There's no question that Congress needs to pass a major stimulus bill. But how big should it be? Well, @adamshersh & I answer that in a new @Groundwork paper. We estimate that Congress should spend upwards of $4.5 T to resuscitate the economy. THREAD 1/ https://groundworkcollaborative.org/wp-content/uploads/2020/12/GWC2065-How-Much-Emergency-Relief-Will-it-Take-to-Revive-the-US-Economy.pdf

To estimate how much spending is needed, we first need to estimate just how deep a hole the economy is actually in. The headline unemployment rate has been tumbling, down to 6.7% from a peak of 14.7%. But the headline unemployment rate misses the story: disguised unemployment. 2/

If we look at the labor force participation rate, we see it has cratered like never before. Many workers have simply left the workforce (the narrow way we define it that is), resulting in an artificially low U-rate. 3/

If labor force participation today were the same as in 2007 before the Great Recession, the U-rate would be 13%! That's a big, big, hole to fill.

Second, we need an estimate of full employment. 3.4% is a reasonably conservative estimate (though from 45-47 we had 1.7% U) 4/

Thus, we need to reduce unemployment from 13% to 3.4%. Using Okun's law, which is a well established empirical relationship in the field, we assume that each additional; percentage point of GDP -> fall in U by 0.4%. 5/

Thus, we can assume GDP gap of nearly 24 points.

Next, we need to think about how far a dollar of stimulus goes. In other words, what's the multiplier? (Or as the civil rights groups used to say, "what's the economic growth dividend").

This is why we present a range of $3-$4.5 T. Relying on estimates from the IMF and CBO, we assume that the fiscal multiplier is between 1 and 1.5. If the multiplier is bigger, we can spend a bit less. If it's smaller, we need to spend more to get the same bang for our $. /7

Of course, how we spend that money matters. Giving it away to corporations and the rich will not only give us little stimulus–CBO finds multiplier of just 0.4-0.6 in these cases–bit it'd also exacerbate inequality. NO THANKS! 8/

On the flip side, sending checks, supporting state and local governments, investing in green infrastructure, schools, etc. is where it's at. Spending in distressed communities goes the further, and supports those most in need. 9/ https://twitter.com/adamshersh/status/1336321359840911360

But what about the debt!? How can we afford it!?

The real question: How can we afford not to save our economy, and most importantly our brother, our sisters, our parents, our children, our loved ones, and every stranger that calls this country home? 10/

But fine, I'll bite. If the multiplier is >1, then the spending pays for itself. End of story. The costs associated with not spending, or spending too little, far outweigh any potential costs of spending too much. Spend to little and we will have a strong double dip R.

Spend too little and millions will remain unemployed, will be evicted, will go hungry, and will see serious longterm scaring not only in terms of earnings, but in terms of their life outcomes (schooling, health, well-being, etc.). 12/

WHat's the worst that happens from spending? We get some extra nice things? More money to decarbonize schools. More money to build public infrastructure that benefits the people? More money in people's pockets who are falling behind on rent? 13/

What's interesting is that most people in the macro policy space agree on this issue these days. It's just not controversial. As I told @EmilyStewartM: 14/ https://www.vox.com/22159023/covid-economic-stimulus-bill-congress

What about the $908 bi-partisan bill being discussed? Well, according to our calculations the unemployment rate would still hover around double digits. It's nowhere near enough. 15/

One final word: There are many lessons we should have learned from the Great Recession. One is that tapping the breaks early is a massive mistake. Congress should ensure stim $$$ automatically renews till we reach full employment. END AUSTERITY. /FIN https://groundworkcollaborative.org/wp-content/uploads/2020/12/GWC2065-How-Much-Emergency-Relief-Will-it-Take-to-Revive-the-US-Economy.pdf