Economist Claudia Sahm breaks down the unemployment insurance cliff threatening tens of millions of workers’ paychecks, the conservative mythology around “moral hazard,” why we’re facing an income crisis on top of a joblessness crisis, the toxic culture in economics, and more. Subscribe to Off-Kilter on iTunes.

“Unemployment benefits provide people who lose jobs with a little help for a little while. The money is not really enough to live on, by design: People are supposed to find a new job.

During an economic crisis, however, people can’t find jobs. They need money to live on. Congress recognized this reality in March when it responded to the arrival of the coronavirus pandemic by increasing unemployment benefits. But that expansion expires at the end of this month, even as the pandemic continues to rage.

Congress, after dragging its feet for months, has all but run out of time to prevent a lapse in the distribution of extra aid. The nation’s elected representatives need to act immediately to extend emergency benefits, and to authorize the extra aid to continue for the duration of the crisis. Because crises are both inevitable and unpredictable — and because the federal government is slow to react whenever a crisis begins to unfold — the government also needs a set of rules that automatically switches the unemployment benefits program from normal mode to crisis mode, and back again, based on the evolution of economic conditions.”

So reads a recent editorial from the New York Times editorial board urging Congress to adopt the so-called “Sahm Rule” — which proposes using a trigger system to ensure emergency aid continues as long as it’s needed during a recession — to ensure the $600/week supplemental unemployment insurance benefit, which expired on July 25, continues until the unemployment rate returns to pre-recession levels.

With the COVID relief debate heating back up in Congress, Rebecca sat down with Claudia Sahm of the eponymous “Sahm rule” — she’s the director of macroeconomic policy at the DC-based Washington Center for Equitable Growth — for a look at what’s at stake, what the Sahm rule would mean for the tens of millions of workers and families hit hard amid the pandemic and ongoing recession, the conservative mythology around “moral hazard” and “work disincentives,” how the “toxic culture in economics” is resulting in bad policymaking, and more.

This episode’s guest:

  • Claudia Sahm, director of macroeconomic policy, Washington Center for Equitable Growth (@claudia_sahm)

For more on all this:

TRANSCRIPT:

♪ I work and get paid like minimum wage

Sights to hit the clock by the end of the day

Hot from downtown into the hood where I slave

The only place I can afford ’cause my block ain’t safe

I spend most of my time working…. ♪

REBECCA VALLAS (HOST): Welcome to Off-Kilter, the show about poverty, inequality, and everything they intersect with, powered by the Center for American Progress Action Fund. I’m Rebecca Vallas.

“Unemployment benefits provide people who lose jobs with a little help for a little while. The money is not really enough to live on by design. People are supposed to find a new job.

During an economic crisis, however, people can’t find jobs, but they still need money to live on. Congress recognized this reality in March when it responded to the arrival of the coronavirus pandemic by increasing unemployment benefits. But that expansion expires at the end of this month even as the pandemic continues to rage.

Congress, after dragging its feet for months, has all but run out of time to prevent a lapse in the distribution of extra aid. The nation’s elected representatives need to act immediately to extend emergency benefits and to authorize the extra aid to continue for the duration of the crisis. Because crises are both inevitable and unpredictable — and because the federal government is slow to react whenever a crisis begins to unfold — the government also needs a set of rules that automatically switches the unemployment benefits program from normal mode to crisis mode, and back again, based on the evolution of economic conditions.”

I’ve been reading an excerpt from a recent editorial from the New York Times editorial board urging Congress to adopt the so-called Sahm Rule. That’s S-a-h-m, Sahm. That rule proposes using a trigger system to ensure that emergency aid continues as long as it’s needed during a recession. In this case, that would ensure the $600 a week supplemental unemployment insurance benefit, currently slated to expire on July 25th, continues until the unemployment rate returns to pre-recession levels.

With the COVID relief debate heating back up in Congress, I sat down with Claudia Sahm of the eponymous Sahm Rule, she’s the director of macroeconomic policy at the D.C.-based Washington Center for Equitable Growth, for a look at what’s at stake and what the Sahm Rule would mean for the tens of millions of workers and families hit incredibly hard amid the pandemic and ongoing recession. Let’s take a listen.

Claudia, thanks so much for taking the time to come on the show. It’s been a long time. I’ve been looking forward to having you on, and I can’t think of a moment where it could possibly be better timed.

CLAUDIA SAHM: Thank you, Rebecca. I really appreciate the chance to have this conversation with you. And I absolutely want to affirm everything that you said in the wind up to this conversation. This is the moment to have a very serious policy effort. And I am happy to keep joining in to the chorus of D.C. do more. Like now, so.

VALLAS: D.C. do more now. God, is that ever the bumper sticker? Well, just have to dive right in, obviously, the unemployment insurance cliff, that $600 a week supplement, that’s set to expire on July 25th absent congressional action to extend it or replace it in some other way, that is definitely the sort of epicenter of all of the attention around the next phase of the COVID relief debate. Just before we get into the economics of this, some of your research, and that Sahm Rule specifically, bring us up to speed. Where do things stand? There’s actually been a lot of activity over just the last 48 hours or so. But bring us up to speed on where do things stand? What is that cliff? Why is it a cliff? And what is it that’s at risk if Congress fails to act?

SAHM: Right. So, let me start with the risk. This is a crushing, unforced policy error. So, I mean, frankly, at this point, we’re already hurtling over the cliff, right, because of very technical reasons. The last set of benefits with the $600 went out a few days ago. Congress has waited until the very last minute to even sit down and start to negotiate about what we do with the $600. It is inexcusable that this conversation, this negotiation didn’t happen a month or two ago, right? So, I’m extremely disappointed that we are at this place. I feel so bad for the Americans that are out there, the unemployed and their families who have been making ends meet with this extra money. I mean, to underscore the fact that our basic unemployment benefits in the United States are not much, right?

So, the extra $600, there’s a lot of discussion about, oh, that means that people are earning more to stay at home than they would’ve if they went to work. And there are two arguments. One, for a lot of them, it’s not safe to go to work. We’re in a pandemic. Two, the problem is there aren’t jobs. We have…. I mean, even once the economy opened back up, the customers didn’t go back to the stores. There are layoffs. There are businesses going under. So, it’s not about people sitting at home watching TV, enjoying some extra popcorn. It is about there are not jobs, that money has been absolutely essential for those families, and we know that it has been essential for our economy. It has supported spending. It is billions of dollars. It has worked. It’s effective. And it’s absolutely irresponsible that people are going to go without that money next week or the end of this week. So but bygones be bygones. You know, we can’t go back and change two months ago. Sadly, we can’t go back to February and do a lot of better things. And yet this is where we are, right? So, we are at the point where there is a discussion.

