WEBVTT - How To Use Fiscal Stimulus To Stave Off The Next Recession 0:00:11.200 --> 0:00:15.280 Hello, and welcome to another episode of the Odd Lots podcast. 0:00:15.320 --> 0:00:20.159 I'm Joe Wisenthal and I'm Tracy Alloway. So, Tracy, you know, 0:00:20.239 --> 0:00:23.560 one of the big things that we've been talking about 0:00:23.680 --> 0:00:26.680 maybe a little bit on the podcast, but I would say, uh, 0:00:26.880 --> 0:00:31.280 finance media, ecomedia in general, is this idea of the 0:00:31.840 --> 0:00:37.080 monetary to fiscal handoff. Oh yeah, that is the big theme, 0:00:37.120 --> 0:00:39.440 and it's sort of the big thing that a lot 0:00:39.520 --> 0:00:42.280 of people are hanging their hopes on for economic growth. 0:00:42.360 --> 0:00:45.440 So the spiel that you've been hearing a lot is 0:00:45.520 --> 0:00:49.160 that monetary policy has failed in various ways to lift 0:00:49.280 --> 0:00:52.800 inflation and to boost economic growth in a significant way, 0:00:53.159 --> 0:00:56.280 and so it is now up to the government side 0:00:56.360 --> 0:01:00.880 to actually enact fiscal stimulus and do it that way. Right. 0:01:00.920 --> 0:01:02.800 I think there's like a couple of things going on. 0:01:02.880 --> 0:01:05.720 I mean, I think a there's the fact that people 0:01:05.880 --> 0:01:09.679 have been pretty disappointed with the pace of growth in 0:01:09.720 --> 0:01:13.240 the wake of the financial crisis. There's the fact that 0:01:13.440 --> 0:01:17.759 in uh much of the developed world, there may literally, 0:01:18.000 --> 0:01:20.959 according to some people, being no further scope for monetary 0:01:21.040 --> 0:01:24.000 policy as rates are more or less pinned a zero. 0:01:24.160 --> 0:01:27.200 So even if things are okay now there's this expectation 0:01:27.840 --> 0:01:30.759 that central banks don't have a lot of Jews. And 0:01:31.000 --> 0:01:33.000 you know something that we have talked about, just this 0:01:33.120 --> 0:01:35.959 idea that um, you know, in the wake of the 0:01:36.000 --> 0:01:39.840 financial crisis, growth aside, that all of the sort of 0:01:39.920 --> 0:01:44.960 old rules and old frameworks are being questioned once again. Yeah, 0:01:45.120 --> 0:01:47.680 I think that's right, But of course I guess the 0:01:47.760 --> 0:01:50.040 key thing in all of this is that it's not 0:01:50.360 --> 0:01:52.720 central banks you are going to be responsible for the 0:01:52.760 --> 0:01:56.640 next phase. It's governments, right, And with governments you tend 0:01:56.680 --> 0:02:02.720 to get a hecky dose of politics and often disagreement. Right. 0:02:02.840 --> 0:02:06.920 That's the tricky part because one in theory nice thing, 0:02:07.040 --> 0:02:09.520 and it's debatable whether it's nice, but one in theory 0:02:09.639 --> 0:02:13.200 nice thing about relying on monetary policy is it can 0:02:13.280 --> 0:02:18.240 be conducted by ostensibly independent institutions that don't have to 0:02:18.600 --> 0:02:21.080 go so much by political whims or worry about getting 0:02:21.240 --> 0:02:26.519 re elected. Whereas when you rely on fiscal policy, you 0:02:26.639 --> 0:02:30.120 rely on elected officials, often who have who have counter 0:02:30.320 --> 0:02:34.240 goals to each other. Maybe politicians don't want to boost 0:02:34.240 --> 0:02:38.760 the economy when their opposition is in power. Things like that. Uh, 0:02:38.840 --> 0:02:43.320 Fiscal policy arguably reacts much slower, so although it sounds 0:02:43.400 --> 0:02:47.640 nice to have a handoff, so to speak, it's a 0:02:47.760 --> 0:02:50.080 it's a lot trickier than just saying we need to 0:02:50.160 --> 0:02:53.680 rely more on fiscal policy. Yeah, which is why it's 0:02:54.080 --> 0:02:58.359 what is it now? And we're still talking about the 0:02:58.440 --> 0:03:02.360 possibility of a big round of fiscal stimulus in a 0:03:02.400 --> 0:03:04.360 lot of places, even though it feels like we've been 0:03:04.360 --> 0:03:07.280 talking about it for a long time, right, and even 0:03:07.320 --> 0:03:10.880 in places which every economist almost in the entire world 0:03:10.960 --> 0:03:13.919 would say, yes, please spend more money. A good example 0:03:13.919 --> 0:03:16.680 of that would say be Germany. It just doesn't matter. 