In 12 years, we’ve seen two economic crises with devastating long-term impacts. It seems by now we should be prepared to expect the unexpected… but instead, we’re relying on hastily prepared crisis legislation to save our economy. Again. Economist Lindsay Owens proposes an alternative plan: a standing, off-the-shelf program to stabilize the economy in the event of an economic emergency.
Lindsay Owens is a Fellow at the Great Democracy Initiative, where her writing and research centers on a progressive economic agenda for housing, climate, labor, and healthcare. She previously served as Deputy Chief of Staff and Legislative Director to Representatives Pramila Jayapal and Keith Ellison and as Senior Economic Policy Advisor to Senator Elizabeth Warren.
Twitter: @owenslindsay1
No more bailouts: https://greatdemocracyinitiative.org/document/no-more-bailouts/
Website: https://pitchforkeconomics.com/
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David Goldstein:
You know, you would’ve thought Nick, that maybe we would have learned from the great recession and been prepared for another crisis. But no, here we got caught flat footed again.
Nick Hanauer:
That would be too easy.
Lindsay Owens:
Instead of Congress rushing to put together ad hoc processes for bailouts every time there’s a recession, we can have a sort of break glass in case of emergencies standing set of policies in place that Congress could just turn on.
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:
Today, we get to talk about how to avoid more bailouts.
David Goldstein:
More bailouts, more layoffs, more business closures, more economic devastation.
Nick Hanauer:
Our guest today is Lindsay Owens, who you and I met, I think while she was working for Elizabeth Warren, as her policy director, but she’s a fellow at the Great Democracy Initiative. And she’s got this fantastic new paper out called, No More Bailouts: a Blueprint for Standing Emergency Economic Resilience and Stabilization Program. They should have, well, at least it’s not a.
David Goldstein:
Oh, you can just say no more bailouts, but it’s about much more than that. And it basically, it addresses this, I don’t know if people can remember, but this isn’t our first major economic crisis. Most of us, I assume everybody listening to this.
Nick Hanauer:
Was alive in 2008.
David Goldstein:
Right. Either that, or you’re very precocious. Obviously it was different. In 2008, the great recession was caused by a collapse in the housing market and the financial industry. In 2020, it’s been the COVID-19 pandemic that has been the cause of the current economic crisis. But regardless, a lot of the symptoms of the crisis were exactly the same. And a lot of the solutions are very similar. You have to extend unemployment compensation, you have to address a liquidity crisis to prevent otherwise viable businesses from shutting down and laying off employees. You would have thought, Nick, that maybe we would have learned from the great recession and been prepared for another crisis. But no, here we got caught flat footed again.
Nick Hanauer:
That would be too easy.
David Goldstein:
Right. You wouldn’t want to show that the government can be the solution.
Nick Hanauer:
Correct.
David Goldstein:
And that’s what’s so exciting about this report from the Great Democracy Initiative is that it really puts together a set of proposals that we could put in place have ready just to pull off the shelf. These programs would already be established and when the next crisis hits and there will be another crisis.
Nick Hanauer:
Hopefully.
David Goldstein:
Yeah, if this is the last crisis that’s because it never ends.
Nick Hanauer:
Hopefully.
David Goldstein:
Right. But you’re ready to just turn it on and respond quickly and in doing so, you’ll be a lot more effective.
Nick Hanauer:
And efficient and cheaper and everything else. Well, let’s talk to Lindsey and hear all about it.
Lindsay Owens:
My name is Lindsay Owens. I’m a sociologist and fellow at the Great Democracy Initiative at the Roosevelt Institute.
David Goldstein:
It’s a great day to talk about this subject because we just heard the news that the Senate is adjourning without extending the unemployment benefits for what? 30 million Americans right now are going to see their incomes slashed next week. We already had you booked to talk about a new report from the Great Democracy Initiative, which you’ve titled, No More Bailouts: a Blueprint for a Standing Emergency Economic Resilience and Stabilization Program. That in itself is a mouth full. But if you want to summarize it, Lindsay, we’d really appreciate it.