So, I will be very clear. I am in the hashtag #SaveThe600. So, I am very much a proponent, as long as we have a pandemic raging, that the $600 a week should be extended. There will be a point in the future when we have the pandemic under control and when the unemployment rate is coming down, that it will be OK to phase this out and eventually stop the extra benefits. That moment is not now. Some of the proposals, particularly coming from Republicans, the Senate and the White House are way different than $600. And I’m sure over the next week or two, we’re going to see a lot of negotiations between the two. But when you have that much daylight, something like $100 versus $600, I am deeply concerned about where we’re going to end up.

VALLAS: And the latest, I referenced a flurry of activity actually over just the past few days, it was the weekend. We’re having a conversation now on Monday, so folks have a sense in case things change wildly again, which they might after this moment when we’re taping. But the White House and Senate Republicans, they came out with one version of a proposal, then they came out with another version of a proposal. And the latest would amount to a $400/week pay cut for tens of millions of jobless workers and their families. No matter how Republicans try to spin it, that’s what it would be. We’ll come back to the details, and I would really like to with you, of what they want to longer-term after the couple of months where they’re proposing to potentially not totally take away those $600/week in that supplement. Meanwhile, Democrats have not been shy about putting forth their own proposal. In fact, they’ve passed bills in the House to extend unemployment insurance. They’re waiting for Republicans to come around and have good faith negotiations with them. And some of what’s really at the core of what Democrats have been pushing in both chambers to do is that thing, that if we had the ability to time travel and go back to February at the latest, we would love to put in place people like you and me who don’t want to see that $600 go away until it’s economically wise to do so. And you actually are the person who came up with that rule I describe, the Sahm Rule. Explain what the Sahm Rule would do and what the world would look like right now within this context if it were in place, as opposed to this cliff crisis that we’re already hurtling over.

SAHM: Yes. So, back in November, so right after I had left the Federal Reserve, I started working with staff on The Hill on this very effort. And so, the wonky way we talk about this is “automatic stabilizers.” And essentially what that is, is we want Congress to commit ahead of time to put policies that they always use to fight recessions on autopilot, right? And so, the Sahm Rule — which I did not name it that, but I got that as a reward for having a good way to indicate a recession — what I found, looking back at the history of how the unemployment rate increases in a recession and then falls back down as we enter recovery, is that a very small increase in the unemployment rate signals a recession. So, specifically, the Sahm Rule says, let’s look every month, average the unemployment rate — the national unemployment rate — over the last three months. And then let’s compare that level of unemployment to the lowest level over the prior twelve months. And if the unemployment rate, this measure, has increased a half a percentage point or more, we’re in a recession. We’re in the early months of a recession. Now, that may seem like, wow, that’s such a small increase. I mean, in recessions, we see big increases eventually in the unemployment rate. And yet, if you look back at the historical record, once the unemployment rate starts going up, it keeps going up, right?

And what’s very important, with all the ways that we fight recessions is the faster we move, the better chance we have at making it a little bit less severe and making it shorter and the recovery come faster. So, it’s extremely important to act fast. A little over a year ago, I participated in a policy volume called Recession Ready. It was led by the Washington Center for Equitable Growth, where I now work, and the Hamilton Project at Brookings. Every chapter in that book was taking a effective, we have used in the past, tool to fight a recession and put it into a let’s do it on autopilot. So, each of the authors said, OK, this is the very best we know. For example, on unemployment insurance, looking at the research and past experience, this is the way to do it, and here’s how we put it on autopilot. My chapter, based on my research and my having been on the staff’s forecast at the Federal Reserve from 2008 onward, was focused on sending money to people. So, these direct payments, the rebates, we’ve seen one round of them so far this year. It looks like we will likely see another round here this summer. And I feel very strongly, given all that I know about ways to get money to people, to families, that is the best way to go. Not a payroll tax cut, not a tax credit. Send people money. Send them a big check. But to make that on autopilot, I had to have a way to know it’s time to send out a couple hundred billions of dollars. And you want to do that when it’s the right time to do it, right? So, the Sahm Rule helps us know when to turn it on.

What I also worked on in my proposal, and is very much showing up in the current discussion, is in the Great Recession, we saw Congress step away too soon. So, when broad-based stimulus rolled off in 2012, the unemployment rate was still high. Over those years, Congress not only stopped doing relief, they actually started trying to cut back, do spending cuts. We had never seen this in a recession. It is one of the reasons that the recovery was so slow and so painful. So, I said, OK, let’s learn from past mistakes, right? We want to commit, we want Congress to commit, ahead of time to stay the course, because that’s what’s best for families and businesses and communities and for the whole economy, right? So, in my plan, I said, OK, if we’re in a severe recession where the unemployment rate jumps a lot after the half a percentage point — and we certainly have seen that this recession — then we’ll just repeat those payments, the rebates every year until the unemployment rate comes back down. And so, in my proposal, I had this: I wanted to not just have people understand when we start them, but how long we continue them and when we stop.

Now, the policy debate that’s happening right now, and you referred to the Democrats thinking about this. And [heavy sigh] what’s been in a lot of discussion is the idea of putting the unemployment benefits, the enhancements — so, that’s the extra $600 a week. Now, it could phase down over time, but that’s where it’s at right now — the expanded coverage of unemployment insurance. There are people getting unemployment benefits right now that normally would not be eligible for those benefits. And the third piece is an enhancement or allowing people to stay longer, receive benefits longer, than would be typical outside a recession. So, in many cases, they could get benefits longer than 26 weeks. That hasn’t been important yet because we’re early enough in this crisis. That will become increasingly important over the coming months and potentially the coming years. So, the idea would be to take all of those enhancements and say — and we’ve already turned them on, right? The Sahm Rule definitely triggered in March. Congress did the right thing with the CARES Act, turned all this stuff on — and then we would put it on autopilot until the unemployment rate came down. And we can discuss exactly what the step down and the phase out would be. But the principle is very, very important.

