re really arguing over theories of growth. The idea that we should cut the budget in the state in response to this downturn is really your way of saying the best thing for the economy is to cut services for working and middle class people and to lower the number of workers that are employed by the state. By so doing, the economy will recover quicker and it will be better for everyone. There’s an alternative, particularly in a state like Washington, which has no progressive taxation, which is you could very easily continue to provide those services or even increase them if you asked the people with the money to contribute more. That’s another theory of growth.
Mike Konczal:
The most famous case of this is in Europe during the great recession, so in the early 20 teens. You can just look across countries and you can see how much austerity they did, how much they tried to balance their budget in the middle of a large recession, which we then at that time, considered a great recession. Now, it might even look quite small compared to what we’re going through right now. You look at how much retrenchment, how much they tried to balance their budget versus their growth, and you can see across the board the places that retrenched more and did more austerity had much less growth, even negative growth even falling back into a recession compared to countries that try to step up into it. You see the same thing with states in the United States. So there’s different levels of how much because the housing crisis in particular hits so many states much harder than others and during the great recession, the states that did more retrenchment really saw it in their growth afterwards.
Mike Konczal:
So that’s definitely one story about what’s happening here is the idea that whether or not the government has a role in ensuring a prosperous and just society and it does actually line up with growth because you need people healthy and educated and being able to carry out business. There’s another story here I’d really like to emphasize as well ais the kind of Keynesian story, which is essentially there’s two parts to it that are very important. One is not everyone can save at the same time. So to the extent that your state decides it’s going to lay off a bunch of teachers to save more money, well those teachers now aren’t going to have as much money to go out and buy stuff, which means businesses that they’d normally go to; restaurants, other things, they also have to retrench. It’s a downward spiral. Not everyone can save at the same time.
Mike Konczal:
So if you have this morality story… In contrast with that with the morality story, where right now is the time to punish the wicked. The city of the state went way over its britches and this is what’s neat needs to be done to bring in spending, but you can’t actually do it all at the same time. The federal government and the public in particular, in a period in which people are saving more money because they’re scared they’re at home, businesses are not hiring and expanding because there’s a pandemic and quarantine and high unemployment. The federal government and the government, the public more broadly, has to step into this role because no other entity can do it.
David Goldstein:
[crosstalk 00:13:40] Right. When it comes to savings, it’s from the Keynesian perspective, one person’s savings is another person’s income. They come at the cost of each other.
Mike Konczal:
Exactly. Yeah.
David Goldstein:
Recently, Mitch McConnell basically said he didn’t want to bail out profligate blue States. I assume he thinks we’re the profligate ones, and that the state should just go bankrupt. Smart move in the midst of a recession?
Mike Konczal:
No, it’s terrible and first of all, it’s not going to be a blue state thing because it’s going to be every state. Red states that are particularly dependent on their sales tax are going to get hit really hard because sales tax obviously, are collapsing because people aren’t buying and spending as much money as they would normally. So it’s not going to be like three states that happen to have larger budgets than other states. It’s going to be a nationwide problem. Mitch McConnell sees this as a way to punish his enemies in the same way that the Trump tax cuts were built to be very punitive to blue states.
Mike Konczal:
The Republicans are actually very unapologetic. It’s a really tough political asymmetry because while president Obama tried to expand, and liberals and Democrats since, have tried to expand Medicaid in red states, the conservative movement is very unapologetic and using the state apparatus to punish blue states. As a result, it’s a really bad political dynamic right now because I think you’re going to see in the same way during the gr- And I’m kind of shocked that they’re going to try to do this given that they control the Senate and the presidency and are up for a top free election this year. The idea of going to war with Michigan, Wisconsin, Minnesota, Pennsylvania, telling these states to drop dead because they will in fact, be under severe difficulty I think is politically questionable and also. an economic and moral outrage.
David Goldstein:
Do you have an idea of what it would cost for the federal government to just send money to the states to keep them from being forced, the states from being forced into austerity?
Mike Konczal:
The number I’ve heard to cover the revenue shortfall’s $500 billion. So about half a trillion dollars.
David Goldstein:
Oh, that’s nothing.
Mike Konczal:
Yeah.
David Goldstein:
That’s nothing.
