The past four years have been a mix of tragedy, fear, anger, and recovery. We're so close to the other side of it, and most families are even better off financially. How? A big reason is big fiscal.
There is a "contrary" experience to allow a comparison to the big fiscal: the Great Recession and its long, slow recovery. In fact, by acknowledging the failure of the fiscal and program responses to the Great Recession (as Pres. Biden has), we do not appreciate that the meager program and fiscal impact on American families (loss of homes while bailing out big banks, prolonged un- and under-employment) really created the dismay and distrust in government among American families setting the stage for MAGA politics of resentment.
Worth it for this line alone: "A key lesson from this crisis is that fiscal policy is much more powerful than monetary policy."
Yup. And not only more powerful, INFINITELY more flexible and able to address issues of distribution, no matter how distasteful those are to a certain class of economists.
And yet despite the huge impact of big fiscal on the US economy and that oddly enough includes the massive interest payments on US treasuries due in large part to the fed rate hikes which helped boost employment, incomes, wages and growth all everyone seems to want to do these days is complain about the deficit. This is not a coincidence unfortunately and I think that in large part is a factor as to why the white house is hesitant to gloat about the economy because complaining about the deficit is the easy thing to do in DC and has been for decades. If an article like this pisses people off on both sides so be it. This is about getting the facts out there and indeed Americans are better off today vs 2020 or even the GFC for that matter. We can and must do better.
Is there a better counterfactual leading indicator than when Larry Summers states what policy should be at the outset of crises? At least he’s been consistent over his career, consistently wrong on economic policy. Summers’ achievement as the worst applied economist of his generation is unrivaled. It’s not enough to be smart. Very intelligent people have proven capable of making horrible errors of judgment. Even worse: Summers is a pompous blowhard. To quote Barry Ritholtz: “Why does anybody listen to Larry Summers?”
Claudia just plain rocks! Thank you so much for the article so please continue the dialogue.
I highly recommend The Deficit Myth by Stephanie Kelton to understand the power of fiat currency, the differences between a currency issuer (Federal government; fiscal) and currency users (all US citizens and most of the world). Kelton provides the fundamental understanding lens to bring clarity to economic realities, calm to fears of Fed reserve interest payments and reveals the true meaning of Congressional power of the purse. The Fed should focus on inflation indicators however, turn back to Congress the reigns of determining the appropriate resourcing decisions to make life better for all citizens, in a world of finite resources and stop using the “debt” for political convenience (it confuses public fiat currency understanding. Fiscal policy remains the fiat currency source; not markets. Ooh rah Claudia! However I subscribe to a Federal Employment guarantee that President Roosevelt advocated for as this would negate the need for a direct stimulus payments…unless another pandemic like catastrophe occurs.
The large fiscal stimulus also had large negative consequences like income in fiscal debt of say $7 trillion; budgets that cannot get below a $1.5 t deficit; stimulus to home prices that sent home prices up by 50% to where they are unaffordable for new middle class families; inflation that has caused high interest rates that shut down homebuilding and the list goes on.
Workers wages and employment levels went up but asset prices sky rocketed at the expense of workers, tax payers and future generations. Not sure how that’s a true “win” for the working poor? This seems as tone deaf as thinking disinflation is the same thing as prices going back to pre pandemic levels, ie groceries that cost 100 instead of 250??
If services employment and “output” is up because of wealth effects, is that really a good thing? It just means rich family X has even more income to pay more people to do more things for them. Those more people that do things for the rich family X (that already had a crapload of assets which roofed thx to big fiscal ) get paid more dollars to keep consumption at basically same levels as pre pandemic standards while prices of essential goods (like a house?!?) has become ever and ever less attainable. Tell me how that’s actually a big win for the ordinary people?
You people on the left think that dismal approval ratings and perceptions on the economy are basically because ordinary people are stupid and need to be “taught” why their present situation is actually fantastic but you can’t grasp the fact that their feeling and judgments are entirely tied to actual conditions and unfairness they can tangibly perceive (and rightfully so). But hey, I guess we’re just retarded and ungrateful and ignorant of our own fortunate circumstances while multi millionaire billionaire democrat donor classes continue to benefit off fiscal largesse that once again inflate asset prices at the expense of future generations and the working classes via implicit inflation tax
I shared what Americans, including low-wage workers, across the country told us about their jobs, paychecks, spending, and wealth. I am not tone deaf. I am about recognizing the range of experience. Low-wage workers have benefited the most from the strong labor market. as they should. And they have more money set aside than ever before even after accounting for inflation. Yes, we can do better, but we made enormous progress.
