David Beckworth on Nominal GDP Targeting in the Wake of the COVID-19 Crisis

In this special Macro Musings episode, David is back in the spotlight, as he is interviewed by Claudia Sahm, director of macroeconomic policy at the Washington Center for Equitable Growth, as a guest on her *Stay-at-Home Macro Podcast*. David and Claudia discuss nominal GDP targeting at length, as they dive into what it is, why it’s important, and how it could be implemented in the wake of COVID-19. They also talk about the communication problems related to introducing NGDP targeting as well as David’s proposal for reforming the Fed’s current policies.

Read the full episode transcript:

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to macromusings@mercatus.gmu.edu.

Claudia Sahm: Welcome, everyone. I am excited to have David Beckworth here today for our next episode of the *Stay at Home Macro Podcast.* So today, we're going to be talking about monetary policy and some new research and proposals that David has. David is a research fellow in the program of monetary policy at the Mercatus Center at the George Mason University. David is joining us today from Nashville, where he lives and I have also met with David a few times in Arlington at the Mercatus Center. I like to start out with a brief connection to how I know the guest, the amazing guest that we have on the show, and so David, as many of you may know, runs a Macro Musings podcast series out of the Mercatus Center. Every week he has on distinguished macro economists in both academia and policy world to talk about lots of different topics in macro.

Sahm: I had the pleasure of David asking me early on in the show if I would come on and be a guest. After multiple requests, every one of them denied by public affairs at the board, I am persistent, as is David, and so I've had a chance this last year to be on the show twice. So that is excellent and I am so thrilled to be able to turn the tables on David today and interview him and get him to talk about his research. Why don't we start, David, with you telling me a little bit, or telling all of us, a little bit about how you got started in economics, what your path is. What's your story that got you up to today?

David Beckworth: All right, well thank you for having me on, Claudia. Yes, you were a hard one to catch for the show but I finally got you, so thank you for being a regular guest on the program. So I did not have a traditional path to this profession. I went to a small college as an undergrad that didn't even have an econ degree, although they had some economic courses. I remember taking principles of macroeconomics and it just blew my mind away. In fact, there was a number of us guys, a group of us that hung together, and I was more of the jock in the group and there was some smarter guys in the group and I would blow them out of the water on the tests and they were all shocked and amazed, in principles of macro.

Beckworth: But it never dawned on me this could be a career until I went to work on an MBA. While I was there I was taking some more econ courses and I picked up a book at a used book store called *Secrets of the Temple* by William Greider. He's kind of a populist, kind of left leaning, but it's a riveting account of the Federal Reserve during the Volcker years. It really lit my fire. I was like, "Man, this is fascinating stuff. I would love to do this for a career." This began to slowly dawn on me, I could do this. So I went back to grad school. Probably another big step in my journey was right after grad school, I worked at the US Department of Treasury and that opened up a lot of opportunities for me networking.

Beckworth: John Taylor was my boss several layers up, but he was very accessible, very friendly. Had a lot of smart people around me, some today who've gone on to become PhD economists, too. Just a great experience. It opened my mind to the policy world, took me out of the strict, narrow, mathematical world of macro and really showed me there's a lot more to learn beyond models. So that was a rich experience. Then I went on to some state schools, ended up at Western Kentucky University and I was doing a lot of writing, a lot of policy writing on the side. So I was doing my traditional research and then policy writing and that opened up doors. I eventually got a call from Mercatus and here I am.

Sahm: Yeah, now that's a great story. I think it reinforces… we don't all end up ... We may end up in similar kind of roles, but the paths to it are wide and varied and that's really good.

Beckworth: Absolutely.

Sahm: Because it brings in different experiences and perspectives. So what sport did you play in college? You said you were the jock.

Beckworth: Well, I didn't play ... It was more intramurals, but basketball. Basketball, I love, I still love basketball. There's a group of us who still play Sunday mornings, so Sam Bell and I, another friend of ours, play basketball together.

Sahm: Oh, I didn't know Sam ... I grew up in Indiana so I played basketball all the way through high school.

Beckworth: Oh, you a big college basketball fan then?

Sahm: Yeah. All my family went to Purdue University.

Beckworth: Okay.

Sahm: I love NBA and yeah, basketball's always on at home except not now because, you know.

Beckworth: Right, right, okay.

Sahm: Yeah so next time we are together we're going to play some HORSE. I'll beat you.

Beckworth: Okay, game on.

Sahm: Not competitive or anything. Okay, so no, this is great and I will say, David, you're one of those people that just loves monetary policy and it's rare for me, and Sam Bell's another good example, where I can find people that love the Fed as much as I do and all the gray details and read the transcripts so that's really great. As we're going to get talking about it in terms of monetary policy, it's good to have people who are thinking big and broad because the Fed is facing challenges that it hasn't faced in its whole history. So we need lots of creative ideas and that's why I love talking with you and kind of kicking around ideas. The big idea, the one that I think you are most well-known for is nominal GDP targeting. Can you just give us a basic description of that? What it is, why this is important? Why do we need another target?

The Basics and Importance of Nominal GDP Targeting

Beckworth: Okay so let me give you two ways to think about it in a very hopefully easy and accessible manner. Nominal GDP targeting is a mouthful. It's not probably the ideal way to market it but what it amounts to on one hand is the total amount of spending in the economy in dollar terms. So literally, if we go and we add up all the spending in the US, current value added spending, that is nominal GDP. What a target for nominal GDP does, it says, "Let's keep that stable. Let's don't let it collapse, let's avoid it growing too rapidly." It's stabilized total spending in the economy. That's one way to look at it. Another way which may be even better, easier to think about is for every dollar spent there's a dollar earned somewhere. So if you're stabilizing total dollar spending in the economy you're also stabilizing total dollar incomes earned.

Beckworth: This has also been called a nominal income target or total dollar income target and it's important because people make decisions based on their salaries, what they think they're going to be making this year, next year, the following year. You take out a mortgage, you're implicitly forecasting you're going to have a steady flow of income coming home to pay for that mortgage or car payment. Or if you're a business, do I take a lease out? Do I commit to long contracts for raw materials? All these are based on some implicit, maybe sometimes explicit forecasted income and you want to stabilize that, otherwise you're going to have a hard time meeting these contracts and expectations you've maintained. In the current crisis, I think it's a great application to think about this.