The reality is we are in an election year. This is the last bite at the apple, right? Congress is not going to get back together before the election. And we know in 2008 that they didn’t want to get back together as a lame duck session. So, this is it until next January or February. If we have relief running out over the coming year, if we don’t actually get relief out, for example, to state and local governments, we will have a massive mess early next year, regardless of who comes back and is in D.C. So, there’s no reason to do this. We can commit. Personally, I would like to see it go on autopilot. If all we can do is get this stuff all the way to like January or February, that is better than this discussion of, oh, we have until July! And now we’re going to extend it. But how long are we going to extend? This discussion should not be happening right now. This should have all been figured out months ago. But it is what it is. Here we are. They have the opportunity. Congress can do this. We know what works. This is not…. And it is a complete matter of political will. And they need to get it together, because they will hurt all of us if they don’t. So, fingers crossed. They are making some progress. It is inexcusable that the Republicans did not have a bill last Monday to start this off. We are wasting way too much time, time that we do not have. But they got it together before the CARES Act. They’re going to have to get something hammered out soon.

VALLAS: Well, and Claudia, one other thing that it feels like makes sense to introduce into the conversation, and as I say this, I feel like I’m piling on as you help us come crashing back down to reality, right? You were painting the world we could be living in, that we arguably should be living in, in terms of the policy we know would work and would be preventing these cliffs from happening, right, so that Congress could be focusing on other things, but also so that we could responsibly handle a year where we’re going to have just a complete dearth of lawmaking coming from Washington, because it is an election year, as you describe. We know. We know how that goes, right? So, it’s not like this is some kind of unforeseeable set of events. But here we are crashing back to reality. And as part of that reality, we’ve got Republicans in the Senate and folks in the White House proposing what is not just a brief little hitting of the snooze button on the cliff, right, the two months that we sort of lurch from one crisis to another, and with a $400/month, or excuse me, a week pay cut, as I described as the numbers they’re putting on the table. But there’s another layer of their proposal, too. And that’s why they’ve picked this couple of months that they want to hit the snooze button on the cliff, even pretending that they’re expecting to come back in a couple of months and do more legislating, which is unlikely, as you describe.

And that is because of another layer of this proposal that’s actually fairly wonky, but which gets into something that you hear quite a lot, especially these days from conservatives, ideological conservatives, from Republicans, from this White House in particular, from Mitch McConnell. And that is this boogeyman, this huge boogeyman of what they call moral hazard. You referenced it before briefly, but I really kind of want to dig into this and the reason that it sort of is worth understanding, so that people can fully grasp why the White House is coming out with the proposal, and Senate Republicans, that they are. And so, explain this moral hazard boogeyman, this concept that, oh, my God! We might have some people making more now in unemployment than they were when they were working. We can’t possibly let that happen. That will discourage work. And in fact, the quote, the full quote is that it will, “discourage workers from seeking new jobs.” So, I think folks, as they hear this setup, are going to see a little bit of where you’re going to go with this. But explain this moral hazard mindset and kind of why it’s so ridiculous in this moment. And then the proposal that we’re seeing now in this latest round of offerings from Senate Republicans and from the White House, which is to address that moral hazard concern with a really, really complicated, really administratively burdensome replacement for the $600 that they’ve cooked up to make sure that nobody could possibly be doing better on UI than they were when they were working.

SAHM: Yes. There’s so, so much to say about this. So, there are two places I want to go with my answer, and both of them underscore how disconnected D.C., many policy wonks and academics fall into this trap too, where they are not plugged in to the real world, right? And this is absolutely tragic, right? I mean, our real world is horrible. I would like to pretend it doesn’t exist. But, like, we got to deal with what we got here. So, on the moral hazard, I would frame that as unpacking three circles of hell that exists in discussions of macroeconomic policy. These are absolutely, as you call them, boogeymen. They show up in every crisis, and in every crisis, they are shown to be wrong. And yet they do not die. They come back again and again. So, I would — and I’ll step through all three of them — but the way I would go down these three circles is, one, we have the moral hazard, we also then have work disincentives, and then the last one are the skills gaps, OK. And we’ve seen all three of these. They kind of come in that order. But let’s unpack that.

So, moral hazard: the idea, the concept is that people will change their behavior before a crisis because they know that they’re going to get help from the government in the crisis. And when we moralize this, we think about, well, there are handouts, and so people, because they know they’re going to get handouts, then they’re not going to save ahead of time. They’re not going to be in a place where, when the crisis hits, they can act and protect themselves without having to go to the government. With this argument, both in terms of the unemployed, we saw this a little bit with small businesses. Small businesses [unclear] in D.C., and they should be. They employ a lot of people. They were not well-served by the federal protection loan program. Though the intent was good, the administration was absolutely bad. But we’ll set that aside.

The other place we’ve seen moral hazard are in talking about state and local governments. There’s a lot of discussion that state and local governments hadn’t put together rainy day funds. And if we bail them out, and Congress has sent basically no money to state and local governments. They have balanced budget requirements. They are hemorrhaging money. They’re laying off teachers. So, I don’t care if we’re reopening schools or not. There are going to be a lot fewer teachers there to teach our children. And so, Congress has not given them money. An excuse, often, is that these states, well, they just weren’t prepared. So, we can’t put the states on the dole, right? OK. So, this is wrong about families. This is wrong about communities. On the family side, which fits in the most to the unemployment, so I’ll focus on that.

The fact of the matter is that we have many low-wage workers in the United States. They have few protections on the job. Many of them have benefits that you and I could not comprehend living without, right? They don’t have generous sick leave. They don’t, in some cases, even have health insurance. In many cases, they don’t have control over their hours. They have to cobble together multiple jobs, some of them in gig economy. I mean, it’s just, it’s really hard to grasp how much some of our fellow Americans, the people we live and go to the grocery store and they help us get our food and check out, what they have to live in day-to-day, even in January, right? And so, then a crisis hits. Well, of course, they haven’t been able to save! They don’t have the money. It’s just, so no, they have not saved. They are not alone. There’s a really, unfortunately large fraction of Americans, families who do not have easily accessible assets. Like they don’t have money in the bank. So, then a recession hits. Millions of them lose their jobs. We have a pandemic. They don’t have health insurance. I mean, this is absolutely a disaster. It is not their fault. It is not state and local governments’ fault that we have a pandemic in the United States. No one could have prepared for this. So, this whole moral hazard like, oh, but if we help them this time, they will — It’s like, no, no, no. Let’s pray to God we don’t have another pandemic. This is so strange and so fast and bad. Just help people. It’ll be OK.