I am not a "you people on the left." I am an economic analyst who respects what Americans, as a group, tell us. You clearly do not.
The increase is debt was not desirable. Relief as well as subsequent Infrastructure and IRA should have been fully (or more than fully) funded by increases in revenues. The increase in housing prices relative to wages is more a microeconomic phenomenon (restrictive land use regulations and outdated building codes) than macroeconomics.
I agreed with you that the SPENDING was appropriate. It was the non-taxing that was inappropriate.
I also agree that "concerns" about the debt are mainly mistaken/bad faith opposition to the EXPENDITURES that generated them. [RR, GWB and DJT were not "concerned: about the debt when they reduced taxes for higher income people.] _My_ point is, however "non-concerning" the debt is, it would be better if the accumulated deficits that make it up had been and in the future were made smaller by higher revenue collections.
I always love reading your well thought out opinions backed up by factual data. I think one of the biggest problems we face right now is that it just doesn’t “feel” ok. It’s hard to argue feelings. Feelings also can come from a place of truth....
Unfortunately, your Bloomberg article about the deficit was behind a pay wall so I couldn’t read it. I tend to disbelieve that deficits and debt don’t matter (especially when rising rapidly), but I’m not an economist!
I've been a fan of Employer of Last Resort (local government) maybe combined with automatic stabilizers would be a nice mix. Also I fear the oil industry will spike prices before the election which will help Trump. Mark Zandi shares this fear and why wouldn't Big Oil do this with their obvious opposition to clean energy development and preference for Trump . Automatic stabilizers are a brilliant idea.
Great article. Another good example of we need to be much more prepared for tail risk events-- people have been calling out for pandemic preparedness before even Covid, but fiscal policy (and probably many other policies) are good examples of where we need to prepare even if not directly related to a pandemic or other tail-risk events.
Though I wouldn't say fiscal policy is more "powerful" than monetary policy. I kind of agree with it, but disagree in principle just because the Fed moves "last." This, and other factors like a better ability to respond to data or events, in my eyes qualifies it as a more "powerful" tool. Probably explains some of the preference for studying the Fed vs. fiscal policy (but I'm not very familiar with either literature, so take that with a grain of salt).
Small wonder legacy media is dying. Lazy, pack journalism is boring and predictable. There is seldom any context provided? Mainstream media will proclaim something is a BIG deal. My question is: “Compared to what?” It does this intentionally. There’s no shortage of complaints, so mainstream media’s intentions are clear.
I wouldn't say big win, and neither would a majority of voters. It's kind of a "well duh" statement to say that spending a bunch of money led to higher employment, wages, and spending. Duh. Of course that money shows up in economic indicators. Over time, though, does it improve the U.S.' economic position? Probably not, given higher interest cost payments and lower price competitiveness (partly due to demand created from increased spending).
My argument here about the benefits of big fiscal is not a "duh." If it had been then the consensus would have agreed with me for years that we would have a strong recovery and inflation down without a recession. They did not.
Also, how people "feel" about the economy is not my lane. I share what people tell us in high-quality surveys about their jobs, wages, income, spending, and wealth. Most are better off and fiscal was key in kickstarting the economy.
Finally, the federal debt is fine now and the foreseeable future.
My "like" does not apply to the final sentence. Debt levels may be non-problematic, but they are the wrong indicator to look at. Lower deficits achieve through taxation of consumption (including a progressive personal consumption tax) would be better.
I'm not sure what you mean by "consensus". The consensus was that the economy needed massive fiscal stimulus. That's why policymakers opted for more spending. The question now is how we get the spending down to reasonable levels for future generations. We've never spent so much for so little production, and that move set a risky precedent for future generations.
Big fiscal in the face of fierce Monetary winds too.
You rock, Claudia! Awesome piece!
Thank you!