Lindsay Owens:
Sure. I’d love to. And I completely agree that the timing of our conversation today is really important. There are millions of Americans who are about to experience cuts to their unemployment benefits without further congressional action. And I think one of the primary messages of our paper is that it absolutely doesn’t have to be this way. Recessions have different triggers, but most of the consequences can be fully anticipated. Job loss is going to happen in recessions. There are going to be income disruptions for families and there are going to be liquidity constraints and credit crunches. And so each of those consequences can be solved or addressed or alleviated with a suite of policies. Instead of Congress rushing to put together ad hoc processes for bailouts every time there’s a recession, we can have a sort of break glass in case of emergencies standing set of policies in place that Congress could just turn on to address these sort of known features of recession.
Nick Hanauer:
Yeah. It’s of course an incredibly obvious and a good idea, which is, I suppose why we haven’t done it before, but tell us what the elements of that plan would entail.
Lindsay Owens:
We have a proposal that we call the Standing Emergency Economic Resilience and Program. And it’s really a four part plan. One piece of the plan is around job loss. As you know, and as many of your listeners know, unemployment right now is incredibly high, but it didn’t have to be that way. Other countries, particularly in Europe, who also experienced high rates of COVID-19, have much lower job loss than we do on the order of four to 5%. Whereas we’re approaching that 15% mark. Job loss is obviously terrible for individuals, but it’s also just really costly as a society. Rehiring is costly. Training is costly. Extinguishing productive matches between employers and workers is unnecessary and costly. Workers get rusty when they’re not working, they lose certifications. And of course in the US, because jobs are attached to health insurance, many people lose their health insurance too, which has been really devastating for folks in the middle of a global pandemic.
One piece of our emergency package is a paycheck guarantee legislation for small businesses. This is similar to what many other countries are offering and it’s been proposed in both the House and the Senate, but it would allow the government basically to step in and take over the payrolls of small businesses.
A second piece of our proposal is around financial systems infrastructure. Obviously one thing that we do every time there’s a recession and we’re responding is we get money out the door. Both so that folks can cover their expenses but also for fiscal stimulus. We have a proposal for what we call an emergency payments form that basically just allows businesses and individuals to have accounts and payments addresses so that we don’t have these long delays getting money out the door. I know many of your listeners probably got the $1,200 checks from the CARES Act that was passed in March and they may not have gotten those until May or June. Those types of delays are really unnecessary and they’re also really bad for the economy. Getting money out the door quickly is really important.
A third component of our legislation is around using automatic stabilizers, which is a sort of a wonky technical term that really just means social policies that are tied to conditions in the economy. When the economy is contracting, the social programs would expand and when the economy is expanding, the social programs would contract. And all sorts of programs can be offered through those stabilizers. Cash assistance, money for state and localities, unemployment insurance expanded benefits and housing assistance, which we talk a lot about and I think people don’t always think about in the automatic stabilizer context.
And then the final piece of the proposal is an off the shelf bankruptcy restructuring process for large firms. And that is really designed to prevent the kind of no strings attached bailouts and corporate slush funds that we’ve seen in this recession. And frankly, for a second time, because we also saw it during the great recession.
Nick Hanauer:
Well, let’s start with the last one. I think one of the reasons that I like this idea so much is that people can both do and justify terrible and egregious things during an emergency. Particularly if no one has thought it through carefully and structured and approached to the particular problem that you’re addressing. And both this time and in 2007/8, we in many cases effectively shoveled money into the pockets of rich people, rather than doing things that really helped secure the economy for most people and panic sort of obscures all of that. And I just think it’s just really super unnecessary and that there’s so many simple ways to approach this, that your report details that would be cheaper and more efficient and more effective. And I think most important to me, wouldn’t erode the public’s confidence in the government, which is what’s going on now.