Beckworth: There's some things we can't fix. Monetary policy can't fix the fact that people are sick, factories have shut down, but what it can do is avoid the secondary spillover effects from people who've committed to mortgages, to business leases that will make them insolvent if they can't meet those preexisting financial conditions, and a nominal income target, a nominal GDP target allows them to do that. Where it's different than where we are today is today the Fed focuses on, I mean it has a dual mandate but there's a lot of weight put on inflation and it's a very, kind of keep inflation low and stable where a nominal GDP target, maybe we'll get into this later, it allows a little more flexibility in the near term. What happens to inflation? Over the long term it still stabilizes long term inflation, it's less concerned about inflation in the short term. It's all about stabilizing dollar incomes or stabilizing total dollar spending.

Monetary policy can't fix the fact that people are sick, factories have shut down, but what it can do is avoid the secondary spillover effects from people who've committed to mortgages, to business leases that will make them insolvent if they can't meet those preexisting financial conditions, and a nominal income target, a nominal GDP target allows them to do that.

Sahm: Yeah, no, that's a great explanation. I appreciate you kind of coming at it from two directions. This is one when you see economic commentary like in the newspapers, once a month when the gross domestic product, so GDP report comes out there's a lot of discussion about that. A lot of discussion about real GDP. So price adjusted, inflation adjusted. What doesn't get as much coverage in that report is the Bureau of Economic Analysis also puts out a gross domestic income statistic and that's exactly, GDP is much more aligned with the spending concept, hence you call it NGDP targeting. But the income for every, like the output side of GDP, it matches up or is supposed to match up with the income side, which is GDI. So I agree. I think income is a lot more intuitive to think about and yet, studying consumer behavior for a long time, income and spending match up pretty closely for a lot of people. So two sides of the same coin.

Sahm: Yeah, so why don't, I mean I have tons of questions and things I want to pull out of this, but why don't I let you go ahead and let you get started talking through some of your recent research and explainers. Kind of go more into the details. You have a paper out, I don't know, last year, a little time ago that's called *Facts, Fears and Functionality of Nominal GDP Targeting.* Let's take it step by step, but I think you established the facts in kind of describing it. Is there anything else you'd want to put on the table? Maybe in the current context, how far is the Fed from doing something that looks like a target, like keeping nominal GDP, nominal income, national incomes stable?

Beckworth: Oh, they're a long ways from it as you can imagine and it's not really their fault. This is the huge shock, I don't think any type of monetary policy regime could have handled this immediately. It'll take time to heal from this, but what I'm advocating and what others are advocating is the version of this that will allow the Fed and maybe even force the Fed to be aggressive during the recovery. If I might maybe go into the difference between a level target and growth rate target and apply it to this particular concept.

Beckworth: A level target, and that's what we typically advocate with nominal GDP targeting, is one where you make up for past mistakes whether you overshoot or undershoot. In most cases it's undershooting. We don't have a whole lot-

Sahm: What do you mean by that? What's the level? Is that the total dollars or total income?

Beckworth: Yeah.

Sahm: Okay.

I don't think any type of monetary policy regime could have handled this immediately. It'll take time to heal from this, but what I'm advocating and what others are advocating is the version of this that will allow the Fed and maybe even force the Fed to be aggressive during the recovery.

Beckworth: The level would be the total dollar size of the economy. You think every year it's going to grow a certain amount, maybe 4 or 5% and you can think of 2% real growth, maybe 2% inflation. Let's say roughly 4% over the past decade. You want the dollar size of the economy to stay on that stable path, a growth path or the level, the actual dollar level size. Again, because people have made decisions based on the expectation. Now each person's going to be idiosyncratic, you know? Claudia, you're more productive than I am so you may get a big pay raise relative to me but on average, there's this kind of core component. We all have some kind of anchor amount of dollar income which the Fed, over the long run, can influence. Short run, again, is less control but the idea is you want to preserve those expectations, preserve that level, that dollar amount where we thought the Fed would be and this shock has clearly thrown us off.  Let me explain it this way, I like to use-

Sahm: Before you get going, I get it this shock just came out of nowhere, it's totally massive but if you look back over the last 10 years, say February. If you look from February back 10 years, then does it look like the Fed was doing it the way…

Beckworth: Actually it does. If you take, as a starting point, summer of 2009, it's a pretty straight line for nominal income or nominal GDP. In fact, Carola Binder has a great paper that just came out in the Cato Journal, she gave this talk at the Cato Monetary Policy Conference. She's a great economist. You know her well because I think your research overlaps with hers.

Sahm: She’s great.

Beckworth: She did a paper where she, among other things, she said, "Look, would have been a lot easier if the Fed had just said we're going to adopt a nominal GDP level target starting in 2009 and they would have easily hit it much more so than their inflation target." The point of her paper is a nominal GDP target is a whole lot better in a world of populism, unhappy campers and it's in some ways easier to implement and the Fed could have done better. So yeah, the Fed effectively did something like this not by design but it kind of fell out of what they did. The question then though is the crisis like this or in 2008, can they make up for what has been thrown at them?

Beckworth: That's kind of the big question. To me, this is a big deal and to be fair if there's people out there who prefer an inflation target, there's a version of that called a price level target where you make up for misses in the inflation target but I think it creates problems we get into later. Let me tell the story, if I may, Claudia, of why you want to make up for these past misses. I already alluded to it but this is the way I like to think about it, very accessible kind of a story and that analogy of sorts and that is imagine that a highway is the economy. So a bunch of cars are driving on this highway, cars represent businesses, firms, entrepreneurs and inside the drivers are the laborers, the people who manage the firm. All right, so driving down the highway you want to go as fast as you can but at sustainable pace. You don't want to go too fast and massive wrecks. You don't want to go too slow and waste precious time. You want everyone to be coordinated, doing their thing, driving, getting to their destination at a speed that's maximally sustainable.