There is a "contrary" experience to allow a comparison to the big fiscal: the Great Recession and its long, slow recovery. In fact, by acknowledging the failure of the fiscal and program responses to the Great Recession (as Pres. Biden has), we do not appreciate that the meager program and fiscal impact on American families (loss of homes while bailing out big banks, prolonged un- and under-employment) really created the dismay and distrust in government among American families setting the stage for MAGA politics of resentment.
Worth it for this line alone: "A key lesson from this crisis is that fiscal policy is much more powerful than monetary policy."
Yup. And not only more powerful, INFINITELY more flexible and able to address issues of distribution, no matter how distasteful those are to a certain class of economists.
And yet despite the huge impact of big fiscal on the US economy and that oddly enough includes the massive interest payments on US treasuries due in large part to the fed rate hikes which helped boost employment, incomes, wages and growth all everyone seems to want to do these days is complain about the deficit. This is not a coincidence unfortunately and I think that in large part is a factor as to why the white house is hesitant to gloat about the economy because complaining about the deficit is the easy thing to do in DC and has been for decades. If an article like this pisses people off on both sides so be it. This is about getting the facts out there and indeed Americans are better off today vs 2020 or even the GFC for that matter. We can and must do better.
Is there a better counterfactual leading indicator than when Larry Summers states what policy should be at the outset of crises? At least he’s been consistent over his career, consistently wrong on economic policy. Summers’ achievement as the worst applied economist of his generation is unrivaled. It’s not enough to be smart. Very intelligent people have proven capable of making horrible errors of judgment. Even worse: Summers is a pompous blowhard. To quote Barry Ritholtz: “Why does anybody listen to Larry Summers?”
The only thing more certain than another Summers error is that the usual suspects will line up to get his opinion anyway.
Claudia just plain rocks! Thank you so much for the article so please continue the dialogue.
I highly recommend The Deficit Myth by Stephanie Kelton to understand the power of fiat currency, the differences between a currency issuer (Federal government; fiscal) and currency users (all US citizens and most of the world). Kelton provides the fundamental understanding lens to bring clarity to economic realities, calm to fears of Fed reserve interest payments and reveals the true meaning of Congressional power of the purse. The Fed should focus on inflation indicators however, turn back to Congress the reigns of determining the appropriate resourcing decisions to make life better for all citizens, in a world of finite resources and stop using the “debt” for political convenience (it confuses public fiat currency understanding. Fiscal policy remains the fiat currency source; not markets. Ooh rah Claudia! However I subscribe to a Federal Employment guarantee that President Roosevelt advocated for as this would negate the need for a direct stimulus payments…unless another pandemic like catastrophe occurs.
The large fiscal stimulus also had large negative consequences like income in fiscal debt of say $7 trillion; budgets that cannot get below a $1.5 t deficit; stimulus to home prices that sent home prices up by 50% to where they are unaffordable for new middle class families; inflation that has caused high interest rates that shut down homebuilding and the list goes on.
Workers wages and employment levels went up but asset prices sky rocketed at the expense of workers, tax payers and future generations. Not sure how that’s a true “win” for the working poor? This seems as tone deaf as thinking disinflation is the same thing as prices going back to pre pandemic levels, ie groceries that cost 100 instead of 250??
If services employment and “output” is up because of wealth effects, is that really a good thing? It just means rich family X has even more income to pay more people to do more things for them. Those more people that do things for the rich family X (that already had a crapload of assets which roofed thx to big fiscal ) get paid more dollars to keep consumption at basically same levels as pre pandemic standards while prices of essential goods (like a house?!?) has become ever and ever less attainable. Tell me how that’s actually a big win for the ordinary people?
You people on the left think that dismal approval ratings and perceptions on the economy are basically because ordinary people are stupid and need to be “taught” why their present situation is actually fantastic but you can’t grasp the fact that their feeling and judgments are entirely tied to actual conditions and unfairness they can tangibly perceive (and rightfully so). But hey, I guess we’re just retarded and ungrateful and ignorant of our own fortunate circumstances while multi millionaire billionaire democrat donor classes continue to benefit off fiscal largesse that once again inflate asset prices at the expense of future generations and the working classes via implicit inflation tax
I shared what Americans, including low-wage workers, across the country told us about their jobs, paychecks, spending, and wealth. I am not tone deaf. I am about recognizing the range of experience. Low-wage workers have benefited the most from the strong labor market. as they should. And they have more money set aside than ever before even after accounting for inflation. Yes, we can do better, but we made enormous progress.