Now, the second one is this work disincentive. And this has been, this is the attack that really is going after the $600 or any kind of extra boost to the jobless benefits. Because we have so many Americans that are paid so little in their jobs, when we add the $600, for a lot of them, it’s more money than they made when they went to their crappy jobs, at least their main job. A lot of them have multiple jobs, and it’s very hard to claim and patchwork together all of it. So, and there are many Americans, like half of the jobless haven’t gotten their benefits, any, by the end of June. So, what the argument is, well, if we’re paying people more than when they worked, when their employers call them back, they’re not going to want to go back to work because they’d take a pay cut.

Now, they are absolutely small businesses who have experienced this across the country, right? I know. I have friends who run small businesses. They have had a hard time bringing in people to do work. A lot of times this is not work that a lot of people want to do, like cleaning toilets and things like this. And frankly, in some cases, people are just scared to go back to work because they don’t want to die. But the vast majority of the reason why we have millions of people on unemployment benefits right now is because there are no jobs for them, right? So, this is not their fault. Again, this is not about the $600, and in fact, quite the opposite. The extra $600 is allowing many of these families to not cut back as much. When those benefits drop, you are going to see those millions of unemployed tightening their belt. They’re not going to be able to go out and spend the money they’ve been spending. And that means that the places where they had been spending money, well, they’re going to have to lay off more workers. And then those people won’t be able to spend. So, it’s this very bad downward spiral. So, it is not about people don’t want to go back to work. But we talk about this. And I trained as a macroeconomist. And we’ve got these models. This is what they say. But they pick up a political discourse.

VALLAS: I want to pause on this piece of the work disincentive, which you disentangled from the larger moral hazard piece, and which I find so incredibly important because just a couple of through lines I see here that make this not just specific to the unemployment insurance debate or the $600, right? Situating this in the larger context of this moment, I mean, there’s so much similarity between first off, the proposal that we’re seeing from the White House and from Senate Republicans, it’s about like, hey, we really want to make sure that people are only getting some of their wages replaced. 70 percent is the magic number we’re hearing from Republicans. That’s the max they want people to be getting if they’re receiving unemployment insurance. They don’t like this flat $600, which was sort of the thing that was implemented in part because state unemployment insurance systems are stuck in the dark ages. They’re still using coding from like the ’80s. Some of it’s probably older than I am. And they were not in a position to be able to say, hey, let’s have everyone get different amounts based on the 70 percent of their previous wages.

And so, some of what we’re hearing from Republicans in this moment, to me, really echoes a lot of the decades-long push to try to basically legislate all kinds of administrative complexity to ensure that etiological priorities like making sure that only “the truly needy” or “the deserving poor,” as defined by certain litmus tests that are highly moralized end up receiving benefits. But also in this case, to ensure that no one under any circumstances ever gets a dollar “more than they should.” And there’s so much similarity I see here, given the hoops that states are going to have to jump through to get their systems in position to even do this, which is what the White House and Senate Republicans are premising this proposal on and why they’re even down to extend the $600 for a short period of time to give the states time to do that. Would love to give you an opportunity to talk a little bit about that and why the $600 proposal that Dems are saying needs to just be extended is something that continues to be policy that Dems are continuing to champion.

SAHM: Oh, yes. [laughs] There’s so much. I’ll talk very specifically about this replacement rate versus the $600. I do want to underscore this is a widespread issue in all of the relief programs. It’s not sexy, right? Administrative, what are the pipes? How do we actually get the money out? This is not a fun conversation, right? Congress should be thinking big, right? You know, what is it we want to do? Who do we want to get money to? How much? How fast? I get it. And yet there is a responsibility to make sure you can do what you want to do as a legislative body. This is the same for the Federal Reserve too, right? This is not specific to Congress. This is a big policy problem. And what has happened is that there’s not been given enough attention, enough funding to making sure that the systems that we have to use in a recession are robust, that they’ll actually work. It really does not matter if Congress allocates hundreds of billions, a trillion dollars, and it doesn’t get out the door, right?

Like the Payroll Protection loan program was a disaster in getting money out to the small businesses who really needed it. The Main Street and the municipal lending facilities the Congress set up for the Federal Reserve and funded, they have made — and these were for middle-sized businesses, and then state and local governments — they have basically made like three loans or something. And there were hundreds of billions of dollars allocated for that. You know what? The best of intentions here do not matter if the people who are in dire straits don’t get the money. If none of the money goes out, well, then that failed, right? And we should be, ahead of a recession, thinking about making sure that our pipes for policy work well.

The unemployment insurance is a tragic example of neglect. Now, the system, frankly, should be federalized. You ought to be running it out of one administrative body. And what has happened is it’s not. Each state has its own unemployment insurance system. Many states differ in some of the details. Florida has a shorter period that you would normally receive jobless benefits. Some states, their administrative programs are just outdated. Like you said, a lot of these states have it programmed in Cobol, which is a language that basically no one has learned in like 20 or 30 years. And so, that’s problematic. That’s actually the reason that they can’t do the replacement rates, is because not all states could actually go in and reprogram their benefits. What they told Congress in March is, we can add on a flat amount. We can’t go in there and tinker around with like, well, we only want you to get 70 percent of what you were earning before. They just can’t do it. Now, this is absurd, right? If you know you want to do this in a recession, why didn’t we build this ahead of time, right? And in the Great Recession, when the American Recovery and Reinvestment Act passed, they did a flat add-on. It was much smaller. I think it was something like $50/week. But we knew a long time ago that we couldn’t go in and do this fine tuning. Now, frankly, I find it frustrating and disingenuous that we are having this discussion now, either among policymakers, or I have this discussion with a lot of academic macroeconomists. We knew in March that this was not possible. So, either you accept that reality now that we’re at the end of July, or you could’ve in March put out resources to help those states get their system such that they could do it. So, it’s like, this is disingenuous.

And one of the things that struck me, I started working on these putting policies on autopilot back in November, in the before times. And I can remember having a meeting with Hill staff, people who really understood the programs. And we were talking about unemployment insurance, and one of the people in the room was really concerned that the unemployment insurance system would not make it through the next recession. It was so neglected, it was in a place where it was almost designed to fail. And the unemployment insurance is a support that we have given to families in recessions since the Great Depression. It was a policy that came out of that absolute disaster. We’ve had it on the books since the 1930s. For decades, it has been hollowed out. It’s just, it was a program. And when I heard her say that, I was like, and now living this through the crisis and watching the administrative just, like just everything blew up when I ran my survey and saw that like half of jobless people, families who had lost a breadwinner, lost a paycheck, still have not gotten anything in jobless benefits.

