How to Prepare for the Next Recession: Automate the Rescue Plan

Me thinks your suggestions are all tactical responses to elements awry. But tactical responses are often NOT in our strategic interest. Market strategy should be stable progress rather than consolidating power/wealth/market control, and Adam Smith's invisible hand shows how it works. It was based on empathy of the buyer for the seller, but empathy today runs counter to making a profit for your shareholders. Stiglitz said market opacity killed the invisible hand and I have written how transparency pushes both sides toward the negotiation that builds empathy. Transparency can restore the invisible hand and push a strategic response toward a stable marketplace.

How about automatically extending unemployment benefits depending on the unemployment rate?

How about preparing to dismantle big banks, big insurance companies and big Wall St players in advance? And sending the crooks at the heads of these institutions to jail.

Trump and Democrat controlled House have already reached an agreement on infrastructure plan worth about 2 Trillion dollars not too long ago. Despite funding source was unspecified, any unexpected slow down in economy will trigger magical cooperation between two parties to come up with the funding. We may not need any changes of existing programs. But I doubt greedy congressman or senator will let this opportunity wasted and not exploit it further.

How nice THAT would be - government planning and continuity. Our Federal government is based upon a two-year cycle; 4 years divided into 2 of post-election possibilities and 2 of stagnation, fighting with the opposition and the election. Politics seems to get in the way of progress at every turn. Down ballot elections are even worse. Now, with a total lack of responsible governance with no integrity, honesty, intelligence or planning, the very idea of anything other than autocracy for the rich is off the table. This criminal Administration is REACTIVE, in-the-moment unpredictable. WE NEED A STABLE GOVERNMENT - one that can and will "automate" essentials of economic, social and environmental crises. God knows we have enough history and statistics to pretty well see what works and enough minds who are not tribal Republicans to chart a workable game plan. The Chairs of the Fed are the closest thing we have had to continuity and even that is threatened by Trump's mindless meddling into thing of which he knows nothing.

There will come a day of reckoning for this economy. Who is going to take the blame?

These sound like great ideas, but I see little chance that they could pass in Congress as it now stands. And when the next recession hits, the only way those who are truly hurt will be helped is if we have an FDR sort of person at the helm. Warren or Sanders would do the trick - as they are not being funded by Wall Street.

Interesting article, which has stimulated a number of comments about distrust of government action to counter economic cycles. What seems to be absent in both the article and comments is what useful purpose can be served by government action. To my view, the purpose of the US government is protection of Americans from abuse by the powerful. Since an economic downturn represents an opportunity for predatory action by the powerful, increasing economic opportunities and protections of those most affected makes sense. Not convinced a transfer of wealth to business with big government contracts is necessarily fulfilling that purpose.

Until the USA right sizes its' balance sheet to pre-2008 levels, this vein of content is utterly and thoroughly Not Applicable or, perhaps, a tertiary Economics issue. The kernal of applicable content from this article focuses on how low interest rates still are. Comparing today's rates to the 2004-2007 levels should be a real eye opener for any American who believes that the economy is anywhere near equilibrium, to use a popular Economics term. Let alone the late 90s...or the mid- to late-80s...

We all have a logical tic that leads us to use the past to inform us about the future, even though that clearly does not work. Whenever the economy gets into trouble, we ladle money in from the top and the economy recovers. So it always was, so will it always be, right? Maybe not this time. There are unmistakable signs that capital markets are currently oversupplied with capital looking for investments: "unicorns", cryptocurrencies, fifty million dollar condominiums. If the economy needs more capital investment, capital is readily out there ready to invest in anything that moves. The problem now is not a shortage of uncommitted capital. Trickle-down economics sees to that. The danger is that, in the next slowdown, putting even more money in the hands of the wealthy and corporations will only add to a surplus of free capital, while the supply of productive investments shrinks in step with the shrinkage of the secular economy. Then we will hear the cry for "shovel ready" investments for government to spend money on. A more effective solution will be to put money on the demand side of the real economy. Capital markets will respond when demand improves.

Makes some sense, but that's in short supply in this nation all the time!

Not only is economics the dismal science, it isn't science at all. During the Great Recession the government gave over a trillion dollars to irresponsible companies and cut unemployment benefits. The fact that we expect more recessions is all the proof you need that no one has a clue how things work and Capitalism as we practice it is a Ponzi scheme.

