With unemployment insurance expanded at the end of the month, two former Federal Reserve presidents urged lawmakers to renew the emergency benefits created in the early days of the coronavirus pandemic.
“I think frankly it would be a catastrophe not to extend unemployment insurance,” Janet Yellen told members of the House Select Subcommittee on the coronavirus crisis during a remote hearing on Friday. Currently, many unemployed men and women are eligible to receive an additional $ 600 per week.
The fringe benefits are a lifesaver for the jobless, Yellen said, adding that, on a broader spectrum, “We need the expense that those unemployed workers can afford.”
Presenting to Congress for the first time since leaving the government, Yellen and her predecessor, Ben Bernanke, praised lawmakers for the size and speed of their initial reaction to the economic downturn; then they offered a number of suggestions.
During the pandemic, Bernanke and Yellen emerged as outspoken advocates of the government’s aggressive response, both by the Federal Reserve and by the United States Congress. In recent weeks, they have written opinion pieces, made speeches, and signed a letter to House and Senate leaders. While current Fed President Jerome Powell has been reluctant to offer advice to lawmakers on fiscal policy, his predecessors have called for bold action.
Yellen said that in addition to extending the benefits of the pandemic, lawmakers should ensure that “ancillary programs like food stamps” are “adequately funded,” and that the federal government should invest more in public health.
Anticipating rejection by Republican members who have said that extending unemployment benefits would discourage the unemployed from looking for work, Bernanke and Yellen proposed linking unemployment insurance to the unemployment rate, “thus creating an automatic stabilizer.” They also suggested that benefits “could be based on the individual’s pre-unemployment wages.”
Yellen said that given the state of the labor market, with millions of Americans out of a job, “I think there is evidence that this doesn’t really stop the economy from creating jobs and putting people back to work.”
During the Great Recession in 2008, Bernanke ran the Federal Reserve, and Yellen was the vice president. In their comments on Friday, they drew on that experience.
“One thing we learned after the financial crisis was that, because of balanced budget requirements at the state and local levels, and as states and localities saw large declines in their income, they also had to make serious cuts in their employment and investment. of capital. ” Bernanke pointed out, adding that it led to a slower economic recovery.
It was a warning to lawmakers of what many economists, including Bernanke and Yellen, see as an impending secondary crisis. There is growing concern that cities and states will have to make big cuts in their budgets, which will lead to layoffs.
“To avoid the recessionary effects of the big cuts by those governments, federal support must be substantial and aid conditions must not be too restrictive,” Yellen argued.
As senators debate another aid package, much of the disagreement centers on how big it should be. In their comments, Bernanke and Yellen sought to minimize concern about their size and financing, citing low interest rates.
“There is a huge appetite for debt,” said Bernanke. “Right now, I think the priority should be to do what needs to be done.”
In his opening remarks, the chair of the subcommittee, Representative James Clyburn (DS.C.), noted that “this economic crisis has been especially damaging to communities of color.” It has also disproportionately affected low-income Americans, who are more likely to spend than save.
Many lawmakers called on former Fed presidents to intervene in the controversy surrounding the reopening of schools. Bernanke, who noted that he is not a doctor but his wife is a teacher, said that local districts will have to make some difficult decisions. Yellen recognized the difficulties of making existing facilities as safe as possible.
“I think Congress should think about financing the expenses involved,” he said.