VALLAS: Which itself is a statistic that bears repeating, given that I think most people assume folks claimed unemployment and have been getting checks ever since.

SAHM: Yeah.

VALLAS: Half of folks who need these checks are not getting them yet.

SAHM: Well, and the thing is, is when I was talking with someone about this, they’re like, well, Claudia, usually only about 25 percent of the unemployed get benefits. This is so much better. And I’m like, oh, OK! [laughs] I feel a little better. But there’s a lot of people that aren’t. Some people, they’re discouraged. Like, if you know, if you see your neighbor or a family member go to try and claim it and they make it impossible to claim it, why would you waste 50 hours trying to get something you’re not going to get? And then for some people, there’s shame, or they think, oh, I’ll be back at work soon. There’s a lot of reasons people don’t claim benefits, but it is a policy failure, right? And like you said, a lot of people assume, oh, well, you know, you’re jobless. And we have this, and you go get it and duh duh duh. You can’t assume the policy is going to work as intended. And when you see a system that is so neglected, you have to start wondering if that is by design, right? This is a feature, not a bug. And that is really problematic, and that, we don’t have to do that. We know unemployment insurance is effective. We, outside of a recession, could set up systems so you could do, personally, I think it should be close to 100 percent of the wages you had before. But we could’ve done this. And the fact now, and again in July, when we knew in March this was not possible, the idea that we are wasting time talking about something that is not in the real world is like, it’s really almost like I feel like I’m gaslit a lot of times when I see the next proposal come out. But they’re going to get it to the finish line! I know they will. It’s just like, it’s really frustrating, and we shouldn’t be having this conversation.

VALLAS: Well, and you mentioned, it starts to make you wonder, was this system designed — I mean, boy, could I get into a conversation about that, given the decades-long history of bureaucratic disentitlement that is the Republican war that no one has paid attention to when it comes to assistance programs, strangling them with red tape. And “unemployment insurance” and “neglect” are words that go hand in hand, right, in pretty much any sentence describing it. So, I really appreciate you kind of providing that broader context. And it’s hard to say that, it’s hard to have any of this conversation without thinking about Florida as perhaps exhibit A of all of this. We learned during the early days of the recession spurred by the pandemic that it turned out that Florida’s unemployment insurance system actually had been intentionally sabotaged and didn’t work because it was to keep the unemployment numbers low, to make the governor look good, right, and also to fuel business tax cuts that were otherwise unaffordable. So, this is not stuff that you need to have a tin foil hat on to believe. This is not conspiracy theory kind of thinking. These are the kinds of policy decisions that have been getting made for some time, and now we’re watching these chickens come home to roost.

Claudia, I wish we had a lot more time than we have, but I do have a few more questions I want to get into. And so, I’m going to put a little asterisk next to skills gap and just say we’re going to put on our nerdy syllabus page a link to all the fire emojis Twitter thread from Angela Hanks that really kind of gets into some of this and anything else, Claudia, you want folks to read. But I think we need to do a whole conversation on that topic because there’s so much there.

And I need to take you to another piece of this, which is a lot of your research, and this is research you’ve done prior to COVID, but, boy, is it kind of front and center right now, your voice ringing in my head as I’m seeing a lot of the different dots getting connected. You have said, and I’m going to quote you here, “We have an income crisis that is even larger than a jobless crisis.” Would love to have you talk a little bit about what you mean by that and what your research tells us and what the indicators in this moment about who’s being impacted and how, if it’s not just about joblessness as sort of a binary: did you lose or did your breadwinner in your household lose their job? What that information tells us about what the policy solutions are in this moment that we need. We’ve been talking about unemployment insurance, but obviously, direct payments are something you’ve been calling for. We’ve done one round of them. Now we’re actually seeing support from Republicans to maybe do that again versus something like, say, payroll tax cut, something that may not be showing up in the most recent proposals from Republicans, but certainly seems to continue to be a specter throughout these negotiations, despite the fact that we’ve got all these people out of work. So, talk to me about the income crisis and what it tells you about what we need in addition to UI.

SAHM: Yeah. So, my recent focus on the income crisis is very much a reflection of research and following data, both on my own and then talking with other policy experts since the crisis rolled out. It was obvious to anyone who was awake, early, we saw this in March and April, we had millions of people applying for jobless benefits, I mean, in a way that was just mind boggling. And we still have well over a million people filing every single week for jobless benefits. Now, I mean, I am happy that people are filing. The information on who are receiving benefits, who continue to receive benefits, that is also millions of people. There is an aspect of this that is a good sign. And yet, being out of work, especially for extended periods of time, especially if they cut these extra benefits, it’s bad, right? We don’t want people in this position. So, I was very much focused on the jobs crisis, unemployment rates. I mean, the Sahm Rule was completely blown out of the water in one month. I mean, I just, I never thought I would see numbers like this. We have unemployment rates that we have not seen since the Great Depression. And even then, the statistics are pretty, they’re not really comparable. We didn’t have as good of a overview, but we have had three months in a row with over 10 percent unemployment. In the beginning, it was well over. And that’s just, it’s incomprehensible. We haven’t seen that since the 1940s, right, when the statistics began.

OK, so everybody knew it was a jobs crisis. I ran a survey with Matthew Shapiro and Joel Slemrod at the University of Michigan. The focus of our survey was on the rebates. We’ve studied these in the past. We’ve studied the payroll tax cut, the Making Work Pay tax credit, right? So, we’ve looked at a variety of policies that have been tried in recessions to support a wide number of families. OK. So, that was the purpose of our survey. We ran it in May and June on the surveys of consumers that is at the University of Michigan. We also put weekly questions on a Google survey starting in April. So, we have all this data, right? Not as much time to unpack it, but enough that I started to get a picture of what was happening. We also added to the survey some questions about how the crisis was affecting families. This recession was really different, and we wanted to respect the fact that our results from the Great Recession, which said rebates are the way to go. This is the most effective way to support families and to fight a recession. That might actually not be the case this time, right? I frankly thought it would be, and I was right. But reasonable people could think a pandemic is just so different. People have to stay at home. How are they going to spend, right? I mean, I was like, well, they got to keep a roof over their heads. So, I think they’ll be OK spending. Or just prevent, like you want to just help people not cut back suddenly. So, OK, so job crises made sense.

