Jobless aid benefits could be an impediment to getting people back to work: American Action Forum President
The U.S. government is taking more steps to help Americans and American businesses financially. American Action Forum President Douglas Holtz-Eakin joins Yahoo Finance’s Seana Smith to discuss.
Video Transcript
SEANA SMITH: The House is voting today on the HEROES Act. It's a roughly $3 trillion coronavirus stimulus package. Now, the bill includes a trillion dollars for state and local governments, an extension of unemployment benefits, and another round of $1,200 direct payments to American families, amongst many other things.
So for more on this, I want to bring in Douglas Holtz-Eakin, president of the American Action Forum. And Doug, it's great to have you back on the show. This is the first time we have spoken since the coronavirus outbreak, so let me just start with, what is your assessment so far of the policy responses to COVID-19?
DOUGLAS HOLTZ-EAKIN: I think on the whole, it's been quite remarkable. Begin with the Federal Reserve, which saw that there was a massive cash-flow crunch out there in non-financial America and that the enormous sell-off we saw that was really roiling financial markets needed to be met with a force of liquidity, and they committed to providing as much for as long as necessary. They calmed financial markets, and they've continued to work extremely well throughout.
And-- and with that sort of early effort, Congress could then turn to supporting the business community, in particular, with the PPP and the facility that they set up at the Federal Reserve backed by the Treasury, and get aid to Americans who were already badly damaged by the crisis. And the expanded UI, and the paid leave, and the checks to households did that. So I think the basic design was-- was remarkably disciplined and aimed at the right problems.
The speed with which it got done and the scale at which they did it, all remarkable. So I think that's all good news. We've had some problems in execution. We've seen that in the PPP and elsewhere, and we probably got a late start. So there's unquestionably a large amount of damage out there to be repaired, and that's the next task.
SEANA SMITH: When we talk about what's going forward here, what's been put forward today at least, the HEROES Act significantly more money than what we saw in the CARES Act. A big reason for this is the trillion dollars that it includes to state and local governments. From your perspective, how important is it for Congress's plans to give aid to states at this point?
DOUGLAS HOLTZ-EAKIN: Well, I think the states have three problems. There are states that have had the-- the sort of burden of enormous public health expenditures and health spending in general. And it's in the national interest to do that spending. And so I think it's appropriate for the federal army to help out or pay for that entirely.
The states have experienced the same cash-flow crunch the business community has. When the customers disappeared, so did their sales taxes. And when the workers got laid off, the payroll taxes went with them. And so, you know, giving them some help on that front really comes down to how you think that should be done.
With most of the business community, we've done it in the form of a loan and a Federal Reserve facility. The state and local governments have a facility at the Federal Reserve, and there some who think that's enough to take care of it. And then there are others who want to provide cash directly to-- to the states.
And then there's a third problem, which is, you know, a long-standing structural problem in a lot of the states' budgets, pensions in particular are the poster child of this. And I don't think anyone thinks it's an issue for pandemic response to solve that. And so there is an appetite for two buckets of the state and local problem but not for the third. And the question is how do you draw those lines, and that's what the fight's going to be about.
SEANA SMITH: And, Doug, drilling down into this HEROES Act even further, one of the key things that's also included in this is it's an extension of unemployment benefits. And I was reading through some of the recent research from the American Action Forum, and there was research that you guys had that indicated that up to 63% of US workers would receive more from the maximum unemployment benefits than from their previous jobs. So I just want to get your thoughts just on how does this change the dynamics at play in the labor market, because it really speaks to the challenges of trying to incentivize some of those people who are out of work to return to work when jobs do become available?
DOUGLAS HOLTZ-EAKIN: Yeah, I think this is a really important issue, and I applaud my colleague Isabel Soto for writing two really good papers on the topic. You know, giving people $15 an hour for 40 hours on top of their regular UI benefit is a great policy if you don't want them to go to work. And the original formulation of this was please don't make people who don't have to go to work go to work just to make some money.
It's a completely different proposition when you want them to go to work. When you want to get the-- the 20 million idled in April back to work, and you want to get growth restarted in the US economy, this is a real impediment to that and will have to be dealt with in some way. Now, you could think of that as a theoretical proposition, or you could just look at the experience of Georgia.
When Georgia went to reopen more, it-- it looked at this and said, whoa, that's not going to work. So what we will do is we allow those workers who make less than $300 a week keep their unemployment benefits when they go back to work, thereby providing an incentive to get back into the labor force. That-- we need that. And we need that at the federal level.
The $600 currently expires at the end of July. Between now and July, the two-- two parties up on Capitol Hill ought to come to a compromise on how they will phase this out. It is an emergency response, shouldn't be around forever, and how they will get the work incentives put in place in the process.
SEANA SMITH: And Doug, I also have to ask you just what all this means for the deficit because the US deficit ballooned to $730 billion in April alone. That's a record. What do you-- what do you do with figures like this, because I know you and I've spoken numerous times before, you were worried about--
DOUGLAS HOLTZ-EAKIN: [CHUCKLING]
SEANA SMITH: -- before COVID-19. So what do you thinking at this point?
DOUGLAS HOLTZ-EAKIN: The numbers are enormous, but remember the problem is enormous. The 20 million jobs lost in April are 10 times larger than the largest month ever, which was right after World War II, when we were demobilizing. And, you know, the guest who was on before said that, you know, their forecasts for second quarter GDP decline is 10%. The worst year of the Great Depression was 1932, we lost 12%.
So there's an enormous downfall going on in the economy right now. It needs an enormous response. And so I think, boy, it's amazing these numbers are big, but they're appropriate given the problem. And I think it would be an enormous mistake to get your priorities wrong and say, hey, we've got to clean up the budget and not take care of the economy first. That would be an error.
It does mean that when we get past the pandemic, and when we are back toward more normal economic growth, the Congress and the president are going to have an enormous amount of work to do to stabilize the federal government's finances. They were unstable before, and they're now badly out of whack.
SEANA SMITH: Douglas Holtz-Eakin, president of the American Action Forum, we love having you on the show. Thanks so much for taking the time to join us.
DOUGLAS HOLTZ-EAKIN: Thanks, Seana.
