Papers

Slowdowns in the economy are inevitable. While it may be tempting to rely on Federal Reserve policy as a lone response to recessions, this would be a mistake; we know that fiscal stimulus is effective. Rather than wait for a crisis to strike before designing discretionary fiscal policy, we would be better served by preparing in advance. Enacting evidence-based automatic stabilizer proposals before the next recession will help the next recovery start faster, make job creation stronger, and restore confidence to businesses and households.

Automatic stabilizers are designed to expand during an economic downturn and contract during an expansion—providing timely and temporary fiscal stimulus. Boushey, Nunn, O’Donnell, and Shambaugh assess the various policy responses available to the federal government and argues that when well designed, automatic stabilizers can be an effective part of the policy tool kit for responding to recessions. 

Louise Sheiner and Michael Ng investigate the cyclicality of fiscal policy over the past 40 years, finding that fiscal policy has been increasingly countercyclical, with automatic stabilizers providing roughly half the stabilization. By contrast, state fiscal policy has been mildly procyclical. 

Consumer spending, which makes up about 70 percent of aggregate expenditures in the economy, slows sharply during recessions. This slowdown can exacerbate employment losses and reduced production, making a recession even worse. Claudia Sahm proposes automatic direct payments to individuals to support consumer spending when the national unemployment rate rapidly rises. 

In the face of large declines in tax revenues and increased demand for state programs during and after recessions, state governments are often forced to raise taxes, cut programs, or both. In order to protect state Medicaid programs and counteract recessions, Matthew Fiedler, Jason Furman, and Wilson Powell III propose to automatically increase the federal share of expenditures under Medicaid and the Children’s Health Insurance Program when a state’s unemployment rate exceeds a threshold level.

Transportation infrastructure investment during economic downturns often occurs too slowly—and in insufficient quantities—to help stabilize the economy. Andrew Haughwout of the Federal Reserve Bank of New York proposes a modification of the BUILD grant program that would automatically fund additional transportation infrastructure investments during recessions.

Low recipiency rates and an imperfect Extended Benefits program weaken the unemployment insurance program’s effectiveness during recessions. Gabriel Chodorow-Reich and John Coglianese propose five reforms to strengthen the automatic stabilization functions of the unemployment insurance system.

The design of the Temporary Assistance for Needy Families (TANF) program prevents it from providing sufficient assistance to families with children during economic downturns and from serving as an effective stabilizer. In order to help TANF better deliver on both these fronts, Indivar Dutta-Gupta proposes ways to change the funding, design, and administration of the program.

The Supplemental Nutrition Assistance Program (SNAP) is both an effective antipoverty program and a natural automatic stabilizer, expanding when the economy is weak and contracting when it is strong. Hilary Hoynes of the University of California, Berkeley and Diane Whitmore Schanzenbach of Northwestern University present reforms to strengthen SNAP’s countercyclical effects.

Work requirements impede SNAP’s dual role as a safety net and automatic stabilizer. This economic analysis provides new evidence about how waivers to these rules functioned during the Great Recession and how the USDA’s proposed rules would have worked had they been in effect from 2007 to present.

The $700 billion U.S. intergovernmental grant system is often poorly targeted to areas that are struggling. Tracy Gordon proposes reforms to Medicaid and other programs that would make federal aid to states more targeted toward struggling areas and more responsive to economic shocks.   

In this economic analysis, The Hamilton Project evaluates the nation's economic recovery, assessing jobs growth at a national level and examining factors that contributed to the uneven rate of recovery experienced by some regions and demographic groups. Notably, the report assesses the recovery rate by geographic region, gender, race, and educational attainment. 

The experience of the Great Recession reveals important holes in the safety net. In particular, the central cash-assistance program in the United States, Temporary Assistance for Needy Families (TANF), is failing to reach many poor families. In addition, the program does not automatically expand during economic downturns, when the need for the program is likely greatest and when additional consumer spending would be particularly helpful. To strengthen TANF, Marianne Bitler and Hilary Hoynes propose reforms to expand both the program’s reach and its responsiveness to cyclical downturns. They also propose ways to improve its transparency, which will help researchers and policymakers understand how the program works, who it supports, and how effectively it meets its goals. 

In the years following the Great Recession, many economists and policymakers agree that fiscal stimulus was crucial to turning around the faltering economy and helped to save or create millions of jobs. What economists and policymakers do not agree on is whether the stimulus should have been larger, whether it contained the correct mix of tax cuts and targeted government spending, and how it could have best been delivered. In this Hamilton Project policy proposal, Alan Blinder tackles these questions using economic theory and recent evidence from the Great Recession to discuss how fiscal policy can be better designed to mitigate the effects of the next economic downturn.

Between December 2007 and June 2009 the United States experienced the most severe recession in the postwar period. Given the massive human cost of recessions, it is incumbent upon policy makers to assess the policy tools at their disposal and identify those that are most effective at hastening economic recovery during a downturn. In this document, The Hamilton Project describes how different groups of workers were affected by the Great Recession, what works in fiscal stimulus, what could be done differently in future recessions, and the fiscal preparedness of states for the next downturn.