0:03:16.800 --> 0:03:20.679 It's so much more arbitrary and unpredictable when you're going 0:03:20.760 --> 0:03:25.800 to get the fiscal response than uh than say monetary policy, 0:03:25.840 --> 0:03:29.440 which can be adjusted extremely quickly. And this is something 0:03:29.480 --> 0:03:32.880 that I remember we spoke about with Lord Robert Skidelski. 0:03:33.080 --> 0:03:35.680 He was talking about the need for a sort of 0:03:35.800 --> 0:03:41.000 automatic fiscal stabilizer that could kick in when the economy 0:03:41.400 --> 0:03:46.520 was in trouble and sort of bypass whatever political gridlock 0:03:46.680 --> 0:03:51.960 might otherwise stop it from happening. Well, that is a 0:03:52.200 --> 0:03:55.840 perfect way to introduce our guest, because our guest has 0:03:55.880 --> 0:04:00.120 been doing work on exactly this question. So how do 0:04:00.160 --> 0:04:03.640 you get fiscal policy to work in a timely manner, 0:04:03.720 --> 0:04:07.240 in a predictable manner, in a matter that's not as 0:04:07.320 --> 0:04:11.280 much about the um the political cycles, in a manner 0:04:11.320 --> 0:04:16.040 that's actually well targeted and time to avoid or mitigate 0:04:16.080 --> 0:04:18.720 the effects of recession. And that is going to be 0:04:19.279 --> 0:04:23.440 our discussion today. Great, I can't wait, all right, So, 0:04:23.560 --> 0:04:25.760 without further ado, I want to bring in Claudia Psam. 0:04:25.880 --> 0:04:29.920 She is the director of macroeconomic Policy at the Washington 0:04:30.120 --> 0:04:35.080 Center for Equitable Growth. And Uh, Claudia, thank you very 0:04:35.120 --> 0:04:37.479 much for joining us. Yeah, thank you for having me 0:04:37.520 --> 0:04:41.280 on the show. I'm really excited. Awesome. Well, before we 0:04:41.360 --> 0:04:44.719 get into your work, and uh, we've we've talked about 0:04:44.839 --> 0:04:48.640 this work you've been doing in terms of improving the 0:04:48.760 --> 0:04:52.800 speed and efficacy, UM and predictability of fiscal policy, just 0:04:52.839 --> 0:04:55.640 tell us a little bit about your background. You were 0:04:55.680 --> 0:04:58.600 at the Federal Reserve for a long time, right, Yes, 0:04:58.720 --> 0:05:02.200 so I was at the Federal Reserve Board of Governors 0:05:02.200 --> 0:05:05.120 in d C until last November. So I'm very new 0:05:05.160 --> 0:05:09.400 being on the outside. And I think my education as 0:05:09.440 --> 0:05:12.880 a macro economist at the FED so very much in 0:05:12.920 --> 0:05:18.000 the monetary policy space was unique because I started in 0:05:18.040 --> 0:05:21.680 the summer of two thousand and seven. My first forecast 0:05:21.920 --> 0:05:25.760 as a consumption expert at the Board was in January 0:05:25.760 --> 0:05:29.680 of two thousand eight. My first year learning how to 0:05:29.839 --> 0:05:34.440 do macro forecasting was a birth by fire. As one 0:05:34.480 --> 0:05:37.040 of my colleagues, did you get it right? No one 0:05:37.080 --> 0:05:39.719 got it right. And I think for me it was 0:05:39.800 --> 0:05:42.240 interesting because in my first year, just like a lot 0:05:42.320 --> 0:05:44.960 of people out of grad school, I had an immense 0:05:45.000 --> 0:05:48.599 amount of impostor syndrome. But at some point I realized 0:05:48.720 --> 0:05:52.239 every single macro economist at that point in time should 0:05:52.279 --> 0:05:57.280 be having impostor syndrome, because that first year I learned 0:05:57.279 --> 0:05:59.920 how to do macro forecasting when none of the forecast 0:06:00.200 --> 0:06:03.400 models worked. I mean, they never work in a recession. 