What we learned in the survey that I now understand, but at the time was just like, wow, is so we had 20 percent of families tell someone in the family had lost a job due to the crisis. This was in May and June, pretty stable. And that makes a lot of sense. And lines up with the official surveys, what the Bureau of Labor Statistics tells us, Census Bureau, right? So, it’s like, OK, that conforms with kind of the thinking about the jobs crisis. We also asked families, have you lost income due to the crisis? 40 percent of families, so twice as many, told us, we’ve lost income. And that is like, there’s a problem. Having studied consumers and household finance for well over a decade, I know that for many families, it’s money in and money out: what they earn is what they spend. So, if they’re getting a lot less income, this is going to show up in less spending. And that’s part of the downward spiral in addition to being really afraid of the future, which we saw that, too. So, people pull back. Then there’s more job losses. This is bad. This is like what happens in every recession. This one started, you know, we had a pandemic this time. Every recession has a different thing that ticks it off. But once we’re into it, there’s a lot of similarities, and they’re bad, right, all the way down.

So, it’s like, OK, we’ve lost all this income. So, all right. 20 percent of people lost a job. So, that’s pretty sensible. Frankly, even with the $600, we have a lot of them that aren’t really making up what they did before because, again, they were cobbling jobs together and things like that. So, then it’s like, OK, well, I know in recessions, people often will go, they’ll lose their overtime. They go from full-time to part-time. Hours will be cut. So, that’s got to be a piece of it, too. And then I saw research. This was presented at the Brookings Institution. They had this special COVID macro conference. And it was a team of researchers, some of which are my former Fed colleagues in one of the big data projects that was kicked off years ago now. And they use ADP data, which is a large payroll processor. And so, they have very fine data. They’ve been working with it, again, for years. They pointed all their tools at the COVID crisis. And what they found — and I would not have guessed this because, again, we have not seen this since the Great Depression — what they documented was that a large number of people who have kept their jobs, they are still employed, have taken wage cuts. Their employers have come in and said, you have a job, but you are going to earn less than you did in January. This is very rarely done. Again, not since the Great Depression. A lot of times, though, we’ll have the wages of incoming workers be less. But it is highly demotivating to have less in your paycheck, though, doing the exact same work. And for a lot of people, they’re doing more work in the crisis, right? So, that, when I saw that, my jaw just dropped. I was like, that’s the 40 percent, right, when you put all these pieces together.

So, once we have an income crisis, that means we got to do more. I’m always and and/both policy person. Like, just throw everything you’ve got at the wall here, like trillions of dollars. I really want like 4–6 trillion in this next relief package. I’m not probably going to get it. But I truly believe, based on research, that’s what we need, right? OK. The income crisis means, yes, we have to support the unemployed. They are hit so hard. And when you look at who the unemployed are, it is, like it’s not this everybody looks the same, right? The Black unemployment rate is always higher, is higher this time. This time, the Hispanic/Latinx unemployment rate is, it’s just it’s hard to look at the numbers. I mean, a lot of this is there’s more people in the service sector, and when the economy shut down. The jobless rate and then looking at the income losses, it’s like, how can we do this to people that are our neighbors, are in the community? It’s just like, wow. Anyway. So, we have this huge crisis. It is affecting millions and millions of Americans. It is hitting some populations so much harder. It’s hitting some communities so much harder, both in the economics, and then we’ve seen the pandemic doesn’t affect everyone in the same way, right? So, there’s just like crises layered on type of crises.

And OK, so we got to help the unemployed. They are hurting really badly. Help them first. Then all families need some help. They probably don’t need as much. The rebates, which put over a, you know, a family of four — so, every adult in the United States with a Social Security number had a claim on $1,200. Every dependent child, another $500 — so, you have families of four getting well over $3,000. Just shows up. A lot of people can do something with $3,000. Now, we found that people spend it at about the same rate as they did in the last couple recessions. So, when we asked people, what do you do: mostly spend, save, pay off debt? We had about 20 percent tell us mostly spend. Now, there’s other families that do some spending. So, it really is, you know, maybe like 60 cents on the dollar gets spent. Super helpful. There’s $300 billion in total. That’s real money. What we found this time that was different is that a larger fraction told us they mostly saved it.

Now, we’re still unpacking exactly why that was. Maybe they couldn’t get to the store and spend. They’ve paid off debt in the past at a higher rate. It’s also the case, and we look at this with the unemployed or the people who’ve lost income, the ones who could save, like they didn’t lose a job, they didn’t lose income, they’re the ones that saved. They were able to do it without cutting back on spending. The people who’ve been hardest hit, they haven’t been able to put it aside. They’ve done a lot of paying off debt. And some of it was, they were cash advances on their paychecks. They were title loans. I mean, things that we really don’t want people reaching for, I mean, ever, but particularly in a crisis. And so, in terms of good policy with the rebates to stabilize the economy, it was reassuring. And yet the tragedy that we see when we unpack our survey, when we look at different groups of people, we look at different hardships, it’s not pretty, right? So, there’s that piece.

So, you need something for the unemployed, you need something for families, and you need something for communities. And you need something for small businesses, too, but the communities have not gotten money. Communities, state and local governments employ people, or at least they did. And now you see a lot of layoffs, and this is bad. And we saw this after the Great Recession, and we paid for it for a long time. So, we have this massive crisis, and massive crisis deserves a massive policy response.

VALLAS: And I really appreciate your putting kind of numbers to that. You said you’d love to see 4–6 trillion in this next package. People might end up here feeling like, oh, my God, that sounds like so much money. But it just, it does bear repeating that, as you and others who understand this from a macroeconomic perspective, keep repeating, this isn’t just about the mitigation of short-term hardship and devastation. This is also about trying to make sure that we don’t have a massive, massive hole that becomes a lost decade, as opposed to something that we still have a window, economically, to mitigate in terms of how long this recession is with us and how deep it gets.