Beckworth: So let's just say for the sake of argument it's 65 miles an hour. Maybe in Indiana it's a little bit higher. I know in North Dakota it's like, 70 or 80. But you're driving along at 65 miles an hour and you have to be somewhere and you plan a trip out. You planned to average 65 miles an hour. You get stuck in a traffic jam. A traffic jam would amount to a recession. Everyone stops and there's different reasons I don't want to get into right now but later we can talk about, why you would get in a traffic jam. But a traffic jam, you've got to get around wrecks, people are rubbernecking. There's a coordination failure and you need everyone to kind of take off and get going again. Well, if you're stuck in traffic and you've lost precious time and you want to get to your destination on time, you've got to actually drive faster than 65 miles an hour for some period. Not the whole time but you got to maybe do 75, 85 for a while and then get back down to 65.

Beckworth: So what you want to do is on average have an average speed of 65 miles an hour but that requires speeding up after the traffic jam. The US economy's the same way. During a recession you lose ground and you got to make up for that lost ground by growing the economy a little more rapidly, a little hotter than normal, eventually going back to a normal pace. A level target empowers, it allows the Fed to do that. A growth rate target like inflation targeting, first sign of heat the Fed's going to get nervous and want to hit the brakes and I guarantee this is going to happen. Unfortunately in this crisis because we haven't made it a switch to a level target.

During a recession you lose ground and you got to make up for that lost ground by growing the economy a little more rapidly, a little hotter than normal, eventually going back to a normal pace. A level target empowers, it allows the Fed to do that.

Beckworth: But as soon as we see an inflation go north of 2%, 2.01% you're going to hear calls, "Ah, here it is." You know? It's going to create panic and the Fed's going to feel pressure from politicians, from journalists, from well-meaning people but we should be willing to tolerate a little bit faster than normal inflation and real growth to make up for lost time. A level target does that. In my particular case I want it to be a nominal GDP level target or a nominal income level target. But I think that's a huge deal. I think it's a reason we still should be talking about the Fed's review even though the Fed's punted on it. I understand why the Fed-

Sahm: All right, here, I'm going to interrupt you. We'll get to the ... I know, I'm very excited about the review.

Beckworth: Okay, I'll ... Sorry.

Sahm: We’ve gotten maybe a little maybe off track right now. No, but I really love the analogy of the highway and making up for lost time. One of the things, having started at the Fed in the summer of 2007, being on the staff macro forecasting through the crisis, the hardest time for me at the Fed as someone who was focused on consumer spending and household finances, the hardest time was around 2011. It was in the recovery where we kept saying, and we weren't in this V-shaped recovery, we're going to snap right back. I mean, 2008 was a very severe shock to the economy but there was this, "It's going to recover. It's going to recover." Every time the data come in we're like, "Ugh, it's not there." I can remember doing forecast after forecast saying, "There's no reason to think that American consumers are going to bounce back this fast. One of the things, when I think about your car analogy there's an aspect, "Well you got to put your foot on the gas." Right?

Beckworth: Yep.

Sahm: The car doesn't isn’t just like, "Vroom," and starts moving, and I think there's a lot of thinking in macroeconomics, and some of it makes sense and some of it doesn't, that the economy has a way of healing itself. So if you think the economy just on its own after the traffic jam starts cranking again, then the Fed doesn't put its foot on the gas the same way. That was something as the recovery went on and the Federal Reserve, even though they kept saying, "We're going to get 2% inflation, we're going to get prices rising by 2% a year," and all the way up to February they hadn't managed to do it. That's almost incomprehensible in monetary policy because the Fed should just be able to set prices and eventually it gets there.

Sahm: The staff for years had been telling them, "If you really want two, you got to do more." They didn't but I mean to your point, things by February of this year were really pretty much back on track. It was just a very painful, yeah. I think your idea, and it's one where when I first heard Scott Sumner on his book, *Money Illusion,* because he was one that I could, when I first went online and social media and-

Beckworth: Yeah.

Sahm: Econ vlogs, he was very loud about it. Louder and more aggressive than I feel like when I talk to you but it was just one of those, I've never heard anything like that in taking macro in grad school. Never heard anyone at the Fed talk about it. Even though it has a long history. I mean, Ben Bernanke had written on similar things. It was just part, like it was totally missing from my macro education and the more I hear about it the more I hear, like your work and Carola's and after I finally got over Scott's aggressive, "You're wrong about this." It just, it really kind of grows on you and this idea that it's so straightforward. I mean, relative. It's still monetary policy, the Fed is still hard to understand but this feels like something that one could explain and I love the highway. Okay, so that really helps with the facts and kind of setting it up. So if this is such a straightforward great idea, why doesn't the Fed do this? What are they so afraid of? Or what is it about this that just the people who make decisions about monetary policy are just like, "No way?"

Why Hasn’t the Fed Adopted an NGDP Level Target?

Beckworth: Well that's a great question. Let me answer it first by a little history. So this idea was actually advocated in the 1980s, in fact late '70s, '80s, it was a pretty hot thing. So by no means Scott Sumner or any of us who write on it now are original. This is an old idea.

Beckworth: What happened, at least in my understands of what happened, and I've talked to Jeff Frankel at Harvard because he was a part of this debate in the '80s, still is an advocate of nominal GDP targeting but he said what happened is you had all these people talking about nominal GDP targeting but then what happened is New Zealand, I think the Bank of New Zealand introduced inflation targeting and then it caught on like wildfire. So the interest quickly waned, people didn't care as much. It was all about inflation targeting, inflation targeting. So it had a moment and then it fell. I think the reason it's hard now for it to be widely understood and maybe even adopted is just, it's not the easiest thing to explain off the cuff unless you are like me and you and you spend a lot of time in this.

Beckworth: I can tell you this, I've talked to some senior Fed officials and one of them told me, he goes, "David, I am trying really hard to fall in love with nominal GDP targeting." I said, "Great." I was like, "What can I do to get you past, into the end zone? Past the finish line?" He goes, "How do you communicate it?" That's where I had to really pitch him and sell him on, "Think of this as you're trying to stabilize people's incomes. That's the way you sell it." I think it's framing before nominal GDP targeting, stabilizing demand and that may be a little bit more foreign but if you can approach it from an income side. In fact, I think if you're clever you can pitch it to many groups. If you're trying to reach workers, labor groups, you talk about stabilizing incomes. If you're talking to trade groups you're trying to stabilize revenue sales, you know?

