Automatic triggers can kick in when the economy falters — and when it booms.
Buried underneath Washington’s stimulus gridlock are the outlines of a bipartisan deal that could both soften recessions and address soaring debt. The creation of new “stimulus triggers” that would automatically kick in whenever the economy falls into recession has been endorsed by House speaker Nancy Pelosi, liberal economists such as Jason Furman and Lawrence Summers, and columnists such as the Washington Post’s Catherine Rampell and Bloomberg’s Noah Smith. On the flip side, “deficit-reduction triggers” that would automatically kick in when the economy is booming have been supported by White House economists and bipartisan representatives of think tanks ranging from the Heritage Foundation to the Brookings Institution. More recently, 30 House Republicans and 30 House Democrats recently signed a letter calling for deficit reduction as soon as the economy recovers.
The obvious solution is a bipartisan deal merging these complementary measures. Washington should build a system that provides aid during recessions and aggressively reduces the deficit when the economy is thriving.
Clearly, Washington can improve its recession responses. While every downturn is unique, nearly every recession eventually induces Congress to extend emergency unemployment benefits and expand Medicaid and safety-net assistance to states. Yet this response is often slowed down by congressional recesses, the need to craft new reforms quickly, and disagreement over the duration of these policies. Lawmakers also often abuse the “must-pass” nature of these bills by demanding expensive, unrelated add-ons. Better for Congress to carefully craft a permanent package of automatic triggers that can quickly provide aid during recessions and then remove that aid when the economy recovers.
Brian M. Riedl is a senior fellow at the Manhattan Institute and author of the recent issue brief, Coronavirus Budget Projections: Escalating Deficits and Debt. Follow him on Twitter here.
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