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Why the U.S. government doesn't feel pressure for a new stimulus plan

The U.S. government is looking to salvage a new stimulus plan as talks continue. American Action Forum President Douglas Hotlz-Eakin joins the On the Move panel to discuss.

Video Transcript

ADAM SHAPIRO: We're going to turn our attention to Washington, DC, because when we talk about markets, we often hear people say markets are not the economy. So what's going on in this economy, especially without a stimulus deal coming out of DC? We invite back into the stream Douglas Holtz-Eakin, American Action Forum President, former Director of the CBO.

It's good to have you here, Doug. And--

DOUGLAS HOLTZ-EAKIN: Thanks for having me.

ADAM SHAPIRO: --I'm just curious, this whole discussion about no stimulus coming out of Washington, even with the House returning today, is there any chance both sides would say danger, danger, we need to do something? Or is it not going to happen till after the election?

DOUGLAS HOLTZ-EAKIN: There's always a chance. It would be a mistake to rule it out entirely, but certainly given what we know at this moment, it's more likely they will go home to campaign without passing something new than-- than they will get to business. So that-- that really comes from the mechanics of the deal.

No one is getting hurt politically by failing to reach agreement. You know, they check their polls weekly, if not daily, and voters aren't blaming one side or the other. Given that, there's no reason to change positions, and they are so far apart you can't get to a deal without some significant changes in positions.

JULIE HYMAN: Hey, Doug. It's Julie. It's good to see you. Why aren't they being held responsible? Because from what we see in the economic data, people are still suffering. Sure, fewer people are suffering than they were earlier on in the pandemic, but a lot of people are still out of work.

DOUGLAS HOLTZ-EAKIN: An enormous number of people are still out of work. More than half of those who lost their jobs remain unemployed. And I think the reason they're not being punished is that people were told that this was a huge recession and that some people were going to be out of work, and so expectations were set that there would be some unemployed for a while, so that then, in the larger environment, that's not a penalty.

It's also true that compared to the past recession, you know, back in 2008, we've got the unemployment rate lower now than we did early on in that recession. So in terms of recoveries, it doesn't look that bad. And so the sense of urgency seems to have diminished everywhere but at the Federal Reserve.

I'll just point out that every time a Fed official opens their mouth, they're calling on the Congress to do something more. And I think that's an important warning about the legs on this recovery. It just makes sense to do something, as opposed to do nothing.

ADAM SHAPIRO: So let me ask you this, because you've advised presidential candidates in the past, you were there on Capitol Hill for several years, what-- what do we miss in the press? Because we focus-- the news cycle tends to last about one week, then we're on to the next splashy headline, what are we missing in all of this about the stimulus discussion?

DOUGLAS HOLTZ-EAKIN: I think we're missing two things. First, the economy will recover, and we know that. Economies will recover from recessions, and this economy will recover from this recession. And so the real way to think about this is, how much do we gain by having it recover faster? Give it more help, get there quicker, how much suffering do we reduce?

If it instead gets sort of portrayed as, well, we've got to do this or we go back into recession, that overstates the case. People look at it, and they think, nah, there's no-- that's not true. So you know, you get a jobs report. You get a million more jobs. It's we're not going into a recession. We're fine. So I think there's a sort of getting the terms right that goes on.

And I think the second thing that-- that really gets missed is that the average politician doesn't understand this phenomenon. This is unlike any recession we have ever had. It's the depths and the speed with that we went down and now came back are unprecedented. The source is unprecedented.

And they're really afraid of making a mistake. They're really afraid of doing something wrong and being held accountable a year or two from now. So it tends to make them extremely risk averse and unwilling to move out of their safe ideological positions.

So the Democrats are locked in at $1 trillion for state and locals, at $600 a week in unemployment benefits. Republicans are locked in at the other end of the spectrum. And there's a fear of moving from that that just comes from not being able to diagnose the correct response.

BRIAN CHEUNG: Doug, it's Brian Cheung. But you mentioned the Federal Reserve has made it clear on their end that they see the need for more fiscal support. We've heard that from a number of Fed presidents. But what does the interaction between the monetary policy side of things and the fiscal policy side of things tell you about whether or not the response has been appropriate from both ends so far?

The Fed's launched those bazookas. It's got those liquidity facilities up. The uptake hasn't been so great. They're still saying there needs to be more support out there. So is it really Congress that's dropping the ball here? Or has the Fed maybe lifted some of the onus on fiscal policy to do even maybe more?

DOUGLAS HOLTZ-EAKIN: I don't think the Fed is to be faulted in their response. I mean, they've been fantastic. As a monetary authority, they-- they quickly got to the right monetary policy. So they got rates down and went to some QE. As a financial stability authority, they intervened to set up facilities to generate massive amounts of liquidity.

All of that's been fine. Where things have not gone well has been when the treasury designated them as an agent for what is really fiscal policy. That's the Main Street Lending Program. That's the municipal liquidity facility. Those things have not worked out well.

I tend to think the Fed understands the problem and thinks it needs to get fixed and that the treasury really bears the onus of not getting that money out the door. So like, you go back to the question that Adam was asking, like, why-- why can't we get this deal done, there's a half a trillion dollars sitting unused at the treasury.

You know, the airlines are asking for money. There's $25 billion sitting for them at the treasury. You know, there's enormous amounts of unspent funds, and a lot of elected officials think, well, we did this. We did this enormous CARES Act.

Why don't they use it? And why are they asking for more if they're not using it? And I think, you know, all roads lead to the treasury as the intersection of the Fed and Capitol Hill that's not getting the job done.

ADAM SHAPIRO: You just said that the airlines are seeking more money. I can tell you for a fact, Delta told us this morning they will not seek the loan from treasury, although they are pushing all the airlines for the additional stimulus. But we have to say thank you to Douglas Holtz-Eakin, American Action Forum President.