0:06:03.440 --> 0:06:06.919 It's just it's such a severe contraction. That's not no 0:06:06.960 --> 0:06:10.039 one would ever forecast a recession like it happened next 0:06:10.120 --> 0:06:12.279 year because we just we don't have a way to 0:06:12.440 --> 0:06:17.640 predict that. They're very unpredictable by nature. So I, like 0:06:17.680 --> 0:06:21.360 I said, I had a very different education in macro forecasting, 0:06:21.520 --> 0:06:24.560 and frankly it has damaged me in terms of believing 0:06:25.120 --> 0:06:28.400 that the economy always recovers and that we should trust 0:06:29.080 --> 0:06:34.839 our models, our expertise, even among a really strong, hard 0:06:34.880 --> 0:06:38.960 working group of economists, I think strongly we've missed it 0:06:39.000 --> 0:06:42.640 before the recession, in the financial crisis, but frankly the recession, 0:06:42.680 --> 0:06:45.560 how slow it was, how much we didn't understand that. 0:06:45.560 --> 0:06:48.840 That was really my hardest time as a forecaster at 0:06:48.880 --> 0:06:51.240 the board. Can I just say I had a really 0:06:51.240 --> 0:06:57.000 similar experience because I got into really financial financial journalism 0:06:57.040 --> 0:07:00.880 in September of two thousand eight, and I remember even 0:07:00.960 --> 0:07:04.080 financial journalists that have been doing this for ten years 0:07:04.160 --> 0:07:07.600 were really confused about everything that was happening, and I 0:07:07.640 --> 0:07:09.679 was just writing about it, and I felt a little 0:07:09.680 --> 0:07:12.320 bit uncomfortable. But then I realized that actually no one 0:07:12.440 --> 0:07:14.640 had any idea what was going on at that time, 0:07:14.680 --> 0:07:18.520 so everyone was pretty much starting from ground zero. So 0:07:19.080 --> 0:07:21.600 I kind of wanted to ask you when you saw 0:07:21.640 --> 0:07:25.520 the health of the consumer actually start to deteriorate before 0:07:25.640 --> 0:07:28.440 the Great Recession, But obviously, since you made your first 0:07:28.480 --> 0:07:32.320 forecast in January two eight, that doesn't really apply. So 0:07:32.440 --> 0:07:35.440 let me ask instead, when did you see the health 0:07:35.440 --> 0:07:40.400 of the consumer start to really pick up after that recession. 0:07:40.840 --> 0:07:44.440 So I think as background to this my research, my dissertation, 0:07:45.240 --> 0:07:50.840 I used household survey data, responses from household to major 0:07:50.920 --> 0:07:56.560 surveys like the Michigan Survey, Healthy Retirement Survey, Healthy Retirement Study. 0:07:56.880 --> 0:08:01.320 This is an unusual background. I am a macro economist, 0:08:01.360 --> 0:08:03.960 I was trained to be a macro economist, but my 0:08:04.080 --> 0:08:09.920 research has primarily been applied microeconomics. So studying household behavior 0:08:10.920 --> 0:08:13.440 by looking at household behavior is opposed to just it 0:08:13.480 --> 0:08:17.640 all aggregated up. And I remember late in two thousand 0:08:17.680 --> 0:08:20.200 and seven because I started to go to briefings and 0:08:20.240 --> 0:08:22.840 get a sense of where I had landed, and there 0:08:22.920 --> 0:08:26.720 was a discussion about consumer sentiment from the Michigan Survey 0:08:27.000 --> 0:08:31.160 and how it had really started to deteriorate. And it 0:08:31.240 --> 0:08:34.840 was puzzling given all the other macroeconomic data that was 0:08:34.880 --> 0:08:40.280 coming in, like consumer spending personally, it just didn't quite connect. 0:08:40.320 --> 0:08:43.400 And I can remember being in a boardroom briefing. There 0:08:43.440 --> 0:08:46.880 was an exchange between the governors and the staff saying, well, 0:08:46.880 --> 0:08:50.319 what's up with consumers? And you know our best well, 0:08:50.360 --> 0:08:53.920 we don't know, and then it went into oh, this 0:08:54.080 --> 0:08:56.920 is fusehold. We should call him up and see what's 0:08:56.960 --> 0:09:00.120 going on. And no one shut down this conversation, And 0:09:00.200 --> 0:09:02.440 I was just about ready to crawl under my chair 0:09:02.559 --> 0:09:05.880 because those five household and having worked on a lot 0:09:05.920 --> 0:09:10.960 of household surveys, they are chosen to be representative of 0:09:11.040 --> 0:09:14.120 all adults, all households in the United States. So the 0:09:14.160 --> 0:09:17.200 idea that we were brushing it off is some inconvenient 0:09:17.280 --> 0:09:19.640 data point that didn't set in with