Claudia, I want to, in the last couple of minutes that we have, I would be really remiss and I would be regretful myself if I didn’t ask you to talk actually a little bit about something a little bit different. So, kind of setting COVID aside, setting this recession aside for a moment, although the two are very much related to where I’m going to go in our final moments. I want to read a quote from something that you have read and which summarizes in just a few sentences an issue on which you have been incredibly outspoken and in ways that I know I deeply appreciate. I know many others in economics and adjacent fields who have been very deeply appreciative as well. And I want to say in my own kind of personal appreciation for this, as someone who is a forever recovering legal aid lawyer who ended up at a think tank doing anti-poverty policy as the way to address broader systemic problems that I was individually representing clients to try to address in a one-off nature previously, I have to say I come into contact with a lot of economists, move in circles with a lot of economists. And I will confess, I don’t really like most economists. I often do significant battle with economists, particularly labor market economists, who are just incredibly out of touch with reality in so many of the ways that you were just describing Republicans being guilty of in the context of this debate.

And so, with that is the backdrop for why I appreciated some of what I’m going to read next, I would love to just give you an opportunity to talk a little bit about what you have described as the culture of economics. You write, “The culture of economics is toxic. We tolerate bad behavior. No one is held accountable for the harm they cause. The economists and economic research missing from our profession are the effects. These gaps lead to poor economic policy advice that affects millions of people.” And I want to be clear, as I say, I don’t like most economists, Claudia. I really like you, and I really appreciate you. You’re one of the exceptions to the rule. Talk a little bit about this and the connection between the toxicity in the culture and then some of the bad policymaking that it can drive.

SAHM: Right. I will start by saying that these may not seem connected. And I know I have colleagues and friends who are like, could you just pick one crusade? You know, can you just worry about what Congress is doing and set this aside? And I feel very strongly that these two issues are so intertwined that we just cannot, as an economics profession, look away from what is happening within. I truly believe, and by this point, I am not just alone here, and there is research, even research that economists will accept. We’re kind of picky about what we will accept. And there’s a lot of research that shows that we have huge blind spots as a profession. We are missing economists. We are missing groups. I mean, there are a lot of different dimensions of diversity. But there is just one very stark example. I worked to the Federal Reserve for 12 years. There were 406 PhD economists. So, a little over 400 PhD economists at the Federal Reserve, the Board of Governors in D.C., which is just one institution. Rebecca, this is not a place to go if you don’t like most economists.

VALLAS: [laughs] Sure!

SAHM: I love economists. I’m used to the range, and anyways, I chose who I am. And there is one Black economist. She’s a Black woman economist. I worked with her for years. There was one Black man economist who I had gone to graduate school. He’s since left and gone to Brookings. And so, that’s it. There’s one. Now, that is way lower than the number of Black people in the U.S. economy, or in the United States. This is a huge problem, right? So, news flash: in the Great Recession, in a lot of our policy analysis, we didn’t talk about what was happening to Black Americans. And for years at the Federal Reserve, we didn’t talk about racism. We didn’t talk about discrimination. I mean, economists have a really weird way of talking about discrimination, where somehow the market knows the Black people don’t have skills. And I mean, it’s just, it’s absolutely absurd. It’s like, no, there are actually Americans that just hate Black people. It is a reality in the economy that that is what Black workers face and many workers of color, families of color, right? So, we can’t deny that. And if we do, then the economic policy advice that we give, as a staff at the Federal Reserve, the economic policy decisions that the Federal Reserve makes, they’re bad. Or [audio cuts out] I mean, frankly, they’re just [audio cuts out]. Because they’re missing part of reality. They’re looking away.

Federal Reserve is not the only place [audio cuts out], right? This is a widespread policy concern. Economists, for various reasons, have a lot of influence on economic policy debates. And at the Federal Reserve, they’re making the decisions, largely. So, this is a problem. I saw this at the Federal Reserve. I couldn’t figure out how I had all these colleagues who were so smart, who cared so much about their job, and yet they missed the housing bubble. And when we got into the recovery, we repeatedly were telling the Fed, oh, it’s going to get better right around the corner. And I really tried to figure out, why is this happening? And to its credit, the Federal Reserve, the staff under our leadership took on an introspection process.

Now, because I’ve been kind of a firecracker at the Fed since I started, it was kind of like, how did we let her in? Thankfully, I do good work, so I got to stay. I wrote a memo with a colleague on groupthink and what that does to our policy process. I wrote another memo on how to integrate, break down some of the silos that we had in our economic analysis. Change is very hard at the Federal Reserve. It takes a long time, but when they move, they move. And they don’t usually backslide. As Ben Bernanke started some of these efforts, Janet Yellen really made them an institution within the Fed. Chair Jay Powell continued that. So, this is very important. So, there has been change at the Fed. I’m very proud of what they’ve done. And yet we still only have one Black economist. We have more Black research assistants. I had the privilege of working with some. We are still very much behind on inclusion. Not a single one of them went straight to graduate school.

I worked with some who were, I mean, they saw what we did to people, and they said, I got better stuff to do with my life. And I get it. I mean, I’ve had some, I had many excellent mentors. Almost all of them were men until very recent in my career. They’re good guys. They’re good women in the profession. That’s why I’m still doing what I do professionally. And yet, there’re bad actors. And there is a hyper-competitive environment. And it hurts people, and it’s tragic. But even just in the last week, there are more examples of how we have hurt people that are our colleagues. And I’ve done a lot of mentoring in the last few years. I mean, once you start being loud and proud about there’s a problem in economics, people come to you. Or they have come to me with really bad experiences. And I finally was just like, enough is enough.

So, a couple weekends ago, I drafted this long, like my reflections on the culture of economics, sent it off to Janet and Ben. I said, we have a problem. And I focused very much on all very senior people in the profession. And I’m like, I finally decided that I am complicit. If I don’t share my own experiences and I don’t share, responsibly share, the experiences of people who have come to me, then I’m as much of the problem. So, the economists that look away, the economists that are like, oh, no! It’s not about our culture, you know, our model, duh duh duh duh, then it doesn’t stop. And in this crisis, the confluence of having more and more people come to me with absolutely inexcusable treatment by economists. And then on top of it, watching this crisis, I mean, like, oh, wow. We are so missing it. Like when George Floyd was murdered and there were all these protests, we had very senior economists on Twitter saying racist things. So, there weren’t economists higher up in the profession stepping up with like, oh, and we know about racism, and here’s the economic effects. We have colleagues, Black scholars, scholars of color who’ve been working on this for decades, and they have been marginalized. They are not published. They are not in our top departments, largely. And so, instead of their voices, we get people who are essentially the gatekeepers of the economic community blaming Black people for the protests. And it was just like, I can’t even. Anyway.

