How Trump has made it harder for the US to weather a recession
As the coronavirus send the United States and the entire global economy hurtling toward recession, President Donald Trump and his defenders have claimed the administration's policies have left the United States better prepared for the downturn. But in reality, the president's effects on the course of the economy thus far have been greatly exaggerated, and many of his policies have actually put Americans at greater risk in the event of financial catastrophe.
To understand why Trump's policies have put us at risk, you have to appreciate the best possible policy response to a recession: automatic stabilizers.
Many automatic stabilizers are actually very familiar to most people. The category includes, for example, SNAP (commonly called food stamps) and unemployment insurance.
These policies are critically important because as a recession worsens, they automatically start ramping up. As more people lose their jobs, more people go on unemployment, and the program starts paying out more money. When more people on short on cash and need help buying for food — a common occurrence in a recession — they apply for and get SNAP to feed their families. The government starts doing exactly what it should do in a recession: spending public money to make up for the private shortfall in spending.
The best policies are "automatic" in the sense that lawmakers don't have to change the law in a recession for the programs to spend more money; they respond to the need, and if there's more need, the programs spend more money.
This is a great way to fight a recession because it provides support to the people who are hurt worst by the downturn. That's good for humanitarian reasons, but also in crudely economic terms because it means the money the government is almost guaranteed to be spent back into the economy. If you give money to people who are doing OK in a recession, they might just try to save it for later. Since recessions are defined by a reduction in economic activity, policies that can efficiently promote economic activity will help soften the blow and speed the recovery. And since these policies ramp up automatically, there's less uncertainty about how much support there will be, which can help reassure businesses and investors that the recession won't be as severe as it might otherwise be. And you can skip entirely the interminable debates and political gamesmanship endemic to the U.S. Congress.
But because of the anti-government and anti-welfare ideology that still poisons the GOP and conservative movement, under the Trump administration, many automatic stabilizers have been significantly weakened.
For example, in December 2019, the Department of Agriculture Secretary Sonny Purdue announced a plan that could kick almost 700,000 people off the rolls of SNAP. It imposes stricter work requirements on the program, which makes it harder for adults who don't have jobs to get support. Purdue framed this as an effort to fight back against "dependency" on government:
"We need to encourage people by giving them a helping hand but not allowing it to become an indefinitely giving hand,” said Secretary Perdue. “Now, in the midst of the strongest economy in a generation, we need everyone who can work, to work. This rule lays the groundwork for the expectation that able-bodied Americans re-enter the workforce where there are currently more job openings than people to fill them.”
The administration has worked in other ways, too, to limit access to the program. Even in good economic times, these kinds of rules can impose large burdens on people who, for whatever reason, struggle to get or keep a job and need help buying food. If a recession hits, these restrictive measures are even worse. As recently as last week, BuzzFeed reported that the administration had considered delaying the implementation of the rule but had decided to push forward. On Monday, a federal judge halted the change, as Chicago Tribune reported:
“Especially now, as a global pandemic poses widespread health risks, guaranteeing that government officials at both the federal and state levels have flexibility to address the nutritional needs of residents and ensure their well-being through programs like SNAP, is essential,” wrote Chief Judge Beryl Howell of the U.S. District Court for the District of Columbia.
Howell halted the rule’s implementation until the court makes a final decision on its legality, saying it will likely be deemed “arbitrary and capricious” because it didn’t appear to consider the hundreds of thousands of submitted comments that raised concerns. The USDA had estimated 1.1 million people would be newly subject to the work rules and nearly 700,000 people nationwide were likely to lose food assistance as a result of the change. Some 36 million Americans are enrolled in SNAP.
But as the Tribune pointed out, tens of thousands have already been kicked off the rolls of SNAP because of similar federal rules under the Trump administration.
The problem goes far beyond SNAP. Catherine Rampell at the Washington Post reported that under Trump — as well as before him — states and the federal government have weakened other policies that could serve as automatic stabilizers:
Elsewhere, the administration has been demanding states add additional paperwork requirements for enrollment in both Medicaid and the Children’s Health Insurance Program, causing eligible families to lose coverage.
The administration also recently announced a proposal to convert part of Medicaid to block grants. This would mean states would get a capped annual amount of federal dollars for the program. It would also limit states’ ability to expand enrollment during a downturn.
Then finally there’s the unemployment insurance program, yet another policy designed to serve as a safety net both for individual families and the macroeconomy as a whole. In theory, it allows jobless people to keep paying bills and patronizing local businesses.
This problem clearly pre-dates Trump. Even so, his administration has since encouraged states to add more bureaucratic hurdles — including by doing more widespread drug testing as a condition of benefit receipt. This appears to be a solution in search of a problem, based on the handful of states that have experimented with similar programs before. It’s also expensive, and it slows down benefit receipt.
And it's not just public health insurance that has been diminished under Trump. After his extensive efforts to undermine Obamacare, the uninsured rate began rising under his administration after consistently falling under his predecessor. This, too, will impose greater burdens on Americans in a recession — especially a recession driven by a public health threat.
Rampell also noted that Larry Kudlow, director of the National Economic Council under Trump, had touted the benefits of automatic stabilizers in the face of a recession without acknowledging how significantly they had been diminished.
Now, it does appear as if Congress and the administration are prepared to move forward with some non-automatic stabilizers to fight the coming recession. This could potentially be stimulus spending in the form of direct cash to families, which would likely be the best option. But many argue that Democrats — who generally favor such policies — should only agree to go along with such a plan if Republicans agree to make the policy automatic. That way, if a recession happens under the next Democratic president, the same beneficial counter-cyclical measures could ramp up without Congress needing to act. Because as Republicans proved in 2009, if a Democrat is in the White House, the GOP is much less willing to spend money to benefit the American people.