the rest. That 0:09:19.720 --> 0:09:22.960 really caused some alarm bells. But I was really knew. 0:09:23.040 --> 0:09:25.120 I wasn't, you know, in a place to jump up 0:09:25.160 --> 0:09:28.600 in the boardroom and correct governor and you know, staff 0:09:28.600 --> 0:09:32.000 that were senior to me. But in hindsight, and this 0:09:32.080 --> 0:09:34.240 was a project I worked on when I was at 0:09:34.240 --> 0:09:38.360 the Council of Economic Advisors and and sixteen I did 0:09:38.360 --> 0:09:42.560 a retrospective for the senior staff there. Jason Furman was 0:09:42.640 --> 0:09:46.160 the chair, and it was about how we can look 0:09:46.200 --> 0:09:50.800 back on the consumer sentiment data the both the expectations 0:09:50.920 --> 0:09:52.880 and then the recovery. I paid a lot of attention 0:09:52.920 --> 0:09:57.000 to the income expectations and you can see how households 0:09:57.280 --> 0:10:01.000 were they got it and not because they're excellent forecast 0:10:01.120 --> 0:10:04.440 they were living this right. And so I spent a 0:10:04.520 --> 0:10:08.080 lot of time with the Michigan Survey thinking hard. I mean, 0:10:08.120 --> 0:10:10.079 these data are hard to work with. There are there 0:10:10.160 --> 0:10:13.439 is some noise, you know it. You know, the people 0:10:13.480 --> 0:10:17.839 answer questions and it's not clear what they intend by 0:10:17.880 --> 0:10:20.960 what they're saying. But you put it all together, there's 0:10:21.000 --> 0:10:23.280 a lot there to learn. So I feel like they 0:10:23.280 --> 0:10:25.800 were telling us early on, which makes sense. It was 0:10:25.800 --> 0:10:29.000 a consumption lead recession. The housing markets started to turn 0:10:29.080 --> 0:10:34.120 south before it was showing up in the whole economy clearly, 0:10:34.800 --> 0:10:38.640 and frankly you saw early in two thousand eleven two 0:10:38.960 --> 0:10:43.640 tents we broke them. The income expectations series moved in 0:10:43.679 --> 0:10:48.120 a way from Americans are by nature optimistic, they had 0:10:48.320 --> 0:10:53.520 a discreete shift in becoming much more pessimistic about their 0:10:53.559 --> 0:10:58.120 income ex expectations. I talked with Richard Kurtin at the time, 0:10:58.240 --> 0:11:00.800 who has run the Michigan Survey since year I was born, 0:11:01.679 --> 0:11:05.240 so back, you know, forty plus years, and he agreed 0:11:05.280 --> 0:11:08.320 with me, there's basically only other two series, the interest 0:11:08.440 --> 0:11:12.320 rate expectations around the time of vulcre In, these income 0:11:12.360 --> 0:11:15.680 expectations after the Great Recession, those are the only two 0:11:15.679 --> 0:11:18.120 series you can point to, and just there is a 0:11:18.240 --> 0:11:23.200 level shift, very abrupt, and that that meant something, and 0:11:23.240 --> 0:11:26.520 that was something I spent a lot of time repeatedly 0:11:26.880 --> 0:11:31.000 in forecast meetings among staff pointing to you know, and 0:11:31.040 --> 0:11:33.760 it was one of many things that were considered. There 0:11:33.840 --> 0:11:36.480 was a lot to learn from households. Now when we 0:11:36.520 --> 0:11:39.400 look back, we can see they were they were right. 0:11:39.880 --> 0:11:43.680 That was a big part of my life as a 0:11:43.720 --> 0:11:48.080 forecaster over a decade at the FED, and it was 0:11:48.120 --> 0:11:52.319 where I was bringing my research, expertise, my passions about 0:11:52.320 --> 0:11:55.280 the fact that economists really need to listen to people 0:11:55.320 --> 0:11:57.160 and we need to be creative about a way to 0:11:57.240 --> 0:12:00.480 take what people are telling us one by one or 0:12:00.559 --> 0:12:03.000 community by community, and figure out how to roll it 0:12:03.080 --> 0:12:05.920 up in a way that the Federal Reserve, who really 0:12:05.960 --> 0:12:08.400 does need to make policy for the country as a whole, 0:12:09.000 --> 0:12:13.120 how they can integrate those voices and when they're especially 0:12:13.160 --> 0:12:17.720 when they're puzzling, into our frameworks and use that to 0:12:17.800 --> 0:12:22.040 