So, there were so many poignant examples that we have failed. We have failed as economists. We have failed our peers, our students especially, and we have failed the American people. So, it’s like, enough is enough. I am not alone in those. I have some amazing mentors. People like Lisa Cook and Marie Mora could run circles around me in terms of the way that they have contributed for decades to making economics a better version of itself. And I will say there are so many people in economics who are trying very hard to make it better, right? So, I don’t want to dismiss. And a lot of times it’s the early career economists, they are trying. We’re learning how to be nicer to people like yourself and in policy discussions, but we got a long way to go. And there still is not this widespread commitment that it’s all of our problems, right? It’s my problem. It’s been a Janet problem. And there’s no accountability, right? So, it just, I don’t know. It’s a problem.

But the American Economics Association has made progress over the past two years. There were some very horrible events that forced it. So, we’re making progress. It’s just slow. And frankly, just like COVID-19 did to the economy, it moves faster. It is not waiting for us. It’s not waiting for Congress to wake up and get stuff done. It’s not waiting for the economics profession to say, hey, we got to do better. So, there could be a very, very thin silver lining both in D.C. among all of the policymakers and also among those of us who give advice to policymakers. We can do better. But I didn’t see this introspection broadly in the economics profession. I tried really hard to bring this up in academia. It was completely shot down. So, I’m not actually super hopeful. But I mean, frankly, at this point, we can’t do much worse, you know. [chuckles] And there is more of a groundswell. But it’s hard, and it’s exhausting. And, you know, but no rest for the weary. I’m blessed. I’m privileged. So, I’m just doing my small part, but there’s a lot to do!

VALLAS: Well, and we’ll have a link to your letter on the syllabus page. We’ll also have a link to the Best Practices for Economists. Building A More Diverse, Inclusive, and Productive Profession, one of the resources you’ve pushed forward from in the context of this conversation and debate. And there’s a lot more to be said about that. But I just, I really appreciate what you do to try to elevate the toxicity, the culture, and also to draw that connection to the kinds of policy advice that then ends up being produced in these moments. It’s certainly something we talk a lot about on this show at various points: the lack of diversity and inclusion and representation, especially among our elected officials, but also more broadly in the circles of folks who, as you put it, give advice to policymakers and lawmakers, is why we can end up with a huge number of folks in Washington who don’t seem to understand why a $400/week pay cut is something that workers are not in a position to whether amid a pandemic and just make do and tighten their belt, much less the macroeconomic consequences that you and others are warning of.

For anyone who is not following Claudia Sahm on Twitter, you are doing it wrong. Claudia, tell folks your handle so that they can give you a quick follow and also see up to the, I don’t want to promise on your behalf, up to the minute updates, but I often find that that is what one receives if one follows you when it comes to the ongoing COVID economic debate. So, what is your handle? And we’ll also have lots of your resources on our show page.

SAHM: Great. Thank you, Rebecca. So, my handle is @Claudia_Sahm. So, S A H M. And yeah. No, I have been very active, and I am using every single platform I have right now. Twitter is the most colorful of the platforms I use. So, your mileage may vary in terms of my colorfulness. The other place I would point the audience to, the listeners, to, I started a blog. It’s called MacroMom. So, MacroMom dot I think it’s org or com. Anyways, if you can search “macro mom Sahm,” you’ll find it: Claudia Sahm. And I started this back when economics started having its reckoning with gender and economics, and I share experiences of my own. I have continued to beat the drum, and there is a little bit of economic policy. But if you want to look back at one economist’s kind of journey through making noise, I’d highly recommend it. And because I was so frustrated with going to a bunch of macro seminars since the crisis started, I mean, I’ve learned a lot. I love macro models. I try. I mean, they’re often not grounded in reality, but you can learn something from a model that’s not in the real world. I became so frustrated with many of the big name of seminars being like no women, no people of color. So, I’m the kind of person, I will make a lot of noise, and I’m pretty fussy. And yet I understand that at the end of day, both for my well-being and for pushing the ball forward, you just got to roll up your sleeves and do something.

So, I started a stay at home macro podcast. My initial series, and I have several of them. They’re all focused on the real world and on policy. I had panels of three women. One woman was always a woman of color. This took me like 15 minutes to come up with the first six shows. This was not hard. There are so many smart women and men who never get a platform. So, I was like, yeah! So, I have these conversations. I thoroughly enjoyed it. I would encourage listeners, I mean, obviously, listen to your podcast. This is amazing. And if you want a different perspective, and particularly on economists that are nice people and talk in a way that it’s a conversation. And I do this on Twitter, too. I learn from people. I’m not there to lecture. So, reply. My direct messages are open. I want to engage with people because that’s how I learn, and I like people, right? So, we’re all in this together. And anyway. So, yeah, I enjoy these platforms. I loved being on the podcast with you today. We could talk for hours and hours. This was wonderful. Yeah. And just everyone, take care and stay safe.

VALLAS: And I’ve been speaking with Claudia Sahm. She is the director of macroeconomic policy at the Washington Center for Equitable Growth, also the godmother of the Sahm Rule, which we’ve been talking about today. Lots more where that came from on her Twitter feed, also on our syllabus page. And Claudia, I just really appreciate you taking the time to come on the show. I’m already looking forward to the next time. And take care and be well. And thank you for everything you’re doing in this moment.

SAHM: Yep. Likewise.

VALLAS: And that does it for this episode of Off-Kilter, the show about poverty, inequality, and everything they intersect with, powered by the Center for American Progress Action Fund. I’m Rebecca Vallas. The show is produced by Will Urquhart. Transcripts are courtesy of Cheryl Green. Find us on the airwaves on the We Act Radio Network and the Progressive Voices Network, and say hi and send us your show pitches on Twitter @OffKilterShow. And of course, find us anytime on iTunes or wherever you get your podcasts. See you next time.

♪ I want freedom (freedom)

Freedom (freedom)

Now, I don’t know where it’s at

But it’s calling me back I feel my spirit is revealing,

And now we just trynta get freedom (freedom)

What we talkin’ bout…. ♪

Off-Kilter is the podcast about poverty and inequality—and everything they intersect with. **Show archive 2017-May ‘21** Current episodes: tcf.org/off-kilter.