As Congress debates the size and scope of a new federal stimulus package, the leader of the Federal Reserve Bank of Minneapolis endorsed one-time checks for many Americans and said the government should treat financial help during the pandemic as “war-time spending.”
“We have the capacity for this war-time spending to support our fellow Americans until we get this pandemic behind us,” said Neel Kashkari, in a hearing before the state Senate Finance Committee on Tuesday.
Kashkari was on the panel to brief lawmakers on economic conditions in Minnesota and the country. But the Minneapolis fed president also took questions from legislators on how state and federal government should spur recovery from the pandemic-induced recession, and the hearing turned into a wide-ranging discussion on the impact of past stimulus bills and a potential $1.9 trillion stimulus package proposed by President Joe Biden.
‘Aggressive’ federal action needed, Kashkari says
For starters, Kashkari said the national unemployment rate of 6.7 percent is misleading. The Minneapolis Fed estimates the “true” unemployment rate, Kashkari said, is really as high as 10 percent because the usual rate doesn’t count people who stopped looking for work because they couldn’t find any. Minnesota’s own unemployment rate of 4.4 percent is likely higher as well, he said.
“That is still as bad as the worst labor market during the financial crisis of 2008 and 2009,” Kashkari said.
To climb out of this economic downturn, Kashkari said the U.S. should learn from its mistakes during the Great Recession. Policymakers were not aggressive enough back then in boosting the economy, said Kashkari, who oversaw the Troubled Asset Relief Program — which bailed out banks in the midst of the 2008 financial crisis — while he served as an official in the U.S. Treasury Department under Presidents George W. Bush and Barack Obama.
Kashkari, who also ran for governor of California as a Republican in 2014, said the Federal Reserve “needs to keep our foot to the floor in providing economic monetary policy stimulus.” But he also said he hopes Congress “will continue to provide support until we can get the pandemic behind us and fully restore the economy.”
“In the last recovery after the financial crisis, it took 10 years to rebuild our labor market,” Kashkari said. “We can not have another 10-year recovery, that is far too long. The cost to society and the cost to families is far too steep.”
Kashkari said unemployment benefits and small-business aid should continue to help people most impacted by the pandemic. One-time checks, he said, complement the enhanced unemployment from Congress.
That’s because some people, “for whatever reason,” can’t or don’t access the unemployment system and get left out, even if they’ve lost their jobs, Kashkari said. Checks fill in those gaps, even if they aren’t precise and sometimes send money to people who don’t need it. “It’s like a fire — you’re trying to put out the fire, you spray water to make sure you get all the embers,” Kashkari said.
State Sen. Mark Johnson, a Republican from East Grand Forks, asked if the large rounds of cash payments would end up in the hands of rich Wall Street investors, or drive inflation. Congress authorized $1,200 checks for most Americans in the March CARES Act and another round of $600 payments in the smaller December stimulus.
Kashkari said inflation has actually fallen and is running behind where it was before the pandemic. That’s in part because people who received direct payments but didn’t need the money to supplant unemployment tend to use the cash to pay down debt or pay bills, not go on spending sprees, Kashkari said. He said raising interest rates to keep a lid on the stock market would also result in “keeping more Americans unemployed and keeping their wages lower.”
“To me, that’s not a very good tradeoff,” Kashkari said.
Kashkari did not say what he thought the size of any future stimulus package or one-time payments should be. Biden is calling for $1,400 checks, but Republicans are calling for smaller payments, or more targeted payments, or none at all. Some Democrats want $2,000 checks.
Kashkari said he didn’t have an economic analysis for what the right number is for direct payments when asked by state Sen. Melisa Lopez Franzen, DFL-Edina. He said it’s a judgment call for Congress. Still, he said a $600 check won’t do much to help someone who has lost their job for a year. “In that sense, you’d want to go bigger because you want to get those people assistance to bridge them over for a longer period of time,” Kashkari said. “But then the pushback is, well, it’s a very blunt instrument; you’re going to send this money to a bunch of people who already are collecting unemployment benefits or who didn’t lose their job.”
Kashkari said the U.S. can’t “just spend, spend, spend forever and let the debt climb forever and there will never be consequences.” He called for a return to “more traditional fiscal policy” once the pandemic is done.
“But right now, this is like a war,” Kashkari said. “I believe that we have the capacity to do what we need to win the war.”
What can the state do?
While the state government can’t run up a deficit, Kashkari said there are ways the state can help Minnesotans rebound from the recession. At the top of the list is making sure vaccines are distributed quickly and widely.
Other strategies include continuing state-run programs for small businesses and helping keep the child care industry afloat, which creates jobs that are often filled by women, and allows parents to return to work, he said. Women have lost more jobs than men during the pandemic. Expansion of high-speed internet is key as well.
Sen. Eric Pratt, a Republican from Prior Lake, asked Kashkari to recommend state strategies to coax people back to work. Pratt said some employers tell him they are having a hard time finding workers.
Kashkari said he has heard similar anecdotes, but said data indicate there are “far more people out of work than there are businesses looking to hire.” He said often businesses are too slow to raise pay or benefits and should consider that, as well as on-the-job training, to attract workers.
Republican Sen. Michelle Benson of Ham Lake said businesses already deal with high taxes in Minnesota, and employers sometimes struggle to find workers with basic skills, such as literacy and the ability to show up for the job on time.
Kashkari responded by saying his plan for a constitutional amendment to make a quality education a civil right could help fix Minnesota’s education problems, such as a staggering achievement gap between white children and students of color.
Still, Kashkari said he has “lost sympathy” with businesses who say they can’t find workers.
“Maybe you ought to try a little harder is my message to them,” he said.