guide monetary policy. I already feel like we could do 0:12:22.280 --> 0:12:25.120 a massive to our discussion on just what that's like 0:12:25.480 --> 0:12:28.200 being a staffer at the FED, and I I hope 0:12:28.240 --> 0:12:29.640 you write a book on it, because now I just 0:12:29.640 --> 0:12:32.520 have a million more questions on that alone. But in 0:12:32.559 --> 0:12:36.400 the interest of time and everything, I want to skip 0:12:36.400 --> 0:12:38.200 ahead a little bit, and I feel like when we 0:12:38.240 --> 0:12:42.839 get to discussing the structure of how to do fiscal stimulus, 0:12:42.840 --> 0:12:46.400 your work on household consumption is going to be very 0:12:46.440 --> 0:12:49.600 relevant to that. But before we get to that, this 0:12:49.720 --> 0:12:55.000 idea now today that okay, we need some sort of handoff, 0:12:55.120 --> 0:12:58.720 that we need to put more emphasis on fiscal policy, 0:12:58.760 --> 0:13:00.920 that we can't just have this central bank be the 0:13:00.960 --> 0:13:05.360 economic stabilizer of last resort. Where do you think that's 0:13:05.400 --> 0:13:07.600 mostly coming from. Do you think it's coming from the 0:13:07.600 --> 0:13:10.319 slow pace of recovery? Is that the fact that rates 0:13:10.360 --> 0:13:13.720 are zero and there's there's perception that central banks are 0:13:13.720 --> 0:13:16.680 out of AMMO? Or is it kind of what you're 0:13:16.720 --> 0:13:21.079 saying in terms of the soul searching among economists that 0:13:21.800 --> 0:13:25.440 just the models, the basic models that have been used 0:13:25.440 --> 0:13:28.600 for so long, just don't work as as people thought. 0:13:29.200 --> 0:13:33.120 So I would point to a number of factors. I'll 0:13:33.240 --> 0:13:35.760 keep it brief in terms of sticking to what I 0:13:35.800 --> 0:13:39.360 think are the three main ones, and starting with the 0:13:39.400 --> 0:13:42.240 idea of economist soul searching, which was your last point. 0:13:42.320 --> 0:13:44.280 I do think that's a piece of it. I have 0:13:44.440 --> 0:13:50.280 been discouraged by how limited the soul searching among economists 0:13:50.280 --> 0:13:56.880 macroeconomists has been over the last decade. I don't, Well, 0:13:56.920 --> 0:13:59.040 I have reasons for that, but we'll set those aside, 0:13:59.520 --> 0:14:03.160 and I think where the soul searching has begun and 0:14:03.360 --> 0:14:06.200 I'll take whatever we can get is in terms of 0:14:06.200 --> 0:14:11.160 monetary policy. So the zero lower bound has complicated to 0:14:11.480 --> 0:14:18.600 how economists, how the Federals Reserve approaches their mandate from Congress. 0:14:18.679 --> 0:14:21.680 So and right now the Federal Reserve is undergoing a 0:14:21.720 --> 0:14:27.560 framework review. I do not have high hopes for those 0:14:27.560 --> 0:14:31.160 outcomes this summer, but I am so happy that we 0:14:31.200 --> 0:14:36.200 are having that discussion in a very serious, model based way. 0:14:36.280 --> 0:14:38.360 So I think that is great. So that's one piece, 0:14:38.640 --> 0:14:41.560 because it be hard not to have a rethink. I 0:14:41.600 --> 0:14:46.640 think the rethink is coming from monetary policy itself. Now, 0:14:47.120 --> 0:14:51.520 a second factor that I personally think is why we 0:14:51.600 --> 0:14:56.960 are having this debate is fiscal policy did not show 0:14:57.080 --> 0:15:01.120 up in the way it has in previous recessions. In 0:15:01.200 --> 0:15:03.840 the beginnings, you had Bush passing the tax cuts, you 0:15:03.960 --> 0:15:08.480 had the American Recovery and Reinvestment Act, as you know, 0:15:08.640 --> 0:15:12.920 Obama's first big economic policy in two thousand nine. So 0:15:13.000 --> 0:15:17.640 on the front end, we saw some aggressive fiscal policy 0:15:17.760 --> 0:15:24.600 responses completely on target. Now, what we didn't see is 0:15:24.640 --> 0:15:28.920 that as the recovery went on, Congress pulled back on 0:15:29.040 --> 0:15:33.120 fiscal policy support to the economy in a way that 0:15:33.600 --> 0:15:40.120 was markedly different than past recessions. So and again I 0:15:40.160 --> 0:15:43.440 studied consumer behavior. I followed very closely because of my 0:15:43.560 --> 0:15:47.880 job as a consumption forecaster, each of these stimulus packages 0:15:47.920 --> 0:15:51.040 that went out broadly to households. So what we saw 0:15:51.240 --> 0:15:54.480 at the end of twenty twelve, the payroll tax cut, 0:15:54.520 --> 0:15:57.440 which was the last of these big stimulus two households. 