Mike Konczal:
I really need to emphasize this for your listeners because it may sound crazy, but it is nothing. It is nothing compared to the longterm damage and even medium term damage of the slower recovery we will have. We will wish we had spent that money in a year or two. And also, if you’re worried about the debt to GDP ratio, the way you really make that a problem is by killing GDP rights, numerator and denominator. If growth is much lower as a result of all this austerity because we didn’t spend the half a trillion dollars when we needed to, as a result, our economic balance sheet to whatever extent you’re worried about that will be definitely worse.
David Goldstein:
And we know this from what happened in the great recession. The early stimulus package had money that went to the states that helped to fray some of their budget shortfalls, but we didn’t continue that. And just as private sector job growth started to recover, public sector job growth dropped, which slowed the recovery because public sector workers are part of the economy too and there’s 20 million just in state and local government.
Mike Konczal:
Yeah, so about 10% of the workforce works for the government. I think that number is still accurate. But yeah, it’s a huge part of the economy. It’s also like a ballast. It’s something that should be a kind of automatic stabilizers. Certain government services still keep going even when the economy is slowing down and that’s important to stabilize the economy as a whole to ensure that a certain amount of income still gets spent. I think the other Keynesian insight in addition to the savings question is that I think sometimes it’s very common with current day economists, is that they think that a recession now just means we’re going to automatically speed up later and you’re essentially kind of balancing forward and backwards growth as if it’s just a little bit… It’s worse now, but it’ll be better later.
Mike Konczal:
What the other real insight is we could end up in the bad place. We could end up in a period in which lower income just becomes permanent income. People don’t expect to make more money, so the economy ends up any kind of quasi permanent depression that takes a long time to break out of. The fact that we’re not just going to automatically have a fantastic 2021 because this year was so miserable, that I think is not really getting through to people.
David Goldstein:
As the economy, “goes back to equilibrium.” [crosstalk 00:18:11]
Mike Konczal:
Yes, exactly.
David Goldstein:
Again, we saw that after the great recession, growth levels never caught up to what they were before. It ended up with a permanent ratcheting down of growth in GDP and productivity.
Mike Konczal:
That is exactly right. In fact, if you look at a chart of GDP over the last century and it’s going up every year, 3% or 2% or depending how you want to measure it, but then there’s a ratchet down, in fact, as you described. It just like a little L on the side. It just goes down a level, but never converges back to the previous trendline. We’re going to see that again now unless we really take serious action.
David Goldstein:
It was even worse than for wages.
Mike Konczal:
Yeah, absolutely. Workers are obviously, the ones who feel the brunt of this and well. The 1% and capital income had a very bad 2007 and 2008. They restored back pretty quickly by 2013, 2014. They were getting the bulk of the recovery and their wages of more than comeback and their incomes more than comeback because they are in a lot more than wages where for everyday workers, has not been the case or they’re only barely breaking even come 2020 and then we go into this.
Nick Hanauer:
One of the things I’ve struggled to come up with is a good metaphor to explain to people, so it’s intuitive why austerity makes recessions worse and stimulus makes them better. It’s sort of like when your car spins out, your natural reaction is not to turn into the spin. It’s to turn [crosstalk 00:19:43] Right? When you do that, your car totally spins out, but if you turn towards the spin, you can get yourself back on track. Have you been able to evolve good metaphors for explaining to people why doing the opposite of what feels natural, which is to sort of shrink back is the right thing?
Mike Konczal:
Yeah. No, and it’s so funny because I’m actually even thinking about all the metaphors we used in 2011 to try to explain people back then because I feel like you can just see all the things, even some of the same people line up the same exact way. That’s obviously a project for all of us to think through. I still think something about the [inaudible 00:20:24] idea, that what is rational for any one person if everyone tries to do it at the same time, whether or not it’s trying to get through a door in case of an emergency or-
Nick Hanauer:
Yeah.
Mike Konczal:
… I don’t even know the right metaphor now and we need to work on it, but that collective action problem where something that wouldn’t make sense for any group of people if everyone does it, everyone’s worse off-
Nick Hanauer:
Right.
Mike Konczal:
… I think it is the intuitive sense that people do encounter in their daily lives and they understand that it’s difficult to navigate.
David Goldstein:
The problem is that the other side has two very accessible metaphors that are totally wrong, but they’re understandable and that is to think of government budgeting as the same as the household budget. You just need to tighten your belt and live within your means, or to say that government should operate like a business.
Mike Konczal:
It’s really shocking to me that we’re looking at unemployment in the teens for the next several years maybe when real interest rates are negative. The private market wants to pay the government to do something and it’s just a political problem that we’re not going to do it. You can already start to feel the ground shift. I think there was an initial bout of goodwill and now as you said, people [inaudible 00:21:41] all these blue states, which are going to get bailed out as if that’s even how the economy works as even if the blue states are net payers into the government anyway. It’s very frustrating across the board.
