Cecilia Rouse on Biden Economic Policy, Part III
30:00: Many people say that the increased child care tax credit and the enhanced unemployment benefits were a disincentive to work. “The evidence on that is not as strong as one might think, at least theoretically. I’m not going to say that there was no impact on labor supply.” But, she added, the evidence on the effect of enhanced unemployment insurance is “fairly mixed.” “In any event,” she added, “that’s been gone since September.”
She also thinks that restoring the increased child care tax credit, which expired in December, is “an investment in children” and doesn’t reduce labor supply much unless the most extreme estimates of labor supply elasticity are the right ones. In short, she admits that the increased child care tax credit could substantially reduce labor supply.
31:00: The disability system, which Professor Duggan has looked at, could be playing a role in damping down labor supply, especially for men.
Yes, Duggan has done some good work on this.
32:10: Ukraine; sanctions in Russia.
33:00: We’re already seeing impact on gas prices. My question: impact of what? She doesn’t say. Isn’t it the impact, in part, of U.S. and other governments’ restrictions of oil from Russia, which really have reduced the world supply of oil, contrary to my initial thought that the Russians would respond by selling it elsewhere?
33:15: She says that 70% of last month’s increase in CPI is due to energy and that’s attributable to Russia’s incursion into Ukraine. Really? How did that reduce supply? She doesn’t seem to want to admit that it was the U.S. and other governments’ actions in response to the Russian invasion reduced that supply.
33:30: The sanctions may be playing a role here. So she finally admits it.
34:10: “The President believes” that this is about standing up for democracy. I’m wondering if Rouse is doing what I did when I was asked what I believed and it was different from the views of my boss, former CEA chair, Martin Feldstein, believed. I answered, “The chairman believes.”
35:00: Concerned about hunger and famine, given the reduction in food output from Ukraine and Russia.
35:20: Her explanation about why she thinks there’s a “market failure” with regard to children that requires government support. Pretty iffy.
39:40: The Paycheck Protection Program was a small part of CARES. Hmm. When I look on line, I see that it was $659 billion. That strikes as a substantial part of the CARES Act.
40:50: “The speed with which we shut down this economy was stunning.” I wish she hadn’t said it with what appeared to be such pride.
45:50: The budget deficit. Mark Zandi has attempted to estimate what would have happened [I think she means to GDP, not debt and deficits] without Trump’s CARES Act and Biden’s American Rescue Plan, and “that doesn’t look very pretty at all.”
46:08: Tax reform in 2017 “was not very helpful.” I discussed this in my Part I.
50:00: She lays out a central planner’s perspective on where we place the wind farms, the charging stations, how do help the auto industry so the workers displaced from gasoline-powered vehicles are the ones who are making electric vehicles.
My reaction: Yikes! That’s a lot of central planning.
50:25: “That involves more industrial policy than economists are used to thinking about.”
Isn’t it more that it involves more industrial policy than economists think is good? We’ve thought about it–and most of us have rejected it.
53:50: “We need to have an FDA that can more readily approve the new generations of vaccines.” Yay, Cecilia!
1:01:17: “This government likes to have to intervene; it gives them something to do.”
What she’s getting at is that we need more automatic stabilizers in our fiscal policy rather than having Congress and the President adjust with lags.
I call this the George Shultz mistake. If I recall correctly, when he was Secretary of Labor, he noticed that Congress added unemployment insurance benefits during recessions. He thought it made sense to have some of those benefits kick in when the unemployment rate or the insured unemployment rate (I’ve forgotten which) hit at a certain level. Again, IIRC, he persuaded Nixon to push for such a change and Congress passed it.
Little problem: Go back to what Cecilia said: The government likes to intervene. So in future recessions, the automatic kicking in of extended unemployment insurance benefits became the baseline and Congress, which likes to do things and likes being seen to do things, did things: namely, add even more weeks of unemployment benefits.(I’m saying all this from memory of what I observed up close when I was in the Reagan Labor Department in the first half of 1982,which was the worst part of the recession.)