0:15:57.800 --> 0:16:03.680 It ended the unemployment rate was still notably elevated, and 0:16:03.720 --> 0:16:06.920 they just they pulled back for for reasons. There were 0:16:06.920 --> 0:16:10.920 discussions about debt that to me is a big problem. 0:16:11.040 --> 0:16:14.000 And then because they did that, and this was an 0:16:14.000 --> 0:16:18.600 important part of the automatic stabilization direct payments to households 0:16:18.600 --> 0:16:20.920 that I'm sure we'll get to talking about in a 0:16:20.960 --> 0:16:25.080 few minutes. The reason that I had the automatic piece, 0:16:25.080 --> 0:16:27.080 and it wasn't just about when it turns on. It 0:16:27.200 --> 0:16:30.440 was a commitment to keep doing the payments until the 0:16:30.520 --> 0:16:34.800 unemployment rate came down. That is very specifically a reaction 0:16:35.280 --> 0:16:37.840 from the fact that when Congress had to get together 0:16:37.840 --> 0:16:40.000 and do it in a discretionary way, like they had 0:16:40.040 --> 0:16:44.560 to vote on it in real time. They didn't do it. 0:16:44.960 --> 0:16:47.680 They pulled back on the economic support. So I think 0:16:47.720 --> 0:16:51.080 that's the second one. The third one is the economy 0:16:51.360 --> 0:16:54.840 told us we are not We did not approach this 0:16:55.360 --> 0:16:58.760 in a way that was sufficient. The tools that we 0:16:58.880 --> 0:17:04.000 had going into recession and the recovery just didn't didn't 0:17:04.000 --> 0:17:07.879 do it. This was a slow and long recovery. The 0:17:07.960 --> 0:17:11.359 unemployment rate stayed high for way too long. Both of 0:17:11.359 --> 0:17:15.600 these are destructive. They hurt people, they hurt businesses, they 0:17:15.640 --> 0:17:18.800 hurt the economy, I mean productivity ground, They're just there 0:17:18.840 --> 0:17:22.720 are so many bad consequences that we have seen in 0:17:22.720 --> 0:17:27.040 the economy that this has forced a discussion about, Okay, 0:17:27.200 --> 0:17:29.240 what more can we do? What are the tools that 0:17:29.280 --> 0:17:32.399 we haven't put on the table that we have to 0:17:32.440 --> 0:17:35.439 think hard about right now? So just before we get 0:17:35.520 --> 0:17:38.280 to the automatic stabilizer bit, I just want to dig 0:17:38.280 --> 0:17:41.960 in a little bit more, but like, why the focus 0:17:42.800 --> 0:17:47.639 on fiscal policy specifically as a way of um of 0:17:47.760 --> 0:17:50.240 boosting the economy. And I know that sounds I know 0:17:50.320 --> 0:17:52.760 that sounds like a weird question, but I just remember 0:17:52.920 --> 0:17:57.399 after the financial crisis, there was so much emphasis on 0:17:57.520 --> 0:18:01.960 monetary policies. So why did you, as a researcher decide 0:18:02.040 --> 0:18:04.640 to look more at the fiscal side of things instead 0:18:04.640 --> 0:18:07.000 of talking about, you know, how the fet should be 0:18:07.040 --> 0:18:10.040 calibrating its rates, or maybe if we went to negative 0:18:10.080 --> 0:18:12.800 interest rates that would help, or maybe we should do 0:18:12.880 --> 0:18:15.800 more QWI or a different form of kuwi. How did 0:18:15.840 --> 0:18:19.280 you settle on fiscal So it was my job. So 0:18:19.480 --> 0:18:21.920 as one of the experts at the board, and keep 0:18:21.920 --> 0:18:24.639 in mind there are five hundred economists at the Federal 0:18:24.720 --> 0:18:28.720 Reserve Board who are working on supporting the board in 0:18:28.720 --> 0:18:34.280 in many different dimensions, my job was to understand consumers, 0:18:34.560 --> 0:18:38.359 their behavior, how they were reacting to many things in 0:18:38.400 --> 0:18:43.479 the economy, income changing, their wealth being