"Automatic stabilizers" - sounds great, especially if the "auto" part reigns in the expenditures as we recover. But how does one measure that recovery? The obvious example is the economic "happy times" we are in now. The rich are thriving and yet millions of us have lost jobs due to automation, AI, out sourcing - all driven by "share holder primacy". The point is that the stats that would drive these stablizers might help adjust the numbers to comfort the economists, Fed Chairs and talking heads on TV. But they don't amount to a hill of beans to the disenfranchised. Low unemployment numbers mask desperation across the country. So while I applaud the "de-politization" of this effort, it's just another ivory tower, top down manipulation. We need to get in the trenches where most people live and suffer. We need to listen to what Pete Buttigieg and Andrew Yang are saying about industry and jobs. And....if you are going to use this principle of spending more when we turn down, and reigning it in when we go up, then just get righteous about the elephant in the room. The Federal deficit we are incurring now as a gift to the rich will return to bite us in the butt. We should be running a Federal surplus now. Put that on "automatic", please.

If this automatic stimulus is like the automatic cut Congress and Obama struck during the Great Recession era, it might only be good on paper

Infrastructure project simply take too long to act as a financial stimulus. The New Deal WPA and CCC were designed to put men to work and get them off the streets, not to help the economy. Directing immediate cash to individuals can counter a recession, and an adjustable cash payment to everyone would do just that. Wait, isn't that called universal income?

April's DOL household survey jobs report shows that of the total jobs in the overall US economy of 156.65 million, 25.98 million of these jobs were part-time positions. These workers worked from 1 to 34 hours each week. Thus, of the total jobs in the overall economy, 16.6% are part-time positions. Such a large pool of part-time workers probably provides a noninflationary buffer to absorb increases in demand during periods of production peaks. And, during contractionary economic periods, such a large pool of workers could act as a form of job sharing, as Germany used during the Great Recession to maintain the state of the art skills of its workforce during this contractionary period. In the current very low interest rate environment, including a low federal funds rate, there is little ammo in the form of interest rate cuts for the Fed to use to complement a stimulative fiscal policy with a loose or expansive monetary policy, which was not the case during the Great Recession. But, the lack of fiscal stimulative alternatives then, did force the Fed to rely on very innovative, yet mostly untested monetary policy tools per arguments made in "Firefighting: The Financial Crisis and Its Lessons," by Ben Bernanke, Tim Geitner, and Henry Paulson, who were government officials coordinating fiscal and monetary policy responses to the Great Recession. [5/17/2019 Fri 10:36 am Greenville NC]

I fail to understand how solar panels (shown in the photo), made in China, helped the U.S. economy during a downturn? In fact, I wonder how those immense government loans for "green energy" (electric cars, batteries, etc.), many which where never paid back, helped the U.S. economy during a downturn? One thing which I do agree with Mr. Irwin, decisions made during a crisis are usually flawed.

"the party that doesnt control the white house tends not to want to do anything that might help the opponent get reelected." In group dynamics the term paranoigenesis refers to an organization losing perspective on it;s mission statement and enacting policies( or lack their of) that are only meant to sustain it;s existence. What better example of this than the above statement that reflects the status of congressional leadership. Perhaps a better solution would be term limits in lieu of automatically enacting economic policies that may or may not be applicable to the economic climate at the time and would be hard to retract as the economy improves resulting in spiraling debt.

Sounds like a very good idea. However, it would be imperative that hard and fast triggers be written into law. The current resident of the White House's effort to get the Fed to reduce rates clearly shows us someone who would do anything to juice the economy for political gain before the next election. With interest rates still at historic lows, lowering them in a decent economy would simply remove one of the Feds only tools for reacting when the economy really does go south.

As someone with an engineering background (both education and mindset) this kind of simplistic design of complex systems is very concerning. If anyone remembers Nassim Taleb's work, we should stop pretending the economy is a purely mechanical thing and try to make models built around that assumption. Instead we need to see it as an ecosystem where each subsystem seems to relate in complex ways with the others and while you can come up with rationalizations of events after the fact, they are too complex to predict with any reliability. Obviously we want to have some stability or certainty in our lives, hence our economy, so we do not ignore the complexity with simplistic hand-waving, rather we accept the complexity and come up with robust solutions which will work with the uncertainties and still yield desirable results. First, educate the public, starting with members of congress and the judiciary on the true mixed market we live in, not free market fantabulism. Second, we educate ourselves on the good and necessary work the US government has done in making this a prosperous and successful republic. No government = Somalia; Bad government = Venezuela. This is reality. We have had good government since 1930s make this nation a superpower like no other in history. Don't blow it with fantabulism. Thirdly, you save money in prosperous times for safety during difficult times. Rising economy - inc. revenue, surplus; slowing economy - inc. spending, deficits. No matter R or D.