Beckworth: It has a wide appeal and it's just a matter of getting it across. 2011, the Fed actually talked about it, in fact when you were at the Fed, the FOMC talked about it and I don't know how serious they were but Bernanke talks about it in his book, it's in the minutes but they ultimately dismissed it. It's too hard to try at this time. I don't have a good answer other than it was almost an idea that came to fruition in the '80s, it seemed too complicated in 2011 because of, "What is this?" So communication is key and that's why I'm glad you have me on the show to help-

Sahm: Yeah.

Beckworth: …People better understand it.

Sahm: Well I guess one thing, and you know this too, the Fed expanded its toolkit a lot after 2008 because they couldn't push their interest rates any lower, the federal funds rate. One of the items they put in the toolkit was communication policy, forward guidance. I am utterly unimpressed with Fed officials’ ability to communicate anything and to realize, I mean there are studies that have shown that the Federal Open Market Committee, their statement that comes out the day of the meeting, which is relatively short, went from being something you had to have freshman or sophomore level reading skills to like basically having a doctorate degree. It became so incomprehensible. So, I don't know. Personally, I think keeping income steady is a lot easier to explain than price inflation has to be. Monetary policy is a challenge. It's technical.

Beckworth: Yeah.

Sahm: Tools are technical, but yeah, I don't think they get off the hook by, "We don't know how to explain this."

Beckworth: Well I had another Central Bank official from Bank of England talk to me and I tried to pitch nominal GDP targeting on him. He goes, "Oh, come on, David." I was like, "Well how about the nominal income approach?" He goes, "Well what are you going to tell someone whose income isn't growing as rapidly as the average?" But I can throw that back at someone with inflation targeting because when you look at the price of gasoline you're misled. There's always going to be a relative income, relative price confusion no matter what approach you take, you know?

Sahm: Well and looking at stable growth of income, I feel like I know you're looking at in terms of aggregate income. It feels like it'd be much easier to pull that apart and to income inequality or growth at different parts of the distribution. It would be really hard to do that in terms of prices because the vast…. like what people are buying is so different at different levels.

Beckworth: Right.

Sahm: I think it has a lot of potential-

Beckworth: Oh, I agree with you. Absolutely.

Sahm: On that point. I will say as a little Fed factoid, I mean you were really close to getting-

Beckworth: Oh really?

Sahm: …nominal GDP targeting in the real world and I think it was in 2011 when the European crisis was brewing up and the Federal Reserve, I have the utmost respect for them in that they're never out of ammo. Whenever their toolkit was kind of like, "Oh, we've tried this, we've tried that," Ben Bernanke would send out a blue sky email and be like, "Okay, what's next?" I can remember a senior officer who wasn't supposed to tell us this but it was like a readout on an FOMC meeting, said basically if Europe had really struggled, the nominal GDP targeting was next.

Beckworth: Wow.

Sahm: The Fed has been absolutely… they will never do the negative interest rates, much to Miles Kimball's chagrin at the University of Michigan, but there's just, there's all kinds of reason we won't talk about that one but I mean, there was a very serious discussion and-

Beckworth: Wow, I'm interested.

Sahm: …if you you look at the transcript, so you were close. I'm glad that Europe pulled through and they didn't have to do that but I think that just shows how serious that was considered. It will be interesting if the Fed ever does its framework review, like they've been doing a framework review going back and thinking about their tools for the last year. They've been kind of busy with other stuff-

Beckworth: Right.

Sahm: It was supposed to come out in June, and I will be really interested to see how much discussion that got and there's some ... Anyways, we don't have to get into all the technical pieces of it but I feel like there's policies, if not exactly that, are kind of in the spirit of making up for past mistakes or past disruptions in the economy. That's good. You've had an impact, you brought it back in style.

Sahm: Okay, so we've talked a lot about this kind of, like the setup and the pieces and why they haven't but should do it. Okay, so your recent paper, the one that came out in March, about mid-March, so right after the world really started falling apart in the United States, you have a proposal that thinks about this COVID-19 crisis, how nominal GDP targeting could fit in, but it's a proposal. It's a very functional, like you do A, B, C and D and you need all these pieces so can you walk me through what this plan is?

Nominal GDP Targeting, Helicopter Money, and the COVID-19 Crisis

Beckworth: Yeah, so it actually, the idea I presented in a paper late last year that just came out now but it's an idea of giving the Fed a target, a nominal GDP level target as you mentioned, but you give it two different rules based on where interest rates are. So if interest rates fall down to 0% and that is the lower bound for the Fed even though the area could go negative. In all practical purposes, zero is the limit for the Fed. So when you hit zero then what the Fed effectively turns to is the monetary base, starts to line up assets as we know.

Beckworth: But you want to guide those purchases with a level target, whether above zero, below zero but then the other thing I add is to add helicopter drops. So if you hit zero then the Fed gets a standing fiscal facility that allows it to send checks directly to households. My hope is, and my goal is, the Fed would only have to use this a few times and it would make the level target so credible that you would rarely get to the zero lower bound. But in a situation like this, a big, big shock would be very useful and I think as I read the news we see…

My hope is, and my goal is, the Fed would only have to use this a few times and it would make the level target so credible that you would rarely get to the zero lower bound. But in a situation like this, a big, big shock would be very useful.

Beckworth: In fact, I read a story just today that it's unlikely Congress is going to get much done this summer because of the riots, the protests on top of the COVID challenges. That means no more fiscal policy through traditional channels. Well if you had the Fed set up in a rules based, predictable, systematic, you know, it's governed, they could apply that same ability in a systematic manner as long as we're below this threshold of 0%. I think there's a place for that. I know there's some danger involved in giving the Fed that responsibility. The Fed doesn't want that, I believe I've heard that said.

Sahm: So the Fed couldn't do this right now?

Beckworth: Technically, yeah.

Sahm: Has the Fed ever done anything like this before?