David Goldstein:
And at the center of that, I think you would agree, Nick, is this idea that instead of just shoveling big piles of money towards these large corporations and banks, we actually get an equity stake in exchange.
Nick Hanauer:
Right. What would the mechanism in your program be?
Lindsay Owens:
You’re making two really important points. The first point is a political one and I do want to touch on that because while the policy pieces of this paper are really important and we think some of them are quite innovative, some of them, as you say are very obvious. The real innovation may be the potential to change the political dynamics. And you’re absolutely right. In the fog of an economic crisis when Americans are really suffering, small businesses on Main Street are shuttering, there’s a lot of energy and need for Congress to move money out the door to help alleviate that suffering on Main Street and for American families. However, because there is so much political pressure and so many constituencies wanting that, it creates this sort of must pass bill. We have to get this aid out the door. And when you have a must pass piece of legislation, it is a bonanza for lobbyists and special interests.
And we absolutely see all sorts of policy writers for really idiosyncratic things. I read yesterday as they’re negotiating this unemployment cliff, some Republicans have proposed removing the deductions that were passed during the tax cuts and jobs act on deducting expensive meals. They’re trying to get an increased deduction for sort of three martini lunches. And obviously because so many members of Congress will want to vote to extend the unemployment insurance, somebody downtown on K Street sees an opening for that proposal.
And even the most kind of steadfast, corporate governance advocates, your Senator Elizabeth Warrens, your representatives Katie Porter and Alexandria Ocasio-Cortez, who really oppose those kinds of special interest handouts are in a little bit of a bind because also want to move the unemployment insurance. And so that dynamic is really poisonous and I agree it really undermines public confidence. And I think with a standing program, that’s sort of where the rules are written in advance and they’re laid out and there’s a little transparency around them. I’m not saying that you avoid that dynamic, but I do think that dynamic becomes a much more pointed and clear and easier to propose because you’re having to add it on top of what we’ve already agreed upon.
David Goldstein:
For this part, for the automatic stabilizers, do you really require an on off switch? Or could you just leave it on all the time so that there is no opportunity for this sort of log rolling in activating the program?
Lindsay Owens:
Oh, that’s such a good point. That’s a great question. You’re exactly right. Once you pass legislation, tying these programs to automatic stabilizers, you’re exactly right. You would not need to turn them on and off again during a recession. And I do think it’s important to point out that there are sort of programs in the safety net that already function as defacto automatic stabilizers because they’re on the mandatory spending side. Which means that if you qualify for the program, you get the program and during an economic downturn, more people qualify for programs like nutritional assistance and unemployment insurance. The kind of stabilize our conversation right now around unemployment insurance is about actually sort of increasing the minimum benefits.
But you’re exactly right. Stabilizers would actually, they’re a great policy tool. It sounds really wonky, but the political argument for them is pretty powerful because they really raise the floor for negotiations. Can you imagine if we weren’t having to have this unemployment insurance debate and instead of dealing with unemployment and the CARES Act, and then now again in right before August recess, Congress had spent a whole summer working the infrastructure for a vaccine? You’re really clearing the decks in a way and allowing people to focus on the triggers of a recession or the sort of proximate crisis at hand.
David Goldstein:
You could written in at some point every time there’s a one million increase in weekly jobless claims, a $600 bonus payment kicks in and that could’ve passed because nobody would’ve thought it ever would have happened.
Nick Hanauer:
I just really think that some version of this is so important. And by the way, could be such an opportunity for the country because you really are making lemonade out of lemons in some of these circumstances, if you do it correctly, because in the circumstance where you’re taking preferred basically equity and preferred shares in these companies in exchange for bailing them out, to the extent that you could make the public benefit from that. Well, then you have come out in the longterm ahead. And I just feel really strongly that for instance, if you basically required companies to give the federal government preferred shares, you could distribute them in the social security counts of all Americans everybody gets a share and when you retire, you get to sell those shares.