David Goldstein:
So I want to raise another issue here and that is how different this is going into this recession than we were going into the last recession. The last recession was bad, but it strikes me that our workers, our businesses, the economy as a whole is actually less resilient now than it was in 2007. Is that your sense as well?
Mike Konczal:
Yeah, businesses are more levered because of corporate governance of private equity of shareholder pressure, all the buybacks and dividends. They’ve been surviving so far okay, but there’s a question of how long that survives. Households themselves are stretched pretty thin. Student debt is much higher. Obviously, the mortgage situation looks different because we didn’t have a run up in a housing bubble, but still people do not have much savings. Also, this is a very widespread crisis. Every industry and every occupation is going to get hit on some level. So in the same way, it’s showing us how a lot of essential workers in our country, primarily women of color especially, work very precarious jobs for very low wages. I think we’re also starting to see that the so-called full employment household that was doing pretty well in the recovery, actually was on a very thin net underneath and does not have a lot of savings and could be very vulnerable and in fact, is already very vulnerable in this pandemic.
David Goldstein:
So you’ve called for permanent stimulus. Explain what that might look like.
Mike Konczal:
There’s a bill that already passed. I think the biggest problem with it, and you can kind of talk about all the different angles of it, is that it does not automatically renew. People had pointed this out at the time they decided not to go this route. Who knows if could have, but the big problem, and we saw this under the Obama years, is that there’s a bunch of spending. Some of it’s quite good on unemployment insurance, for instance. Problems is in four months and six months, it doesn’t automatically renew if unemployment is above 8%, or above 6% or above whatever target you want to make. And as such, you’re going to have to refight these political fights to get these programs extended at a point in which if there is a democratic president, but a Republican Senate, we know what that looks like because we just live through it and that might be next January, February where we’re trying to beg to get unemployment insurance for people and people think this is a great way to sandbag a Democratic president.
Mike Konczal:
So why don’t you just get ahead of that upfront and make these programs so that they automatically happen in a recession. So when I say permanent, I don’t mean we’re going to do it all the time all the time for everyone. It’s more if unemployment’s above 5%, if it’s above seven or 8%, then these triggers automatically make things happen like an automatic stabilization check that shows up in your banking account, like an extension of unemployment insurance. So you’re not hoping that we happen to have the political dynamic to fight a social ill of a recession with tools that we know worked.
Nick Hanauer:
So what else should our listeners know about the circumstance? If you give them advice, what should they be fighting for?
Mike Konczal:
One thing that I think is going to be really important is I think in part because we’re coming out of the great recession with so many of these people had said, “Oh my God, there’s going to be a fiscal crisis.” If you remember the whole [crosstalk 00:25:22] committee in 2010, 2011. We’re going to have a fiscal crisis by 2013. Doesn’t happen. Interest rates are lower.
Nick Hanauer:
Okay, explain to people what a fiscal crisis is.
Mike Konczal:
The idea that the federal government’s deficit is so large, the interest rates start increasing and the government essentially has to borrow money just to pay its interest. Imagine how an individual could get in over their head with credit cards. [crosstalk 00:25:46]
Nick Hanauer:
Right.
Mike Konczal:
The idea you would have a situation like that for the government, which prints the money, is the currency issuer is the government. They have the ability to tax, they have the ability to to pay out what it needs to do. Countries that issue their own currency under the circumstances we are looking at do not have these kinds of things. We are not going to have a hyperinflation crisis. If anything, we’re going to have the opposite, which is inflation crisis. [crosstalk 00:26:11] Exactly. The thing that I worry about a little bit is that I think that… So I think the calls for a short term fiscal collapse will not happen. What you will hear a lot more of is in order to do anything, we have to get our longterm fiscal house in play.
Mike Konczal:
And you saw this a little bit during the Obama years where like, “Oh, if you want to get aid to the states, well then we’ve got to cut social security or we got to privatized Medicare and voucherize it,” Or we got to do a number on all these states to order the backstop their ability to fight a pandemic in their hospitals. There is no longterm fiscal crisis in the United States. There are things that will have to be done at various times to rejuggle who’s paying what, but the idea that the United States is on like on a cliff where it might fall off is nowhere reflected in the financial data.