Beckworth: Not that I'm aware of. I mean, maybe 1930s they've done stuff, but technically it's fiscal policy and it would need ... I mean, I've heard some clever arguments how the Fed could tap into its equity and send checks out directly but you would be pushing legal boundaries. The most expedient way to do this would be to get approval from Congress and again, my proposal would be have a standing fiscal facility that can only be used in emergencies defined by hitting zero and you're below your target. Then the Treasury Secretary has to sign off on it and then they use it. In some ways it's not much different than what the CARES Act, the Treasury actually signed off, said, "Here's all this money for facilities. Run with it." This would be a more systematic way. I mean, the thing about the CARES Act, what's the Fed's doing now, this is my concern as I mentioned earlier. They're throwing money here and there but there's no guiding framework.

Beckworth: They're going to run out of steam politically. The energy's not there. You need a framework to somehow to put the pieces of the puzzle all together and a level target does that and I've proposed that plus give the Fed, in emergencies, fiscal authority to send checks directly to households.

You need a framework to somehow to put the pieces of the puzzle all together and a level target does that and I've proposed that plus give the Fed, in emergencies, fiscal authority to send checks directly to households.

Sahm: Yeah, no, and I think what you see in that CARES Act and some of the coordination, some of the authority that Treasury gave the Federal Reserve even in March, earlier in March, is the Fed being able to step in and be the lender of last resort. So there were a lot of financial markets, everything from treasuries to mutual funds I mean, just you name it, in March there were a lot of disruptions in financial markets and the Fed, I mean it's the reason we have the Fed, is to be a lender of last resort in a financial crisis. But that's really important in March but that's actually not what we need right now because people don't need loans, businesses don't need more loans, municipalities don't need loans. They need money. Typically money, I mean Congress is the one institution in the country that can just print money, use Treasury as the piggy bank, sell bonds, but if Congress doesn't do that, the Fed has lending authority and that's it as of right now.

Sahm: But as I like to say, money, finance, fiscal policy are helicopter drops. This is essentially like the nuclear weapon of monetary policy. Can you talk a little bit more about… I mean because on one level the Fed just sent money out so this meme of the, "Money printer go brrr." This just sounds like, "Well yeah, send us money." Why do, when you say this around money, macro economy, they're just like… What is it that's so ... What are the risks of doing something like this?

Beckworth: Well when you do a helicopter drop you're effectively expanding the Fed's balance sheet on the liability side but not the asset side. That's a mouthful but effectively you're creating a hole in the finances of the government because you're just literally, not literally, but you're figuratively dropping money out of helicopters. You’re putting it into checking accounts and in the future, let's just say in the future, this money gets out of control and velocity goes up and lots and lots of spending, inflation hits 10% let's say. Well then you want to pull that money in. Well with a ... Normally the Fed would have all these assets it could sell, pull the money in. With a helicopter drop you don't have that. So you're going to have to raise taxes, sell bonds. It's a little trickier, a little more complicated.

Beckworth: That's why I say tie it to a level target. You don't use it all the time. You bring it up to a level target and I believe it would make the level target so credible that you wouldn't have to pull the money back out. If everyone knew the Fed was going to tighten if inflation got too high or nominal GDP got too high, you wouldn't see velocity take off. But the danger is you've literally put money out there without matching assets they can sell to pull it back in in the future and that's something typically Treasury does but not with the Fed. The Fed's very conservative, as you know, and once they have a solvent balance sheet of its own.

The danger is you've literally put money out there without matching assets they can sell to pull it back in in the future and that's something typically Treasury does but not with the Fed.

Sahm: Right, no, and I think just to draw out a few things you had said that maybe would appear to listeners like it's so important, one thing that you mentioned a couple of times is having a rule, right? So there's, like you said, a framework, a target and also your rule tells the Fed when to start and when to stop. In the last year I've done a lot of work on automatic stabilizers, so like fiscal policy, things that Congress would do to spend money like send checks to people and using economic conditions like say an increase in the unemployment rate or the unemployment rate coming back down, to say, "Okay, this is when you start and this is when you stop." Those rules, it's interesting, these are really popular among economists although economists don't actually like to follow rules but they like to tell other people to.

Beckworth: Right.

Sahm: This idea of, it takes ... I mean, we're always going to make mistakes but it means we sit down ahead of time and think about, "Okay, in a crisis, in a severe recession, what should we think about in terms of when it's right to act? And when it's right to stop acting." Because I think you mentioned this before, too, the biggest danger now and I see this too is that we won't do enough, right? I think the Federal Reserve, they've made a very credible, "We're going to do whatever it takes." I think frankly without some of these extra tools and without Congress going in big, the Fed actually can't do whatever it takes or what it takes. But they've made, Chair Jay Powell has made very clear that they're going to keep at this and I actually believe the Fed more and yet when inflation starts moving above two, like it's going to, they're really going to have to clamp down.

Sahm: We saw in the last recession that Congress walked away when the unemployment rate was high and actually they started cutting spending. So we don't have a great track record in DC of doing the right thing. I mean, there are reasons why and people get scared and it's hard to be an elected official. I wouldn't want to be Fed chair. You can understand why it happens but if you plan ahead of time and you have rules, then we can all talk about them, we can run them through simulations and then when the whole world falls apart you got a plan, right? Yeah, so that's-

Beckworth: I agree.

Sahm: Both in monetary policy and fiscal policy and that's something that isn't new but it comes into fashion and goes out and what those frameworks are change over time. But it's a really important principle that is happily getting a lot of discussion. It's kind of-

Beckworth: Yeah, no, in my rule you could say it's in the spirit of the Sahm rule, because effectively my rule is a trigger for fiscal policy to meld with monetary policy temporarily, and it needs a rule just like with your rule. I mean, you'd want to have boundaries set for it clearly because it could be abused but times like this you really need the traction that comes from a rule like that. I mean, it's not just to protect us on the upside from inflation, it's to protect us from the downside we're in right now because like you said, people are losing interest and a rule keeps them focused on what's at hand.

In my rule you could say it's in the spirit of the Sahm rule, because effectively my rule is a trigger for fiscal policy to meld with monetary policy temporarily.

Sahm: Yeah. No, that's really helpful. Okay, so this has been a really good conversation. I do want to… we've gotten people to hang with us on monetary policy and-

Beckworth: Okay.

Sahm: We love it a lot but I'm not sure everyone else can stay with it too long but I do want to give you a chance… what haven't we covered? Or what's the one thing that you really would want to see happen with the Federal Reserve or the one thing you'd want people to understand about what's happening and what needs to happen?

