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Monday, April 19, 2021

What if a stimulus program like the ones we have now would have been tried in the last recession?

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It is the unfair nature of Washington that spending can never go too far, or fast enough, for any unemployed worker. It is also the way of the world that the unemployed have a real stake in the economy’s behavior. After all, if you are worried about going back to work one day, and there’s suddenly a job around the corner, you are less apt to complain about ever being employed.

But the collective behavior of the unemployed is set in motion when the stimulus checks kick in, and the bulk of them began to roll in after the stimulus law was signed on January 16, 2009. That, plus other big pieces of stimulus legislation signed the previous year, lifted the Labor Department’s unemployment rate close to the recession’s bottom: 5.0 percent, or 9.4 million jobs lost. In June of 2011, the most recent month for which there is a comprehensive unemployment rate from the Obama administration, it was 9.6 percent — or 8.2 million fewer jobs.

We can reread the 16th of Samuel Johnson’s famously wry quote to see how he would have understood what was happening to American workers then: “Delusions of grandeur, on the part of an idle genius.” But we don’t really need it in the current context. A famous 1993 summary of the gross mismanagement of social welfare policies by the late UCLA economics professor Robert J. Hall explained his view that government spending beats off unemployment in the absence of more fundamental changes in labor market laws or business regulation. Those more fundamental changes don’t come fast, but with the stimulus money, people used the money to build up life savings. That, in turn, turned into an increasingly big savings pool to tide them over from temporary layoffs.

At the bottom, employers have been slow to ramp up hiring or start laying off. But they are now, and economists see signs of growing momentum. And when you have a saving pool where 10 percent of people are still without a job, as more than half of long-term unemployed workers are, that isn’t sustainable. As Bloomberg explains, more stimulus spending this time around would probably be more effective in directly keeping the level of unemployment down. After all, it is government spending that contributed to the recovery’s slowing in the first place.

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