It was no real surprise to see Ben Bernanke and Janet Yellen, the past two chairs of the Federal Reserve, testifying to Congress on Friday about the economic-policy response to the coronavirus pandemic. Although neither of them has appeared before a congressional committee since leaving the Fed, they have both emerged in recent months as vocal supporters of using monetary and fiscal policy aggressively to support the stricken economy. Last month, they signed a public letter from more than a hundred and fifty economists that called on Congress to pass another big spending bill to extend and broaden the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was enacted in March.
There is no time to lose. About this time next week, the supplementary unemployment benefits of six hundred dollars a week that were introduced as part of the CARES Act will start to expire. If Congress doesn’t extend the benefits, this will have a hugely negative impact on the roughly thirty-three million Americans who are out of work and claiming benefits from local or federal programs. Many of these people, who lost their jobs through no fault of their own, will be plunged into poverty, and the damage won’t end there. As they cut back on spending because their income has been slashed, the effects will ripple through the rest of the economy, causing further job losses. Exactly how many more jobs will go is difficult to say in advance, but Harvard’s Jason Furman, who headed the White House Council of Economic Advisers during the second term of the Obama Administration, recently estimated that over the course of the next year it could be around two million.
Appearing at the hearing of a coronavirus subcommittee that was set up by the House Committee on Oversight and Reform, Bernanke and Yellen didn’t get into that level of detail. Drawing on some basic economics and their experiences dealing with a previous crisis—the Great Recession and its aftermath—they did persuasively explain why Congress should act urgently on three fronts: extending the supplementary unemployment payments; providing additional financial support to state and local governments; and developing a comprehensive plan to make available adequate testing, medical equipment, and contact tracing. The two former policymakers, who are both highly regarded academic economists, also pushed back against recent suggestions from the White House that the new spending should be limited to a trillion dollars. Yellen said it was hard to tell precisely how much financial support might be needed, so it would be unwise to impose a spending cap. Bernanke said, “Whatever it takes is probably what we need to be thinking now.”
Bernanke also pointed to recent signs of stalling in the economic rebound that we’ve seen over the past couple of months, as many states saw case numbers rise. But some Republican members of the subcommittee seemed less interested in debating what measures were needed to boost the economy than in scoring political points. “What’s more important: reopening schools or protesting?” Representative Jim Jordan, of Ohio, asked Bernanke. The former Fed chairman, who was nominated by President George W. Bush, in 2005, replied that both were important, but he wisely refused to be drawn into the debate about whether to reopen schools.
A number of the Republicans on the committee expressed frustration at the fact that, because of the enhanced unemployment benefits, some jobless Americans are currently receiving more income than they were when they were employed. Representative Blaine Luetkemeyer, of Missouri, said this was a disincentive for people to take jobs. Bernanke agreed that this could be an issue; he also pointed out that it could be dealt with by restructuring the benefits or giving extra tax credits to people who return to work. In a joint statement they submitted to the subcommittee, Bernanke and Yellen said that the supplementary unemployment payments should be maintained until the jobless rate fell to a more normal level.
Yellen, whom President Barack Obama nominated to succeed Bernanke, in 2013, stressed the need to provide federal support for states and municipalities that have seen their tax revenues fall drastically at the same time that their spending needs, on things like health care and relief programs, have risen sharply. Because many states have a limited capacity to borrow money and run deficits, they are coming under pressure to slash spending and cut payrolls. “If there isn’t substantial support there, we are going to see massive layoffs in state and local governments,” Yellen warned.
Like Bernanke, Yellen tried to avoid being drawn into partisan conflicts. But that didn’t prevent her from expressing skepticism about the notion that promoting a vigorous economic recovery and taking strenuous measures to contain the virus are in conflict. “There’s not much of a trade-off,” she said. Then she pointed to countries in Europe and elsewhere that took decisive measures to contain the virus, and which are now in a strong position to reopen their economies. With a nod to the increasingly alarming situation in many parts of this country, she added, “It is very expensive to have to shut down again.”
The two former Fed chairs also addressed concerns about the red ink that the federal government is running up in responding to the pandemic. (In June, the budget deficit hit a monthly record of $864 billion.) “We do not believe that concerns about the deficit and debt should prevent the Congress from responding robustly to this emergency,” Yellen said. “The top priorities at this time should be protecting our citizens from the pandemic and pursuing a stronger and equitable economic recovery.” Bernanke pointed out that, thanks to record-low interest rates and strong demand for Treasury bonds from domestic and international investors, the U.S. government is in the fortunate position of being able to finance large deficits cheaply. “It’s an opportunity to take advantage of our ability to borrow, to do something to help our economy recover,” he said. We’ll find out soon if the Trump Administration and Republicans in Congress take this sound advice.