What Needs to Happen in Monetary Policy?

Beckworth: Well again, I would go back to my point about stabilizing the dollar size of the economy. I mean, the way I framed it originally when I wrote a piece about this and I still think about it now is we're fighting a war. There's going to be some big expenditures but those expenditures should be viewed as an investment in our future, not just outright spending. This is not a garden variety recession. This is a war, and you want to spend the money, both fiscal policy and monetary policy, but you want some kind of framework, some kind of guard rail, some kind of direction. How do you spend? How much do you spend? In my view of the world you want to maintain the dollar size people thought they were going to have going into this. So $22 trillion or so. When we start falling below that, we're going to have secondary spillover effects. We can avoid that. That's a policy choice. We can't avoid the fact that some things are scarce, some things are more expensive but we can avoid unnecessary bankruptcies and insolvencies and that's literally some policy levers we could pull, Congress could pull and it's just a choice.

Beckworth: We can choose to make this crisis worse than it is or we can choose to minimize the loss and a nominal income level target would guide both Congress and the Fed. It needs to be right and Steven Mnuchin, when he wakes up in the morning he should see where are we relative to where we should be in terms of nominal income? Same thing with the Chair Powell, that should be what's on their mind every day. "What have I done today to get us closer to where we should be?"

We're fighting a war. There's going to be some big expenditures but those expenditures should be viewed as an investment in our future, not just outright spending. This is not a garden variety recession. This is a war, and you want to spend the money, both fiscal policy and monetary policy, but you want some kind of framework, some kind of guard rail, some kind of direction.

Sahm: Yeah, no, I would love to take down the deficit clock that's in Congress and put up there, nominal income for everyone in the country. That's what they should be looking at every day.

Beckworth: Absolutely, yeah.

Sahm: I think to really emphasize your point, we know what works. This is a choice policymakers have today. You can either do what needs to be done or you don't, right?

Beckworth: Right.

Sahm: I think that's a very hopeful thing. We learned so many lessons from the Great Recession and that wasn't that long ago and we understand that there are limits to the tools the Fed has. I mean for decades economists said, "The Fed's got this, they know what they're doing." Then it was like, "Oh, wow, the tools the Fed have always used actually aren't ..." Either they're not as effective or they just, you were done with them and you had to go onto other tools. So there's a real understanding that oh, Congress needs to act too but in a lot of ways that toolkit had been neglected and thinking about how to do that right but wow, we learned a lot about what to do and what not to do in the Great Recession. In some ways, and you've contributed to that thinking about monetary policy, I have, a lot of other people have and yet it is really hard to watch those lessons not be applied because it's kind of like, "Oh my God, the train is coming again." But you know?

Beckworth: Yeah, yeah. You're right.

Sahm: We're all Keynesians in a foxhole. I keep hoping that we'll pull it out because if we don't… the cost of not getting things back on track are just too big. Anyways, but we're going to keep beating the drum and-

Beckworth: Absolutely.

Sahm: Fingers crossed.

Beckworth: Let me put a little plug in if I may for a measure we have at the Mercatus Center, it's called the Nominal GDP Gap or Nominal Income Gap. But basically it's a measure of where nominal income should be based on what people thought coming in. We look at forecasts, dollar level forecasts and nominal income 20 quarters leading up to the present one and it provides a nice benchmark. It's not some ... It's a nice exercise based purely on forecast, not based on some mysterious R star, U star, or some unobservable variable. It says, "This is where we should be and this is where we are." We've provided it for this very purpose. We want policy makers to wake up again. Steve Mnuchin if you're listening, look at the indicator. See where it is. President Trump if you're listening, you too. I mean, all the above. Check it out. We have a webpage called Nominal GDP Gap. If you Google it, it'll pop right up but it's to push us in that direction.

Sahm: Yeah, well you should, every morning you should Tweet this out. I know Jay Powell follows you on Twitter so I mean, you can at least get it front and center to him.

Beckworth: That's a good suggestion. I haven't been vigilant enough so I'll do that. Thank you.

Sahm: All right. We'll get that number up there. All right, well thank you so much, David. This was a great conversation. I really appreciate you taking some time to share your passion of monetary policy with all of us.

Beckworth: Well thank you, too, it's always a treat to chat with you, Claudia.

Photo by Olivier Douliery via Getty Images

People: 
David Beckworth
Calendar Date: 
Jul 27, 2020
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Libsyn Podcast ID: 
15361157
Subtitle: 
COVID-19 has wreaked havoc on the US economy, and adopting a nominal GDP targeting regime is one way the Fed can appropriately respond.

Claudia Sahm on Direct Payments to Individuals and Other Policy Responses to the COVID-19 Crisis

Claudia Sahm is the Director of Macroeconomic Policy at the Washington Center for Equitable Growth and formerly was a section chief at the Board of Governors of the Federal Reserve System. Claudia specializes in macroeconomics and household finance, and joins the show today to talk about what the Fed has recently done and what fiscal policy can do in response to the economic meltdown caused by COVID-19. Specifically, David and Claudia discuss sending out direct payments to individuals, what the Fed’s remaining toolkit may look like, and how the freshly minted Sahm Rule may be of paramount importance as this crisis continues to develop.

Today’s show with Claudia Sahm is another installment as a part of an ongoing series regarding what the coronavirus means for the economy and for policy. The episode was recorded two days ago, and since then Treasury Secretary Steve Mnuchin has announced that payments will be sent to households in a few weeks, as a growing number of Republican and Democratic senators also pushed for economic relief. This topic is discussed at length throughout this episode, and the Mercatus Center will also be publishing a new policy brief by David Beckworth on cash payments to the public. This policy brief will be added to the show notes upon release.

David Beckworth: Our guest today is Claudia Sahm. Claudia is the director of macroeconomic policy at the Washington Center for Equitable Growth, and formerly was a section chief at the Board of Governors of the Federal Reserve System. Claudia specializes in macroeconomics and household finance, and joins us today to discuss what the Fed has done and what can be done in fiscal policy in response to the economic meltdown caused by the coronavirus. Claudia, welcome back to the show.

Claudia Sahm: Thank you, I appreciate the chance to come back.

