Thursday, September 5, 2019

The next recession will be harder than it needs to be. Here’s why.

  Recessions are hardest on those who can least afford it.

  Take the Great Recession, the economic plunge that followed the 2008 financial crisis. It cost those in the poorest 10 percent of Americans more than 20 percent of their incomes, which was more than twice the drop experienced by the richest 10 percent. It was black and Hispanic workers, as well as workers who didn’t have a college degree, who saw higher rates of unemployment and longer durations without a job than other workers.

  Overall, the recession exacerbated already existing inequalities in wealth and income, with black and Hispanic families, as well as women, falling further behind their white, male counterparts in terms of asset building.

  And the next recession could be even harder.

  It’s not because that next recession, whenever it arrives, will reach the depth and breadth of the Great Recession. Rather, it’s because federal and state governments have been undermining the programs that protect people when an economic downturn arrives, such as unemployment benefits or nutrition assistance, essentially since the Great Recession ended. This means those programs will be even less effective when they’re next called into action, making the next recession more painful than it would be otherwise.

  These concerns are even more important now that there are some flashing red signs that a recession may come sooner than anyone would hope.

  To start, nine states have cut the duration of their unemployment benefits systems to below the previously standard 26 weeks, with Florida cutting all the way down to 12. During the recession, when the average length of unemployment approached 40 weeks, more conscientious states extended benefits up to 99 weeks.

  While five of the states that have cut unemployment benefits have rules in place to automatically expand benefits if the unemployment rate rises, the other four don’t. And since the conservatives who now control the Senate were against those Great Recession benefits expansions, there’s no guarantee of federal help if states do not act to fix their stingy systems.

  Also, having a workable benefits system in place doesn’t necessarily ensure people get the help they need. In 2007, 35 percent of unemployed workers received benefits. Today, barely more than a quarter do due to the imposition of more stringent eligibility requirements. In some states it’s substantially worse: In 2017, for instance, just 10 percent of unemployed workers in North Carolina qualified.

  So the main bulwark against poverty when mass unemployment occurs has been whittled down from a standard that even before the recent cuts left America among the least generous countries in the world.

  Then there’s nutrition assistance. During the recession, the Supplemental Nutrition Assistance Program (SNAP) provided help to nearly 50 million people per month at its peak in December 2012. But the Trump administration — after trying and failing to convince Congress to cut the program — has unilaterally imposed new limits that are going to make it so the program reaches fewer people in the future.

  One change, in particular, makes it harder for states to waive certain requirements during periods of high unemployment, which is exactly the time at which eligibility should be expanding.

  The Trump administration is also providing waivers to states so that they can add work requirements to Medicaid – to date, six states have had their waivers approved. So when workers lose their jobs, and thus their employer-based health insurance, Medicaid will be that much harder to turn to.

  Other steps state governments have taken will also make recession responses harder. One of the fundamental problems during an economic downturn is that most states have balanced budget requirements, meaning they have to cut their budgets and suck money out of the economy at the precise moment households are doing the same thing, creating a vicious cycle of economic contraction. Education is a particular favorite for reductions; 12 states still aren’t spending as much on their education system today as they were before the Great Recession.

  To deal with that reality, states have rainy day funds they are meant to deploy during rough times to counteract some of that budget slashing. However, about a third of states don’t have the money available in their funds to get through even a moderate downturn. Some of those states, such as Kentucky and Missouri, decided to lower tax rates for their wealthiest earners this year, which didn’t really help bolster those reserves.

  Come an economic downturn, the federal government could step in to fill the void states create, just as it did during the Great Recession, providing aid so that states don’t have to, for instance, lay off as many teachers as they would otherwise. But there’s not much reason to believe conservatives in the U.S. Senate would be for that, either. So, an economic problem is going to collide with a political one, creating more pain for more people. (It doesn’t help that Republicans in Congress used $1.5 trillion on a tax cut for the rich and big corporations that had little economic effect, and will embolden those who think additional spending is impossible due to federal deficits and debt.)

  Of course, there’s no divining whether a recession is imminent. It may be that the warning signs this time are just a false alarm. But another recession is going to come eventually. And when it does, it’s going to be more painful than necessary, not due to any innate economic condition, but because of choices policymakers made.

  About the author: Pat Garofalo is the managing editor at

  This article was published by

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