Labeling the current economic downtown and its anticipated worsening the “Greater Recession,” a NEMWI issue brief released today advocates major macroeconomic action to remedy the recession and to foster more rapid economic recovery. The issue brief, titled “Fighting the ‘Greater Recession’: All-Time High Unemployment Levels and Sudden Record-Breaking State and Local Revenue Shortfalls”, is authored by NEMWI Research Intern Maria Bolaños (Brown University ’21). Along with NEMWI Senior Fellow for Public Finance Thomas Cochran, she applies the label “Greater Recession” to distinguish what the nation is experiencing now from what is commonly called the “Great Recession” of 2008 -2009 which lasted for 18 months and was followed by an anemic recovery of about ten years. Today’s issue brief calls for federal funding to replace record-breaking state and local revenue shortfalls to limit headwinds to a robust recovery.
The issue brief contrasts the “Greater Recession” with past recessions, focusing on not only its levels of unemployment but the fact that the “…pandemic has impacted the physical and economic health of low-wage workers before others in the workforce, exacerbating racial income, wealth, and health inequality, whereas past recessions have tended to begin elsewhere in the labor or capital markets and impacted low-wage workers later.” The brief shows that the combination of an unemployment-led economic recession with a life-threatening pandemic has created a sudden strain on all elements of the state and local public sectors, including especially the publicly financed health care system, K-12 and post-secondary education, transportation, and emergency services. It recommends that the next round of fiscal stimulus include federal replacement of state and local revenues shortfalls to limit the current recession to a shorter duration and facilitate a more robust recovery than that of the Great Recession. The brief concludes with summaries of two pieces of pending legislation which would each address the state and local fiscal crisis in their own ways: the SMART Act and the HEROES ACT.
While the Northeast-Midwest states have generally managed to reduce their rates of COVID-19 infection, hospitalization, and death, with the pandemic still growing in other regions, Congress is currently considering another round of economic stimulus legislation.
The issue brief on the needed macroeconomic response to the “Greater Recession” is available here.