Beckworth: I'm glad to have you back on. I wish it were under better circumstances, in terms of the economic environment around us. Very dire times, indeed. Schools are closing, travel is shutting down, people are beginning to lose their jobs, trade is collapsing, entire country is on lockdown. We may be a few weeks behind, at least here in the U.S. We're recording this on March 16th and it will come out in a few days from now. Even today, the stock market hit a record, I believe, third worst day since 1987.

Sahm: The second, second worst.

Beckworth: Second worst day, yeah. So, quite a turn of events over the past few weeks. We've had a few episodes so far on this virus, its consequences for the economy. Just in general, stock markets are down, oil prices are down, treasuries are down. Everything seems to be down, and the outlook is dire. So, a lot of change is happening, and I think both you and I are fortunate in the sense we have jobs where we can fairly easily go home and work. I think our employment is fairly secure, but there's a lot of people out there who may not be so fortunate, people in the service sector, people in retail who may find it much harder to cope. I want to talk about what we could do for them in terms of policy, but I'm just curious, Claudia, how are you adapting to this? I mean, are you working from home? How are your kids adapting? What's going on in your world?

Sahm: So, I mean, we're adapting on a lot of different levels, some more gracefully than others. So, I have been working from home pretty steadily since the middle of last week. There's growing pains, getting the technology, getting the Skype, the Zoom to work, the phone calls. Frankly, it's hard to do work without somebody down the hall to just check in, especially when we are having such trying times, right. So, there's that piece, but I think, I mean, we're adapting, like you said. We have good jobs, I have the capacity to work from home. I mean, sometimes I'm even more productive at home than in the office. So, that's tough, but it's not as tough as a lot of people are facing right now. So, as a parent, so I have two children, my son's in fourth grade and my daughter is a teenager.

Sahm: Today was their first day out of school. The fourth grade son is getting a lot of YouTube education about Pokémon, though I try when I get a break, to get him off and reading a book. One thing about that, though, I will say at a time like this, we really need to take care of ourselves and we need to take care of the people around us. Last week when I took my son to his regular check-up with his therapist, she asked... and I said he’s at school, everybody was washing hands twice a day, and we talked about the coronavirus, I had with him before. His doctor said, "Have you asked him how he felt about it?" So, we asked Henry and he said, "Well, a lot of people are getting sick and this is a threat to humanity," and I was like, "Whoa."

Beckworth: That was pretty heavy.

Sahm: So, he didn't really know what that meant, he reads a lot of fantasy-fiction and stuff. So, I think that's the thing, is we really do need to talk to each other. Everybody handles crisis differently, so it was a real reminder to me. I've tried really hard with colleagues, especially junior ones, and on Twitter, too, to be like, "We can do this." I will say that I'm drawing on experience, I mean, not just as a mom, but when I worked at the Federal Reserve, so I was there, I was a brand-new economist early in 2008, I saw the recession start up, the financial crisis, especially in the Fall of 2008. There were some very scary times, even within the board just trying to catch up and understand and give good advice to the policymakers.

Sahm: I can remember our division director, Dave Stockton, at the time, giving a very clear message to the staff that we had to put our heads down and do the work. We knew how to do the work, it was a not a time to panic, panicking would do nothing to help the situation, and we just had to do our job. So, I've been thinking a lot about that today, because it is, well, frankly, less, three weeks I've been thinking about it. Definitely Sunday night when the Fed came out and brought out the big guns, and the markets still went down the limit, and we still don't have a concerted, large, fast-acting fiscal stimulus package. Watching, like I said, the market drop further today is really hard. I look at all this and I know where this is going, and this is very bad.

Sahm: Yet, me freaking out about it, me freaking other people out about it, is going to do absolutely no good. We are in damage control, we can control damage, and we're going to make it through. Americans, people are the world, we're very creative and we're a hardy bunch. We'll get to the other side, but I am very concerned about the public health, economic, and frankly, we're getting to straining the social fabric. So, we have to take this very seriously, but people are, everybody is waking up. This is a big deal.

Yet, me freaking out about it, me freaking other people out about it, is going to do absolutely no good. We are in damage control, we can control damage, and we're going to make it through. Americans, people are the world, we're very creative and we're a hardy bunch. We'll get to the other side, but I am very concerned about the public health, economic, and frankly, we're getting to straining the social fabric. So, we have to take this very seriously, but people are, everybody is waking up. This is a big deal.

Beckworth: I agree this be a very formative experience for many people, especially young people. Children, they'll remember this as a very unique time in their life, kind of like my age group. I remember the Challenger, nothing quite like this, probably, but there's all these formative experiences, or maybe if you're a millennial, you'll remember 9/11 as a very pivotal development or shock in your life. Even today, I was watching the news conference and I sensed a difference in President Trump's demeanor and his response. He got much more concerned, his answers were much more sober. Even in some of the journalists, I remember one of the journalists asking him, "How long is this going to last?" He said, "I think it could be through July or August," and you could see their jaws drop, if it takes that long to get to the worst of it.

Beckworth: So, this has the potential to be a very sharp recession, and it's, in some ways, different or maybe even worse than the great recession in terms of maybe a short-term severity. Now, we do know there's a light at the end of the tunnel, that this will eventually end because we know eventually, public health with improve and the economy will recover. Between now and then, it could be very sharp in terms of the amount of economic loss and harm done to public health and to the economy.

Sahm: If I could just amplify for a second, I mean, like I said, having had my birth as a macroeconomic forecaster during the great recession, financial crisis, and frankly, a very formative experience for me, was watching the slow recovery. That was a very painful recovery. So, when I look at where the world is moving... and I was happy you said, "We're recording this on March 16th," because every single day, and frankly, hour-by-hour, I'm mentally updating my macro forecast in my head. I think, well, first of all, a preface that anyone who tells you that they know what's going to happen, even next week, let alone six months from now, no one can know that, right. All of us, including people, just lots of people out in the world, we're all trying to form some kind of expectation.