It’s welcome and important that we’re seeing a real re-envisioning of fundamental questions of political economy in this country. The response to the last recession was indeed woefully late and inadequately sized, and undoubtedly the prolonged suffering facilitated the radicalization of the GOP that we’ve seen since 2010. What is unfortunate about this piece is the total absence of arguably the most important group of economic and legal thinkers encouraging both 1) a radical rethinking of American political economy and 2) strengthening government “automatic stabilizers”: the Modern Monetary Theorists. Powering both the Bernie 2016 and 2020 campaigns and AOC’s brave and transformative call for a Green New Deal (which includes a Job Guarantee — Modern Monetary Theory’s automatic stabilizer of choice), the MMTers are at the cutting edge of economic research. For over two decades, they’ve pushed the concept of the Job Guarantee as the ultimate automatic stabilizer; it is inherently counter-cyclical, expanding in recessions and contracting in expansions. It also by definition eliminates the possibility of mass unemployment, which has characterized the last decade in virtually every country on earth. The omission of this group’s decades-worth of contributions to the economics profession is — to put it mildly — surprising. I’d encourage the author to familiarize himself with Kelton’s, Tcherneva’s, and Mosler’s (for starters) work so as to avoid this same mistake in the future.

It is so refreshing to hear ideas spoken about that will help our country without shouting and name calling. I love this stuff and it seems it should be encouraged as it will make us a stronger country. It is afterall, the time to fix our problems, when we are all working, the low unemployment number indicates that, and when our economy is strong and so far, when, except for Afganistan and thirteen other points around the world, we are not at war.

I was taught that during hard economic times the government create work programs to tackle infrastructure and run a deficit. In good times, you pay back the deficit. The Republican party probably didn't take Economic 101.

Supplemental Nutrition Assistance Program, once known as food stamps........does multifarious types of good. Of course, they provide food to poor people and children who really need it. In addition, they enhance and stabilize the market for agricultural products, providing no small benefit to farmers. Thirdly, having the food stamps program in place is a handy instrument to pump money into the economy in recessionary down times in the economy.

It's too reasonable for our political elite to go for.

Ahh, Back to the Future! In the 1950s and going through the 1960s there was sensible policy of this type. In those days, the construction of the interstate highway system and the space program were so large a share of activity that the more or less automatic reduction in contract costs in weak times meant that the federal economy was giving the economy a shove forward then, while the ramp up in boom times would imply a diminution. Actually, tying this all to infrastructure could get us into a shoreless sea of arguments over the "shovel-readiness" of projects. There's the further problem that our crying infrastructure need is fixing the existing stuff, not pouring money into items like the California high-speed rail or Texas high school football palaces. Guess what gets expanded when the money rolls in, and what gets cut when it falls short? My suggestion for an automatic stabilizer of this type is unrestricted federal block grants to state governments; expanded when times are hard, contracted in the booms. If the Obama stimulus had been, say, $3000 per person of this in 2009, ramping down gradually (say by $1000 per year), I suggest the economy would have emerged from its malaise much more rapidly. Problem with a program of this type is fear in DC of what the other party will do with the money at the state level.

Great idea, but do very little. A lot of what is done is just waste, and of course there is no recession in sight. If we continue to make more things in the US it will be a long time until the next recession. Yes stuff will be more expensive, so just 2. Simple and better for citizens.

Why prepare for a downturn, when we can party like it's 1928?

As Keynes said, "The boom, not the slump, is the right time for austerity at the Treasury." The stronger we implement this principle in practice, the better. Implementing the practices behind a Rawls-like "veil of ignorance" is brilliant. A couple of key concepts: 1. The budget deficit should rise as % GDP (or at least not fall) until employment returns to pre-crisis levels. It wasn't until May 2014 that the total number of persons with jobs regained its pre-crisis (late 2007) peak. But the budget deficit fell as a % GDP each year after peaking in fiscal year 2009, slowing the recovery significantly. Obama basically kept the spending he inherited flat from 2010-2014, unheard of when historically spending rises 5% per year on average. 2. A second principle is that when households are deleveraging (reducing debt) government should not be. For the first time since at least the 1950's, households were paying down debt net between 2009-2012. Only once that stopped did the economy really regain its footing. Government should have been maintaining or expanding the budget deficit as % GDP while that happened. 3. A more technical concept, explained in the Wikipedia article on "Sectoral balances" explains that we don't want the private sector to go into deficit for an extended period, as it did during much of the 2000's, as this fuels a housing bubble. Automatic stabilizers should be designed to move the private sector into surplus when it falls into deficit.