I am not a "you people on the left." I am an economic analyst who respects what Americans, as a group, tell us. You clearly do not.
The increase is debt was not desirable. Relief as well as subsequent Infrastructure and IRA should have been fully (or more than fully) funded by increases in revenues. The increase in housing prices relative to wages is more a microeconomic phenomenon (restrictive land use regulations and outdated building codes) than macroeconomics.
I disagree. CARES to Rescue Plan were essential relief in a crisis and deficit spending is entirely appropriate. Similar arguments can be made for the investment programs. See also my piece on why the federal debt is not a problem now: https://www.bloomberg.com/opinion/articles/2024-01-12/concerns-over-the-34-trillion-of-us-debt-are-misguided?sref=YAR8Qcu4
I agreed with you that the SPENDING was appropriate. It was the non-taxing that was inappropriate.
I also agree that "concerns" about the debt are mainly mistaken/bad faith opposition to the EXPENDITURES that generated them. [RR, GWB and DJT were not "concerned: about the debt when they reduced taxes for higher income people.] _My_ point is, however "non-concerning" the debt is, it would be better if the accumulated deficits that make it up had been and in the future were made smaller by higher revenue collections.
I always love reading your well thought out opinions backed up by factual data. I think one of the biggest problems we face right now is that it just doesn’t “feel” ok. It’s hard to argue feelings. Feelings also can come from a place of truth....
Unfortunately, your Bloomberg article about the deficit was behind a pay wall so I couldn’t read it. I tend to disbelieve that deficits and debt don’t matter (especially when rising rapidly), but I’m not an economist!
Thanks again for doing this work!
Congratulations to your brother for getting married
I've been a fan of Employer of Last Resort (local government) maybe combined with automatic stabilizers would be a nice mix. Also I fear the oil industry will spike prices before the election which will help Trump. Mark Zandi shares this fear and why wouldn't Big Oil do this with their obvious opposition to clean energy development and preference for Trump . Automatic stabilizers are a brilliant idea.
Great article. Another good example of we need to be much more prepared for tail risk events-- people have been calling out for pandemic preparedness before even Covid, but fiscal policy (and probably many other policies) are good examples of where we need to prepare even if not directly related to a pandemic or other tail-risk events.
Though I wouldn't say fiscal policy is more "powerful" than monetary policy. I kind of agree with it, but disagree in principle just because the Fed moves "last." This, and other factors like a better ability to respond to data or events, in my eyes qualifies it as a more "powerful" tool. Probably explains some of the preference for studying the Fed vs. fiscal policy (but I'm not very familiar with either literature, so take that with a grain of salt).
Small wonder legacy media is dying. Lazy, pack journalism is boring and predictable. There is seldom any context provided? Mainstream media will proclaim something is a BIG deal. My question is: “Compared to what?” It does this intentionally. There’s no shortage of complaints, so mainstream media’s intentions are clear.
I wouldn't say big win, and neither would a majority of voters. It's kind of a "well duh" statement to say that spending a bunch of money led to higher employment, wages, and spending. Duh. Of course that money shows up in economic indicators. Over time, though, does it improve the U.S.' economic position? Probably not, given higher interest cost payments and lower price competitiveness (partly due to demand created from increased spending).
My argument here about the benefits of big fiscal is not a "duh." If it had been then the consensus would have agreed with me for years that we would have a strong recovery and inflation down without a recession. They did not.
Also, how people "feel" about the economy is not my lane. I share what people tell us in high-quality surveys about their jobs, wages, income, spending, and wealth. Most are better off and fiscal was key in kickstarting the economy.
Finally, the federal debt is fine now and the foreseeable future.
My "like" does not apply to the final sentence. Debt levels may be non-problematic, but they are the wrong indicator to look at. Lower deficits achieve through taxation of consumption (including a progressive personal consumption tax) would be better.
I'm not sure what you mean by "consensus". The consensus was that the economy needed massive fiscal stimulus. That's why policymakers opted for more spending. The question now is how we get the spending down to reasonable levels for future generations. We've never spent so much for so little production, and that move set a risky precedent for future generations.
We don't have to wonder about the positive effects of better monetary policy. It's right in the numbers.