decimated. Uh So 0:18:43.520 --> 0:18:45.240 I had to think about a lot of dimensions, but 0:18:45.280 --> 0:18:51.440 an important dimension was how is the government supporting these households. Now, 0:18:51.440 --> 0:18:55.840 it may seem counterintuitive, Federal Reserve officials do not go 0:18:56.080 --> 0:18:58.880 to the Hill, or at least the very rare occasion, 0:18:58.960 --> 0:19:01.520 do not go to the Hill and tell Congress how 0:19:01.520 --> 0:19:05.679 to do their job. You can point to episodes where 0:19:05.920 --> 0:19:09.320 Bernanky as the chair went and in some sense, in 0:19:09.400 --> 0:19:13.000 a very macro button down way, begged Congress to do more, 0:19:13.800 --> 0:19:17.560 but that isn't the federal and they certainly won't comment 0:19:17.760 --> 0:19:22.040 on exactly what do we think that whatever fiscal program 0:19:22.080 --> 0:19:24.239 is doing to the economy, what you know, what are 0:19:24.280 --> 0:19:27.480 the effects? They will never say that in public, but 0:19:27.600 --> 0:19:31.840 in private we have to know that because monetary policy 0:19:31.920 --> 0:19:35.960 needs to work around the edges, so to speak. So 0:19:36.240 --> 0:19:40.600 my research program right my first forecast in two thousand 0:19:40.640 --> 0:19:44.320 eight was when we put the Bush stimulus payments into 0:19:44.359 --> 0:19:46.960 the forecast, so right out of the gate, I was 0:19:47.000 --> 0:19:51.520 working on research. I was fortunate that my adviser, Matthew 0:19:51.520 --> 0:19:55.240 Shapiro at Michigan and his colleague Joel Slimrod had a 0:19:55.320 --> 0:20:00.600 research program already going on measuring household responses the spending 0:20:00.640 --> 0:20:05.160 response to fiscal stimulus, and the board was more than 0:20:05.200 --> 0:20:09.359 happy to put the financial resources into continuing to run 0:20:09.400 --> 0:20:11.359 these household surveys. And again they were done on the 0:20:11.400 --> 0:20:16.280 Michigan Survey, and uh, Matthew and Joel were generous to 0:20:16.400 --> 0:20:20.000 let me join in on the project and that measuring 0:20:20.040 --> 0:20:23.520 fiscal stimulus. We worked on the stimulus payments in two 0:20:23.560 --> 0:20:26.000 thousand eight, we worked on making work pay in two 0:20:26.040 --> 0:20:29.240 thousand nine and ten the payroll tax cut in two thousands, 0:20:29.480 --> 0:20:32.040 eleven and twelve. So this was a huge part of 0:20:32.080 --> 0:20:35.919 my research program, and at every stage I was presenting 0:20:36.040 --> 0:20:40.040 in the boardroom the results from those findings those surveys. 0:20:40.080 --> 0:20:42.760 In addition to this thing about the board, we don't 0:20:42.760 --> 0:20:44.359 march in there and just say well, this is my 0:20:44.520 --> 0:20:47.879 view and my research. As a staff member, I was 0:20:48.119 --> 0:20:51.480 doing very serious study of the other papers that were 0:20:51.520 --> 0:20:55.600 being written at the time. Jonathan Parker and Nick Alaylis, 0:20:55.600 --> 0:20:58.679 with very different co authors at different points in time, 0:20:59.520 --> 0:21:04.639 did the research that economists, they can't deny it was 0:21:04.680 --> 0:21:07.320 a gold standard research. Ben Bernankee was clear to let 0:21:07.320 --> 0:21:09.080 me know that their work was gold standard. In my 0:21:09.520 --> 0:21:13.720 mind was not that's okay, but they had for various reasons. 0:21:13.800 --> 0:21:16.840 I won't get into the wonky economist details, but they 0:21:16.840 --> 0:21:20.520 were able to run a study that was everything economists 0:21:20.600 --> 0:21:23.520 want to see in terms of evidence, and they showed 0:21:23.760 --> 0:21:28.280 very clearly that households, when you send them the money, 0:21:28.640 --> 0:21:33.000 they spend it. Now, to normal non economist people, this 0:21:33.080 --> 0:21:36.880 will seem obvious to economists. They believe that you give 0:21:36.920 --> 0:21:40.199 people money and then they calculate the annuity value and 0:21:40.280 --> 0:21:43.520 they like spend it out in five dollar increments over 0:21:43.560 --> 0:21:46.399 