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After the swearing in of Senators Jon Ossoff (D-Georgia) and Raphael Warnock (D-Georgia), President Joe Biden now has Democratic majorities in both houses of Congress for the first time in a decade, and a mandate from the people to respond appropriately to both a once-in-a-century pandemic and the economic fallout it created. But first I want to tell you about what happened the last time Democrats didn’t respond appropriately to a crisis.
The 2009 recession and the 2010 midterms: A cautionary tale
In 2009, at the peak of the Great Recession, NPR’s Steve Inskeep spoke at my college graduation (we share the same alma mater). He candidly remarked that a lot of us would move back in with our parents despite just earning our degrees, given the severity of the recession. One line from that speech still resonates with me:
“The bad news is that your parents can’t sell their house. The good news is you can move back into your old room.”
Carl Gibson @crgibs@aidan_smx Oh man I almost forgot about @NPRinskeep speaking at my graduation in 2009 and telling us that thanks to the recession our generation would earn less than our parents and about half of us would have to move back in with our parents given how few jobs there were
For a lot of us, the Great Recession of the late aughts has already been memory-holed given how the Covid recession has dwarfed it. By April of 2020, for instance, all the job gains in the decade since the recession officially ended had been wiped out. But the effects of the recession that affected college grads like me were felt long after economists deemed it to be over.
As Michael Hobbes wrote in Huffpost, the generation that graduated college during the recession took on an average of 300% more student debt than our parents. One in five of us lives in poverty, and most of us won’t be able to retire until we’re at least 75. The hard part about graduating during a recession is that by the time the economy has rebounded, everyone’s forgotten about you (emphasis mine):
“A lot of workers were just 18 at the wrong time,” says William Spriggs, an economics professor at Howard University and an assistant secretary for policy at the Department of Labor in the Obama administration. “Employers didn’t say, ‘Oops, we missed a generation. In 2008 we weren’t hiring graduates, let’s hire all the people we passed over.’ No, they hired the class of 2012.”
You can even see this in the statistics, a divot from 2008 to 2012 where millions of jobs and billions in earnings should be. In 2007, more than 50 percent of college graduates had a job offer lined up. For the class of 2009, fewer than 20 percent of them did. According to a 2010 study, every 1 percent uptick in the unemployment rate the year you graduate college means a 6 to 8 percent drop in your starting salary—a disadvantage that can linger for decades. The same study found that workers who graduated during the 1981 recession were still making less than their counterparts who graduated 10 years later. “Every recession,” Spriggs says, “creates these cohorts that never recover.”
(From left: First Lady Michelle Obama, President Barack Obama, Vice President Joe Biden, and Second Lady Jill Biden at the 2009 inauguration. Photo: Carol M. Highsmith/loc.gov)
When Barack Obama took office, he also had Democratic majorities in both houses of Congress, as well as a mandate to deal with the fallout of the financial meltdown that had bled the economy of millions of jobs.
However, Obama squandered his early political capital with the American Recovery and Reinvestment Act of 2009, which was a wholly inadequate response. As Nobel Prize-winning economist Paul Krugman wrote just prior to Obama’s inauguration, Obama’s $775 billion plan — about 40% of which was a one-time tax cut rather than public infrastructure spending — was not enough to counteract unemployment rates that hovered near the double digits.
“[T]he Obama plan is unlikely to close more than half of the looming output gap, and could easily end up doing less than a third of the job,” Krugman wrote. “Why isn’t Mr. Obama trying to do more?”
As Krugman predicted, the stimulus hadn’t focused enough on job creation, and even though a second stimulus was necessary, Obama had already spent up his stimulus-related political capital and had to move on to other items on his agenda.
Meanwhile, Republicans had ammunition to use in the midterms — Democrats were recklessly spending up our money and not getting results. They rode this disingenuous narrative to the 2010 midterms, which netted them a majority in the House and marked the end of President Obama’s ability to get any significant legislation passed for the reminder of his eight years in office. Even by 2016, the Wall Street Journal reported that 93% of US counties still hadn’t recovered from the Great Recession.
Typically, the incumbent president’s party takes a big hit in the following midterm election. And if Mitch McConnell becomes Senate Majority Leader again after 2022, Biden likely won’t even get to confirm another judge, let alone sign any bills into law. But Biden and the Democrats could stave off losses in 2022 by simply responding appropriately to the scale of Covid and the pandemic recession.
Going big is both the necessary and politically expedient thing to do
(Bricks of $100 bills at the US Bureau of Engraving and Printing packed for shipment to the Federal Reserve. Photo: Moneyfactory.gov)
Like I wrote in December, there are several things Democrats can do that will simultaneously result in significant improvement to the lives of struggling workers, and also earn major brownie points with voters. One of those is as simple as paying people to stay home and paying businesses to stay closed until everyone is vaccinated.
An April 2020 poll from Data for Progress (rated a respectable B- by FiveThirtyEight) found that 83% of self-identified Democrats — and remarkably 84% of self-identified Republicans — supported universal basic income (UBI) by way of paying businesses to keep employees on the payroll despite being closed. This could be not just a one-time $2,000 check, but monthly, recurring $2,000 checks.
Before she was Vice President, Kamala Harris cosponsored a bill with Senators Ed Markey (D-Massachusetts) and Bernie Sanders (I-Vermont) to give everyone $2,000 a month until the end of the pandemic. Markey reiterated his desire to make this happen last week.
Republicans will inevitably raise the “but where will we find the money” question, which, if Democrats have a spine, will ignore. Article 1, Section 8 of the US Constitution gives Congress the sole, exclusive authority “to coin money,” meaning the US government is the sole issuer of currency. All Congress has to do to is pass a bill authorizing the spending.
The money doesn’t come from our tax dollars. As Stephanie Kelton — the former chief economist for Democrats on the Senate Budget Committee — explains in her book The Deficit Myth, it’s simply created out of thin air after the US Treasury instructs its bank — the Federal Reserve — to credit the accounts of the recipients of the spending. In the case of UBI, it would be our personal banks, who would then notify us (like they have twice already) that they put money in our accounts.
In terms of finding the votes to pass that bill, Democrats have a slim majority in the House of Representatives, and a paper-thin 50-50 majority in the Senate which would require Vice President Harris to break. Republicans can typically deny unanimous consent to bring a bill to the Senate floor for a vote, which then requires an impenetrable 60-vote threshold to meet (also known as cloture).
However, as Sen. Sanders — the new chairman of the powerful Budget Committee — recently argued in an op-ed for CNN, Democrats can bypass this hurdle on strictly budgetary matters through a process known as reconciliation. This only requires 51 votes. And centrist Senator Joe Manchin (D-West Virginia) has already indicated he won’t stand in the way of President Biden’s agenda.
This, combined with Fed chair Jerome Powell’s insistence that there’s “no limit” to how much stimulus Congress should pursue to respond to Covid, and the fact that interest rates will be frozen at zero until at least 2023, means that Democrats have a green light to go big on recovery. Here’s to hoping they don’t make the same mistakes as they did in 2009.