Mike Konczal:
So we need to squat that out. We need to understand that the programs we have are awesome and they should be expanded to more people for more generous amounts like social security, Medicare, and the idea that some sort of longterm hurdle is going to stop us from taking care of our needs now is total bullshit and a total lie and people are going to cynically use it everyday going forward for the next few years.
David Goldstein:
Right. What’s simple math, whenever the inflation rate is higher than the interest rate, your debt pays off itself.
Mike Konczal:
Yes. I believe that’s the right way to say that. Yeah. Right now, we’re actually like… There’s too little debt in a very important way and it doesn’t feel like that because of the way the media portrays it and the way a lot of common sense people say, but you’re absolutely right that the best thing to do is get to full employment. That takes care of 90% of our problems.
Nick Hanauer:
Right. Particularly if you raise wages too.
David Goldstein:
Yes, we’re going to appoint you benevolent dictator as opposed to the malevolent dictator we have at the moment. What would you do to address this economic crisis?
Mike Konczal:
Turn the Senate into a, I don’t know, abolish the Senate probably.
David Goldstein:
Yeah, go for the electoral college too?
Mike Konczal:
Yeah, that’s actually [crosstalk 00:28:15].
Nick Hanauer:
Throw them all to the lions.
Mike Konczal:
Not to the lions. Benevolence. They’d have make work jobs probably, like a rubber room kind of thing. I honestly think an open-ended program. So first of all, we should have gone more of the Denmark program, which I’ll explain is basically the federal government should have backstop payrolls for the entire country for a-
Nick Hanauer:
Right. This is Pramila Jayapal ‘s proposal-
David Goldstein:
Yes.
Nick Hanauer:
.. in the house.
Mike Konczal:
That kind of system is a lot easier to execute if you have a solid union infrastructure in place and people are part of unions. Denmark could do that very rapidly and you’re going to see Denmark have this amazing recovery because in a very real sense, labor, capital and the government can sit down as three sets of people at a table and just say like, “Okay, what are we going to do about the labor question for the next six months?” And they can come up with a rational solution and figure out how to split, who’s going to do what. We don’t have that. We don’t have strong unions. Unfortunately, we have state governments which are often very hostile to action. As such, you have this very messy program of trying to help out small businesses through the banks, which are diverting the money to larger customers of themselves. It’s a total mess.
David Goldstein:
Of course they are.
Mike Konczal:
Of course they are. I was so obvious at the beginning and it’s underfunded. They’re trying to do it on the cheap, so that makes it even messier. We should’ve done something big like that and I was not vocal enough about it and it’s only lately later that I understood the extent that we would need it, but it is what it is and it’s not too late to do it now is one. And then the second, is just an open ended commitment to the states and to the people through unemployment insurance and to everyday people who don’t work through basic income, open-ended until the recession’s over and that’s not a hard trigger to do. It’s not magic, you can just say until unemployment’s 5% again. I think that would have taken care of a lot of the problems and allowed us to really focus on taking care of the sick and trying to find a way to deal with this pandemic rather than throwing everyone to the lions, as it were, trying to fend for themselves in this economy.
David Goldstein:
Can you put a price tag on it? I know in March, you estimated the federal relief packages would need to be in the $1 to $2 trillion range. Clearly. Things have gotten worse since then. What would be the range now?
Mike Konczal:
Yeah, No, it’s funny. I remember the very first time we started talking at Roosevelt Institute where I work, I think we were talking like half a trillion would be in the packet. It was the first couple of days of the March and now $2 trillion. Some of it was spent well, some of it’s not. Some of it’s kind of a weird account. Some of it’s kind of fake money because it’s like the fed doing lending and with permission from Congress. I think you’re going to need another $2 trillion. I think this needs to be really targeted to the states and to payroll into everyday people. And crucially, that needs to like be ready to be extended as long as there’s a crisis going, which will be going on for some time.
Nick Hanauer:
Yeah, for a couple of years.
David Goldstein:
I just saw today, I think the CBO just said that they expect… They don’t expect unemployment to get under 10% until the end of 2021.
Mike Konczal:
It’s insane. And it’s just so, so devastating for so many people. And again, interest rates are negative. There’s nothing stopping us from trying to tackle this. We also don’t have like, I don’t know if you remember during the great recession, there’s a housing collapse, there’s all this stuff but like, “Oh, well, what about all these unemployed builders and realtors?” Even though every single occupation in every single industry saw their unemployment double. Here, it’s not like this is a judgment on one sector of the economy that needs to go away or something like that. This is a random force of nature that, as you said at the beginning is playing through our institutions and harming people because those institutions are weak and predatory and leave us more vulnerable than we need to be.
