Former Federal Reserve Board Chairman Ben Bernanke is calling on Congress to provide a new aid package that provides “significantly” more money to state and local governments than the $150 billion allotted in the Coronavirus Aid, Relief and Economic Security Act, plus aid for the unemployed and the public health care system.
In an op-ed in today’s New York Times, Bernanke, who oversaw the central bank’s $4 trillion response to the Great Financial Crisis in 2007-2009, notes that today’s unemployment rate is much higher than the 10% peak reached during the GFC and state and local government budget shortfalls are much greater.
Those gaps “cannot be closed by austerity alone,” writes Bernanke, who is a member of New Jersey Gov. Phil Murphy’s Restart and Recovery Commission, where he’s helping to develop an effective reopening strategy that can support the state’s economy and address the “glaring inequities the pandemic has revealed.”
New Jersey is facing a revenue shortfall of billions of dollars because revenues are falling while spending for health care, unemployment payments and other expenditures is rising.
“Multiply New Jersey’s problems to reflect the experiences of 50 state governments and thousands of local governments and the result, without more help from Congress, could be a significantly worse and protracted recession,” writes Bernanke. Since February, state and local governments collectively have laid off nearly 1.5 million workers, according to Bernanke.
“Congress must act decisively — and it must act in ways that don’t repeat mistakes of the recent past, during the Great Recession,” writes Bernanke, referring to the state and local budget cuts that slowed the recovery then.
The federal government has already provided about $3.6 trillion in emergency economic aid this year, but much of the assistance to states included “tight restrictions,” according to Bernanke. State and local governments cannot use the funds to offset deficits, forcing them to reduce spending at a time when demand for services is greater and to lay off workers, which further slows the economy, Bernanke writes.
Since March, Congress hasn’t been able to agree on a new aid package. The Democratic House two months ago passed a $3 trillion Heroes Act, which would provide additional aid to state and local governments, households and small businesses and extend federal extended unemployment assistance.
(Related: New Stimulus Package Could Debut Next Week)
The Republican Senate could unveil its next financial aid package next week, according to Majority Leader Mitch McConnell, R-Ky.