David Goldstein:
Imagine if these bailouts, every time there was a corporate bailout, the American people got bailed out simultaneously. They became shareholders. The political support there would be for that. Everybody wins.
Nick Hanauer:
Everybody wins even in a difficult circumstance. The other really interesting thing, of course, it’s so not obvious. Wasn’t obvious to me, it was certainly not obvious to most Americans is that we have no mechanism for helping people other than these kludgy systems usually mediated by private organizations to, for instance, get money to people. Talk to us about that.
Lindsay Owens:
Yeah. This is another great point. Fool me once, shame on you. Fool me twice, shame on me here. We are again, trying to get money out the door and not able to. And here we are again, trying to provide assistance to Main Street and once again moving it through a third party intermediary. I’m sure you remember, Nick, the home affordable modification program that rolled out during the great recession. I actually, it was the subject of my dissertation. I know it. I know it very well. And homeowners were having to deal with their lender to try to get their mortgage modified. And it was really difficult and the lenders didn’t have to do it. There was no sort of mandatory provision that the lenders did it. It was basically on a voluntary basis. And sometimes the lenders hands were tied by the investor who owned the loan.
When Congress moved the PPP program, the Paycheck Protection Program for small businesses out through banks, immediately those of us who studied the housing crisis thought, oh, here we go again. This is going to be a problem. And I think what we’re seeing with the PPP, although, absolutely it is the case that the PPP has helped a lot of businesses, it has also saved a number of jobs. A recent MIT study I think pegs that at somewhere between one and three million jobs. There were a number of problems with the program. One, it’s very expensive. I think the sort of cost per job is around $225,000. The second problem with going through the banks with the PPP was that there are all sorts of problems known to lending. One of which is discrimination. And we just saw last week with an audit study that was released, where they basically sent individuals, black and white individuals into the same banks with the same package of needs, that there was and is substantial discrimination in lending that’s being offered through the PPP.
Nick Hanauer:
Sure. This particular approach that the government took to distributing funds will be framed by the existing norms, relationships, and infrastructure of that system. And so in that system, for instance, all the people who have the best existing relationships with the bank will be advantaged. How could they not be? If you have the cellphone number of the banker, your chances of getting first in line are very, very high.
Lindsay Owens:
Absolutely.
Nick Hanauer:
And since the companies with the best existing relationships with the financial system tend to be the companies that are the least vulnerable to economic downturns, almost by definition. We chose a very imperfect way of distributing help to people who most need it.
Lindsay Owens:
Yeah, I couldn’t have said it better myself. I think that’s exactly right. It introduced a ton of kind of, not even necessarily favorite to just correlated benefit.
Nick Hanauer:
Again, another fantastic reason to get all of this stuff sorted out beforehand.
David Goldstein:
I’m curious, Lindsey, a little, if we could explore a little alternative history. Had this stabilization plan already been in place, how might things have turned out differently in this crisis?
Lindsay Owens:
Yeah. That’s a great question. What is the counterfactual? I think one of the.
counterfactuals is the point that I already made, which is that if the decks had been cleared on financial assistance for the unemployed, cash assistance, housing assistance, small business lending, large business lending, could Congress, would Congress have spent most of the Spring focusing on solving testing, solving contact tracing, thinking through, starting to set up the infrastructure for a vaccine. Of course, that is an unknowable question. However, having worked in Congress for a number of years, I can tell you, staff resources and member Senate and House resources are very constrained. And it is just not the case that if you are putting out a fire on UI, there are a bunch of other people sitting around thinking about testing. The division of labor doesn’t really work like that. I do think there is a real question of whether or not we would be further along on the health crisis. And I think that would be a really good outcome of a proposal like this.
Nick Hanauer:
In this case, to be clear, we were also highly constrained by the fact that the Republican brain apparently could not grok that COVID-19 was going to be a thing. There was that too.
Lindsay Owens:
Yeah, there was some, there were many, many heads stuck in the sand.
