New report proposes an integrated system for mitigating the effects of economic emergencies
In the span of twelve short years, America has faced two economic crises with devastating long-term impacts: the Great Recession of 2008 and the COVID-19 health crisis. At each juncture, Congress has been forced to scrape together ad hoc measures that have acted as a band aid over deep economic issues. This crisis approach to policymaking is inefficient at best and malpractice at worst. There is a better way.
“No More Bailouts: A Blueprint for a Standing Emergency Economic Resilience and Stabilization Program” (SEERS program), a new report released today by the Great Democracy Initiative (GDI), proposes a standing, off-the-shelf program to stabilize the economy in the event of an economic emergency (such as the 2008 crash or COVID-19). By providing a preexisting legislative package to respond to the challenges common to all recessions—unemployment, income shocks, and liquidity constraints—this standing economic resilience program would allow Congress to respond quickly in a crisis while focusing its attention on the unique causes of each particular downturn. The program would have four central components:
- A bankruptcy-based restructuring process for large or publicly traded firms that involves a federal equity stake and a potential federal senior secured loan;
- A program for smaller businesses to cover payroll and operating expenses to prevent mass layoffs and closures on Main Street;
- A financial system infrastructure reform to enable direct government payments to consumers and businesses without reliance upon private intermediaries; and
- A system of automatic stabilizers to engage policy tools without recurrent congressional action, including a suite of programs to address housing insecurity for both renters and homeowners.
Co-authored by Adam J. Levitin (Professor of Law at Georgetown University Law Center), Lindsay Owens (fellow at GDI and former Senior Economic Policy Advisor to Senator Elizabeth Warren), and Ganesh Sitaraman (Professor of Law at Vanderbilt University and longtime advisor to Elizabeth Warren), the paper explains that this standing authority is by design not tailored to the specifics of any particular crisis. It would be a default authority addressing common problems for all economic crises that Congress could amend or tailor as the situation demands.
Insight from the authors:
“Whether the next economic crisis is like the Great Recession and requires a Keynesian stimulus, or whether it is like the COVID-19 pandemic and requires immediate payments to keep people and small businesses afloat in order to mitigate economic harm, the federal government needs a single, simple, and smart way to get people and businesses money. In our view, SEERS will empower the government to make the right moves, fast,” said Levitin.
“If this economic resilience program had been in place prior to March 2020, the economic response would have been faster and more effective, and Congress could have spent the lion’s share of the spring narrowly focused on standing up a national testing board for COVID-19, building out a community health corps of contract tracers, and supporting the development of a vaccine. Think about how many businesses and lives could have been saved,” said Sitaraman.
“We must make policy that alleviates economic hardship automatically, regardless of whether the next downturn looks anything like the last one. Automatic stabilizers are one of the best tools policymakers can deploy to ensure that our response to an economic downturn is properly calibrated to the scope of the crisis, whatever the next one may bring,” said Owens.
The federal government is the only entity in a position to protect the national economy from systemic externalities. This program would allow Congress to act quickly and thoughtfully to fill this role. America needs a more thoughtful approach to building an economy that works for everyone. Learn how GDI is doing that here.
About the Great Democracy Initiative
The Great Democracy Initiative seeks to develop bold, progressive, and actionable policy plans for leaders seeking solutions to key issues facing our country. Instead of proposing technocratic tweaks or layering new programs on top of a broken system, the Great Democracy Initiative targets the structural problems facing our democracy, including unaccountable policymakers, corporations with outsized economic and political power, and policies that subtly stack the deck against average Americans.