Nick Hanauer:
Well Mike, thank you so much for spending the time with us and thanks for doing the work that you do, which is very, very important.
David Goldstein:
And hopefully, the next time we talk to you we can talk a little bit about what we did right.
Mike Konczal:
One hopes, one hopes.
Nick Hanauer:
Okay, buddy. Take care.
Mike Konczal:
Thanks, guys.
David Goldstein:
Wash your hands.
Mike Konczal:
Same.
David Goldstein:
Bye-bye.
Mike Konczal:
Okay. Bye.
Nick Hanauer:
That was a great discussion with Mike and he highlighted a couple of things that I thought was really interesting. One of them was that for sure, this crisis creates an opportunity for trickle down of all stripes to argue that we should cut the things that they wanted to cut in the first place, any sort of program for working in middle class people that they didn’t like. Now is the time to make an even more vigorous argument that we don’t need it or can’t afford it.
David Goldstein:
Right. Well, that’s of course how trickle downers respond to every crisis. To a hammer, everything looks like a nail. To a trickle downer, everything looks like an opportunity to shrink our government.
Nick Hanauer:
Exactly. The other I think, idea that Mike highlighted that I think is really worth expanding on is reminding us that Orthodox economic thinking makes you believe that because the economy is an equilibrium system, that it will automatically and magically go back to some happy equilibrium in the future. That because we’re down now, we have to go up in the future and that of course, is not true. The economy is path dependent and the choices we make today will determine where the economy goes in the future. And if we point it in the wrong direction, it will go in the wrong direction. If we pointed in the right direction, it will go in the right direction. That’s why being aggressive now and not doing austerity is so important in the future.
David Goldstein:
Right. And I think it’s important to point out that even if you believe what your econ 101 textbook tells you, that the economy is an equilibrium system, it returns to an equilibrium, not the equilibrium. That new equilibrium might be much worse off than the one we had before.
Nick Hanauer:
That’s right.
David Goldstein:
And we saw that after the great recession. We returned to an equilibrium, an equilibrium of slow GDP growth, slow productivity growth, slow wage growth, an equilibrium in which people like you, Nick, did very well. And the bottom 90% of households saw little or no gain. So that’s an equilibrium. It’s just not an equilibrium that we want.
Nick Hanauer:
So that’s why aggressive contra-cyclical action now by government is so important because we want to get the economy back on the best possible trajectory as fast as we can and that will take bold action and courage. It’s going to be a very interesting debate that unfolds in the country over the next months over this very subject, both in states individually and at the federal level.
David Goldstein:
That’s a separate takeaway from our conversation and that is that when we talk about austerity, we have to talk about the mechanisms available to the states and to the federal government differently because the federal government can create money and the states can’t. Most of the states are prohibited constitutionally or legislatively from going into debt. So the government, the federal government… I know Mitch McConnell says he doesn’t want to bail out the blue states and he thinks we should all just go bankrupt and that’s the way to deal with it, that the federal government has to bail out the states because that’s the only government that can.
Nick Hanauer:
I guess the takeaway for me is that it’s super, super obvious and there is just an unending amount of empirical evidence to suggest that in tough economic times, governments need to make up for a crisis in the private sector by spending more. That’s it. When states take money out of the pockets of families and the payrolls of businesses, nonprofits, the economies tank further in this death spiral of falling demand. When states put more money in the pockets of people and continue services, contra-cyclically, you can get out of these death spirals. In longterm, I think again, we need to build a more resilient economy. Stimulus is now as vital, but not enough. We need to face this crisis squarely, but get back to the work of creating an economy that makes families more resilient and businesses more resilient and government more capable.
David Goldstein:
And if we do this right, Nick, we may even come out of this better off than we were going into it.
Nick Hanauer:
Well, we shall see.
David Goldstein:
On the next episode of Pitchfork Economics, we’ll be exploring the inequality of this pandemic, how the people who are already suffering before coronavirus hit are suffering the most.
Speaker 4:
Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to subscribe, rate, and review us wherever you get your podcasts. Find us on Twitter and Facebook at Civic Action and Nick Hanauer, follow our writing on Medium at Civic Skunkworks and peek behind the podcast scenes on Instagram @PitchforkEconomics. As always, from our team at Civic Ventures, thanks for listening. See you next week.