David Goldstein:
Right. But theoretically had this plan had been in place and had we a functional government, we could have saved tens of thousands of lives. That would have been a benefit.
Nick Hanauer:
Oh that.
David Goldstein:
And on the economic side?
Lindsay Owens:
Yeah. On the economic side, I think a couple of things. The first is that I think we would have had money out the door faster. And there was a lot of devastation before some of these provisions went into effect. There was a lot of housing instability before the eviction moratoria across the nation went into effect. There were a lot of closures, a lot of businesses shut down because they couldn’t get to the PPP funding. I think you would have had a lot less devastation there. The other thing is, the sort of paycheck recovery type program that we propose here would have saved a huge number of jobs. And I think the devastation of mass unemployment because of this crisis, we’re going to be seeing for years and years and years. People who lose their jobs in this level of unemployment, we’re going to have a lot of longterm unemployment. We’re going to have a lot of people moving into permanent unemployment. That level of devastation is really unnecessary. And when we look at our other countries, our peer countries that have work sharing program and paycheck guarantee type programs, we don’t see that.
David Goldstein:
And we know that this alternative history as possible because other countries did it differently and have avoided the sort of massive unemployment that we’re seeing here in the US.
Lindsay Owens:
And we actually, I love talking about this program and not many people know about this program, but we actually did it in the United States, in one industry, in aviation. There was in the CARES Act, a program to cover payroll for pilots and flight attendants and ramp agents. And we’re not seeing the level of unemployment in the aviation industry as we’re seeing elsewhere. That program expires on September 30th. Unless Congress extends it, we may start to see the job losses there. And in fact, some of the large carriers have already announced that they will have to lay people off in October if the program is not extended, but we did it. We can do it. Other countries did it.
Nick Hanauer:
Yeah. Let’s go back to politics for a second, because I think it’s really important to just acknowledge that this makes perfect sense. To have thought through some of this stuff before you go into the next crisis. And as you point out in your report, these crises are never the same, but they do resemble one another. They have features that are almost always the same. But the politics I think are really important to acknowledge, which is that there’s a group of people who actually tend to benefit from the panic, which tends to be the rich and the powerful. I don’t want to say that the people who run giant corporations and who are super, super wealthy in this country are anxiously awaiting the next cataclysmic event. But for sure when everything is scrambled, we tend to get ours and nobody else gets anything. And so I think it is safe to say that there will be, that the same people who fought for tax cuts for big companies and rich people in the last tax fight, will be fighting against this sort of sensible approach, getting everything organized beforehand. Don’t you think that’s true?
Lindsay Owens:
I do. I think the dynamic that you laid out with regards to the banking sector and PPP is similar. The folks who have the bankers phone number got to the top of the line, the front of the line on PPP. The folks who have their congressperson’s phone number, get in first on these big packages and they get their little this or that. Look, Mitch McConnell is right now, very focused on using the unemployment insurance as the cliff as a sort of foil for his employer liability shield. And I think he thinks that the Democrats will have to swallow that in exchange for expanding the unemployment benefits.
And so I do think that you would see some of that dynamic play out with the SEERS program. I’m definitely not suggesting that it would be a panacea by any means. However again, I think the idea that you write a package of legislation like this in the light of day and you come to some agreement on the terms in the light of day, not in the fog of an economic crisis, I think does help guard against that. And the other thing I would say is that it also allows voices in Congress who are quite good at raising a flag on stuff like this, to spend some of their time fighting it off.
Nick Hanauer:
Right. A reasonable compromise is not assured, but there’s at least the opportunity for one.
Lindsay Owens:
Exactly.
David Goldstein:
What do you think, Lindsay, second crisis the charm? Do you think maybe this time around Congress might say, “Hey, these sort of things tend to happen occasionally, maybe we should be prepared.”
Lindsay Owens:
I do think that this idea is gaining a little traction. I will say that one of the kind of conceits of the paper and of an OpEd that we published alongside the paper in the Boston Globe ideas section really called attention to the fact that we have emergency management systems in place at the federal level for natural disasters.
