What would you recommend the federal government due to close our current recessionary output gap? Use the AD-AS model, The class readings on fiscal policy and the descriptive details contained in the July 22, 2020 article from the economist titled “Congress and COVID-19” to describe your policy proposals.
Transcribed Image Text: Congress and covid-19 - America's backwards coronavirus strategy ..
https://www.economist.com/united-states/2020/07/22/americas-back.
unlikely to fly this time.
The negotiations, which began in earnest only this week, must resolve many
differences. Democrats would like to extend the generous unemployment benefits
until the end of the year. Republicans worry that these are too generous. Indeed, for
the majority of eligible workers, the benefits now exceed their former wages (see
article). The Democratic proposal would send nearly $itrn to shore up the budgets
of states and cities. Republicans worry that this generosity would reward profligacy
in pre-pandemic times. Mr McConnell seems to have two priorities: passing a
liability shield for businesses from lawsuits over covid-19 exposure and
incentivising schools to reopen with cash grants. Both sides at least seem amenable
to sending another unconditional cheque to Americans, regardless of employment
status.
President Donald Trump is not a direct interlocutor in these negotiations, leaving
Steven Mnuchin, his treasury secretary, as the administration's ambassador. Mr
Trump has offered some policy suggestions, but they are not being taken very
seriously, even among senators and representatives of his own party. One is that the
bill include a holiday for the payroll taxes that employers pay for Social Security
and Medicare, the government programmes that provide pensions and health
insurance for the elderly. This would do nothing to benefit the currently employed,
but it would deplete the trust funds for both schemes. A second, reported in the
Washington Post, is that the bill should strip out billions in funding for additional
testing for covid-19. Mr Trump has been insisting that the rise in cases is due to the
rise in tests. "Many of those cases are young people that would heal in a day," he
told Fox News. "They have the sniffles, and we put it down as a test."
Step back, and this strategy of repeated enormous stimulus to cushion the blow of
an ineffectual national strategy for containment resembles a hospital that invests
mightily in palliative care while eliminating the oncology department. America has
already spent 13% of GDP on fiscal stimulus, with more on the way. The most
important economic policy, in the absence of a vaccine, is to contain the virus's
spread. Leaving it all up to governors no longer seems like a viable White House
strategy. Nor does the campaign of attacking the public-health messenger, Anthony
Fauci.
Facing flagging confidence in his handling of the crisis (and trailing in polls behind
Joe Biden, his Democratic challenger), Mr Trump has resurrected his daily
coronavirus briefings. Presidential leadership of this sort might be expected to add
coherence and clarity to what has been a helter-skelter national strategy. In Mr
Trump's case, it's likely to make things worse. -
This article appeared in the United States section of the print edition under the
headline "Spot trades"
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Government finances - After the disease, the debtLendesThe e
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Congress and covid-19 - America's backwards coronavirus strategy .
https://www.economist.com/united-states/2020/07/22/americas-back.
The federal government's approach is like a hospital that invests in palliative care
while abolishing the oncology department
THE SENATE'S status as "the world's greatest deliberative body", as President James
Buchanan allegedly described it, has been exaggerated for a while. Legislation is
accomplished not through considered debate, but rushed, secretive crafting of law
by senior party leaders on the eve of some cataclysmic deadline. In the past decade
this brinkmanship has led to one struggle over "sequestration", two debt-ceiling
crises and three shutdowns of the federal government, but little in the way of
substantive lawmaking. The same dynamic will shape the latest gargantuan
stimulus package needed to cushion the fallout from the epidemic of covid-19. But
this time, the consequences of brinkmanship and delay could be even more severe.
When Congress passed the CARES Act, a fiscal-stimulus package costing $2.2trn, in
March, it included important stabilisers for an economy placed in a medical coma.
Among these were much-increased unemployment benefits-boosted from $370 a
week on average to $970-and a suspension of evictions and foreclosures in
federally backed housing until the end of July. These measures were set to expire
after four months, by which time the epidemic was expected to be under control.
That is not the case. New confirmed infections are surpassing their previous peaks
in mid-April, sometimes exceeding 70,000 per day. The unemployment rate in
June was 11.1%, and the Congressional Budget Office (CBO) expects it to decline
only modestly to 8.4% in 2021. The "V-shaped recovery" that America had hoped
for seems out of reach. About 18m are still unemployed, compared with 6m before
the recession. Surveys from the Census Bureau show that 16% of adults who owe
rent or mortgage payments missed them last month, and 11% report that they do
not have enough to eat at least some of the time (compared with 8.8% in early
March). Eviction notices, many filed by landlords who are also struggling, have
begun to pile up.
Hence the need for another stimulus package. Democrats released their proposal, a
$3.4trn behemoth called the Heroes Act, two months ago. Republicans have gone
from suggesting a “pause" on future stimulus, as Mitch McConnell, the Senate
majority leader, said in May, to agreeing that something more is needed. The
Republican counterproposal, which is yet to be fully unveiled, will be more
modestly priced, perhaps at $itrn or so. Neither side expects the bill to be
negotiated by the end of the month, when the provisions on unemployment and
evictions in the CARES Act expire. The resulting gap could up-end the lives of
millions of American families and set the economy back.
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Researchers from Columbia University calculate that without the enhanced safety-
net benefits, the poverty rate would have risen by four percentage points,
representing 12m people. Instead it has remained flat. Some of the more
sophisticated proposals, such as indexing benefits to previous earnings up to a
maximum level, are conceptually elegant but might delay cheques for weeks. State
unemployment offices, reliant on antiquated computer software and few staff, have
struggled to implement something as simple as adding $600 to every cheque. First,
though Congress needs to pass a law. A better solution to avoid recurring cliff-
edges-automatically tethering unemployment generosity to local unemployment
rates, as Michael Bennet, a senator from Colorado, has proposed- would do a lot of
good. But because it would limit political leverage in future negotiations, it is
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