Another automatic stabilizer could be wage support tied the number of month a person has been on unemployment support. Give a subsidy for up to 6 month to those who employ persons who has been on unemployment support for 5 month or more. That subsidy could be $1 per hour for every month of unemployment - up to a max of $10/hour.

Last time a nice "automatic stabilizer" would have involved keeping underwater homeowners in their homes. Instead, those in the financial industry who caused the problem were handsomely rewarded. Let's not get it backwards next time.

Lets get rid of the false equivalence here. It is only when there is a democrat in the white house that a GOP congress will do all it can to sabotage any attempt to rescue the economy. There has never been a case where a democratic congress tried to block economic recovery. They may disagree as to whether pouring money into the pockets of the rich or the consumer class is the bast way - but in the interest of the country they have always compromised and made sure the needed stimulus was passed.

Money was spent in very different places this past economic down-turn, such as a solar farm on government property. There were the usual Congressional earmarks, which may or may not have been great projects. The autopilot spending and money being sent to the States for large infrastructure projects that people can easily see, hear, and touch were not evident this economic downturn. The government spending this country is used to was not on autopilot, like it usually is.

The best way to weather a recession is by having liquid assets, like cash. The last thing you want is debt, which does not downsize as the economy slows and your cash flow diminishes. I find it odd that companies continue to frantically spend both liquid assets and borrowed assets on stock buy-backs with a possibility of entering a recession.

We have no plan for anything. The only Plan is to stockpile Poker Chips for the inevitable Depression coming. The Chip holders will use their hoard and inflation will skyrocket. Nobody will work, except the Government. The have-nots will get more angry. Everybody has plenty of guns. What could possibly go wrong. I am planning to Duck & Cover as I have been told since the 50's. The Rich can eat gold and paper. Happy trails...

It is a delicate balance Neil. While some of what you write should be looked into, either extreme is no good. What I mean by that Is if you cut back on the already Fed checks and balances you will get booms and busts and many people get hurt. If you have a massive automated formula set in, you build up a massive deficit with wasted projects and the same thing could happen.

Stimulus expanding and contracting appears to make sense. But please, if these include infrastructure projects, let's insure we do not start ones we cannot complete. Although they may have started as private projects, the Great Recession left many see-through buildings for many years. If a project is started it must be useful enough to be completed even if "automated" funding dictates that it is time to cut back.

The two ideas here, having ready-to-go economic projects when things get bad, and trying to shield them from political forces are good. One caveat is to ensure those economic indicators are as good as they can be. It's not rare that they get their own criticism. (Does the unemployment rate really reflect those who want to work?) It's not necessary to be super-strict about distinguishing "big sweeping change" projects from those which are "properly countercyclical." We need both and if an idea covers both bases, so much the better. Relatedly, if we could get past the ideological barriers, we haven't stopped needing government investment in basic research or premarket development. Let's not forget who supported now-monster industries like the internet, aeronautics, or certain vaccines. That history should be utilized as there are still a lot we don't know how to do or build if we're going to face the many challenges ahead like climate change and other wicked problems. But, again, good start on trying to preempt the political antibodies. Not sure it will work, but you can't avoid this part of the topic. We'll also need creativity, vision, and a "what-are-we-missing" critical attitude to help frame where these projects can fit in. The future will probably look different from what we're used to, so we should try to go with it as long as it's a desirable one. "Shovel-ready," unless we're already sinking, shouldn't be the major factor. And don't be overly critical of a few misses.

Don’t most, if not all entitlement, programs automatically increase as economy goes south. Unemployment, social security disability, whatever we now call food stamps and aid for dependent children, Medicaid, earnings income credits, etc., all increase without congressional approval. I thought it was accepted dogma that these huge programs, plus the gigantic elephants of regular social security benefits and Medicare payments that never decrease, basically running on autopilot, were the primary difference between the distress of 1930’s and later downturns. Do we really need to start shoveling money towards state governments that in last recession showed very little competence in spending the money President Obama sent them?