Nick Hanauer:
We know how to to fight fires.
Lindsay Owens:
Right. We don’t wing it. Congress doesn’t rush in every time there’s a flood. And now of course, we do supplementals to kick more money out for something like Sandy. But there is an agency FEMA, that is prepared to kick into high gear during a natural disaster. Now I am not suggesting that FEMA is perfect. That the aid flows perfectly. But I do think starting to think about responding to economic crises, like responding to natural disasters, which with some of these automatic provisions makes a lot of sense. Particularly, just to be really optimistic here, particularly since the next recession may be the result of increasing devastation from weather events as a result of climate change. And so, we’re also going to be in the middle of this pandemic during hurricane season. And so we’re going to be needing to think about some of the financial aid that’s going to be needed there and some of the assistance there. Starting to kind of think about responding to recessions like responding to natural disasters makes a lot of sense.
David Goldstein:
Well, thank you so much for your time, Lindsay.
Nick Hanauer:
Yeah. Thank you so much and thanks for your work.
Lindsay Owens:
It was a lot of fun. You guys are great to talk to and love the podcast.
Nick Hanauer:
Thank you.
Goldie, what did we learn from our friend Lindsey?
David Goldstein:
One thing we learned I think is that we blew an opportunity after the great recession.
Nick Hanauer:
Sure we did.
David Goldstein:
And that the consequences of that have been just horrible. 30 million people unemployed. This did not have to happen. Look, obviously this did not have to happen on multiple fronts. And one of them is simply we could have handled the pandemic better, like much of Europe did and we wouldn’t be hitting record case loads and record deaths again. And we would have saved tens of thousands of lives and we would be opening our economy now instead of shutting down businesses, once again. That is a separate issue. Total, I don’t even want to say incompetence. It’s malfeasance on the part of the Trump administration. Topic for another conversation. But when you look at the way a lot of the European countries handled the economic impacts of shutting down, they did it very differently.
Nick Hanauer:
Correct. And they were better prepared.
David Goldstein:
They were better prepared. They paid companies to stay open and keep their employees employed. Whereas we forced people into this clunky, outdated unemployment system that in many states like Washington, crashed and simply could not handle the applications. Yes, we supplemented it with a relatively generous $600 a week extra, but we didn’t have to have these layoffs. We didn’t have to have these business closures. We didn’t have to have such a high level of unemployment. And we didn’t have to have such a permanent level of damage to our economy because every time you lose a job, it makes it harder to create that job. It’s much cheaper and more efficient to keep people employed than it is to lay them off and hire them back. And we all know that the longer somebody is jobless, the harder it is for them to get another job. And none of this had to happen.
Nick Hanauer:
I do think that there’s great wisdom in this idea of getting it all organized beforehand and more than the normal number of people are being harmed in this crisis. If there’s a silver lining to that, it is that there will be the political will to actually get some big things done after. And the Trump administration has acted so astonishingly incompetently that it’s my great hope that they will be swept out of office, hopefully with the Republican Senate and we may be able to begin to repair some of the damage.
David Goldstein:
All my ranting aside, Nick, I personally, I encourage people to read this report. We have a link in the show notes, it’s at the Great Democracy Initiative. It’s greatdemocracyinitiative.org. You can find it there. It’s called No More Bailouts and it’s a very clear description of a pragmatic plan for stabilizing the economy in the event of future crises like this. And it’s worth a read.
Nick Hanauer:
Absolutely.
Well on the next episode of Pitchfork Economics, as our listeners are hearing from schools that they may be online, it will be highly relevant to talk about the current state of childcare in America with economist Kate Bond.
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 @CivicAction and Nick Hanauer. Follow our writing on Medium at Civic Skunk Works and peek behind the podcast scenes on Instagram @PitchforkEconomics. as always from our team at Civic Ventures, thanks for listening. See you next week.