the rest of their life, and so that if that 0:21:46.560 --> 0:21:49.680 is the truth, then fiscal stimulus giving money to households 0:21:49.720 --> 0:21:52.919 is not going to be effective. Monetary policy is the 0:21:52.960 --> 0:21:55.439 only game in town according to a lot of the 0:21:55.480 --> 0:21:59.639 models we went into before the Great Recession, and frankly, 0:21:59.680 --> 0:22:03.440 they is they couldn't not send out money. And Congress 0:22:03.480 --> 0:22:05.720 has done this often. This is a way for Congress 0:22:05.760 --> 0:22:08.840 to show the American people like we're doing something to 0:22:09.000 --> 0:22:12.880 help you. After the stimulus payments that Bush sent out, 0:22:13.000 --> 0:22:16.480 after we've been able to study and see it. Economists 0:22:16.600 --> 0:22:21.720 understand the vast majority of them except the fact that 0:22:21.800 --> 0:22:27.560 this works. People spent. So that's a big reason why 0:22:27.600 --> 0:22:31.080 we can have this conversation now, because there's a view 0:22:31.119 --> 0:22:34.639 that there's efficacy behind these policies. I I you know, 0:22:34.640 --> 0:22:37.159 I don't want to do too much economist bashing, but 0:22:37.200 --> 0:22:39.280 at some point we should just do a serious tracy 0:22:39.320 --> 0:22:44.240 of things that are obvious to literally everyone else accept economists, 0:22:44.280 --> 0:22:46.479 such as the fact that if you give people cash 0:22:46.880 --> 0:22:49.080 that's a good thing, that they'll spend it and that 0:22:49.080 --> 0:22:51.520 that will help them. Whereas if you look at it 0:22:51.520 --> 0:22:54.280 through a model, somehow it doesn't happen, but that's a 0:22:54.560 --> 0:22:58.040 that's an aside. So we have these different models for 0:22:58.160 --> 0:23:01.840 how to give households money directly. There's the form that 0:23:01.920 --> 0:23:03.960 bushed it a couple of times, like just cut everyone 0:23:03.960 --> 0:23:07.359 to check. There's payroll tax cuts so that suddenly after 0:23:07.400 --> 0:23:09.520 the tax cut, each paycheck you get a little more 0:23:09.560 --> 0:23:13.760 than you had before. There is there's an employment or 0:23:13.840 --> 0:23:17.040 unemployment insurance so that people lose their job they get 0:23:17.080 --> 0:23:19.120 some sort of money from the government to keep them going. 0:23:19.200 --> 0:23:23.080 So various programs, and we'll get to um the best 0:23:23.119 --> 0:23:25.320 way to design that in a second. But before we 0:23:25.359 --> 0:23:29.120 do that, I want to get to something that has 0:23:29.640 --> 0:23:34.399 made our guest semi famous, I would say, and that 0:23:34.560 --> 0:23:36.960 is helping to answer the question of when, Because it's 0:23:36.960 --> 0:23:40.760 one thing to say, okay, government should give households money, 0:23:40.800 --> 0:23:44.560 but we all know the political problems and uh so 0:23:44.600 --> 0:23:46.159 then you have to arise. So if it's going to 0:23:46.240 --> 0:23:50.120 be done automatically in a downturn or before a downturn, 0:23:50.160 --> 0:23:52.720 you need some sort of trigger so that the payments 0:23:52.720 --> 0:23:55.879 start and they don't and too soon. Claudia, you have 0:23:55.960 --> 0:23:58.360 done work directly on this to the point that there 0:23:58.400 --> 0:24:02.200 now exists the some rule which is now this thing 0:24:02.280 --> 0:24:04.560 out there in the world, which is a rule that 0:24:04.680 --> 0:24:09.960 exists for guiding the government for when to start uh 0:24:10.080 --> 0:24:14.080 spending money to support household So talk to us about 0:24:14.240 --> 0:24:17.680 that part first, this sort of framework that you've developed 0:24:17.800 --> 0:24:21.960 or indicator that you've developed to tell to design a 0:24:22.040 --> 0:24:24.920 program for when the checks start to go out. Yes, 0:24:25.080 --> 0:24:28.000 so that what's been referred to as the SOM rule. 0:24:28.160 --> 0:24:31.760 I have been blown away by the response. I but 0:24:31.880 --> 0:24:37.520 I understand why. So when you spoke with Lord Robert 0:24:37.520 --> 0:24:43.000