Sahm: What do we think's going to happen and how should we best prepare for it? When I look at everything coming together, I really feel like this is at least twice as severe as the Great Recession, in terms of the contraction that we're going to see. We have economic activity in the United States shutting down. Jason Furman made this point in the op-ed last week in the Wall Street Journal, he said, "Even at the peak of the great recession, we had 10% of labor force unemployed." We are going to have 75%, 80% of the U.S. population at home, or constrained in some... we have entire cities, San Francisco just locked itself down. I mean, this is really widespread. So, I agree with you, I think in that severity, like the hit in the second quarter, stretching, I agree with President Trump, there's dislocation to the summer.

Sahm: So, that's a huge concern, and we have to act fast and go big on this. What I learned from the Great Recession is that the economic damage will last much longer than the shock that took us into the recession. So, in 2008, that was the housing markets, mortgage-backed securities. This time, it is a virus, the coronavirus, we'll beat this thing and the public health crisis will pass, and we will have lingering effects for years. For the people hardest hit, their entire careers and lifetimes are going to be negatively affected by this event. I think that's a real concern for me, the United States does not have a strong social safety net, far weaker than our counterparts in other developed countries. Vast majority of Americans, all the way up to the upper middle-class, many of them have thin financial buffers and have never been ready for a recession, and we are really never ready for a recession that looks like the one that's gaining steam.

The United States does not have a strong social safety net, far weaker than our counterparts in other developed countries. Vast majority of Americans, all the way up to the upper middle-class, many of them have thin financial buffers and have never been ready for a recession, and we are really never ready for a recession that looks like the one that's gaining steam.

Sahm: So, that's why I said, we just got to mitigate the damage, enhance the social safety net, get really creative about how to get support out, and absolutely commit to staying the course. This whole policy pulled off way too early in the great recession and that, we just cannot do that again. That was very damaging.

Beckworth: So, I want to come back to the fiscal policy response in a few minutes, but just again to echo what you said, we are literally bringing the U.S. economy to a full stop. Imagine driving the vehicle, it’s the economy, and then hitting the brakes. That's what's happening, so in some ways, it is far more severe than what happened in 2008. Again, the upshot is, once we get past all of this, we will hopefully get back to something similar. We haven't, hopefully, lost permanently any capacity, though there will be people, like you said, who do suffer damage that may never come out of it. So, it's important to respond fast and hard today, and speaking of that, I want to talk about some of the proposals we've seen today. We will get the Fed policy and what can be done there, but I want to talk about some of the developments we saw today.

Beckworth: Senator Mitt Romney came out and suggested everyone get a check of $1,000 each month until this crisis gets over. So, for example, if the worse part does go through July or August, we'd each get checks during that period. Some others have come out and started that, and I believe that's kind of the spirit we're seeing now and kind of a movement towards getting money directly towards households. Do you think that's the right direction? The right way to go in this crisis?

Direct Payments to Individuals and Other Policy Responses

Sahm: So, I think, and this is true in any recession, we need to be in the “and both” spirit when we construct the economic policy. That's true about bringing in the fiscal policy and the monetary policy, and whatever else we can come up with. Frankly, the fiscal policy should be coming from state and local governments, too. So, this is not a time to try to pick across policies. We want to design any policy we do to be as effective as possible, but we do not want to put all our eggs in one basket. That was a really important lesson from the Great Recession, the American Recovery and Reinvestment Act threw a lot of policies at the Great Recession. Some of them were really effective, like the increase in federal funding through Medicaid, which is referred to as a F-MAP, that was really effective to get money to states, and they needed the money because they were hitting balanced budget requirements.

Sahm: Other stimulus, the way that the money that went to individuals through the Making Work Pay Tax Credit, it was spread out over time and ended up being small dollar amounts. People didn't notice, and frankly, they needed it right away, right. So, there were some policies that worked really well, there were some that weren't, didn't. So, that's why it's really important to think of a whole range of policies. So, I think that payments to individuals, broad-based, just get the money out, it has a number of features that are useful. One is being macro, you can pump a lot of money into the economy that way and very fast, any of these social safety nets, and it is absolutely crucial that we shore up unemployment insurance, food stamps, TANF. Anything that's a part of the social safety net, those benefits need to go up now.

It is absolutely crucial that we shore up unemployment insurance, food stamps, TANF. Anything that's a part of the social safety net, those benefits need to go up now.

Sahm: And extensions, making it more easy for people to get on the rolls. A lot of those programs, like the unemployment insurance, in terms of putting dollars into the economy, that doesn't happen out of the gate. I mean, people are losing jobs right now, but we're not going to be at 10% unemployment for months. That unemployment rate always peaks after. So, we have to think, it's really important to have that support, is so important to help people who are directly hit, but right now, we got to get the money out. We don't know who is going to lose their jobs, we do not know who is going to get sick. People don't know that either, so I mean, they're pulling back, they're trying to figure out what to do. Giving them a little bit of a buffer...

Sahm: $1,000 will not cut it if you lose your job, but $1,000, frankly, is more of a financial buffer than a lot of U.S. households have. So, get some help out, get it out fast. This is a lot of money, but pair it. Don't just do that. In 2008, there was kind of this one-off, here's a stimulus payment. We needed more, right. So, we've had a lot of lessons, we can put it together, but it's going to-

$1,000 will not cut it if you lose your job, but $1,000, frankly, is more of a financial buffer than a lot of U.S. households have. So, get some help out, get it out fast. This is a lot of money, but pair it.

Beckworth: Need to be done right.

Sahm: ... a whole array of polices.

Beckworth: Yeah, a whole array and it needs to be done right. I want to go back to this idea that the payment to households, so the checks that go out, needs to be conditioned on what's actually happening to the households in general. So, something I have proposed, and I think you, too, in your famous Sahm Rule, is you send those checks, conditional on the state of the economy. So, if households are suffering, if we think they are, if there's some way they find an indicator that represents that, we send the checks until things do look better, until we're out of the woods. I think another thing is that we just send them out, we don't try to discriminate, because it's going to be too hard, which household needs it more than the other.

Beckworth: We just have to send them out, because households are churning, who needs it, who doesn't, changes all the time. We just got to do kind of a blitzkrieg of sending the checks out.

Sahm: I totally agree with this. Just to underscore the point, I think targeting on the front-end, right, so targeting before we know who's going to get the hardest, for example, having bigger checks go to lower income households, I think that kind of targeting is very hard to do and do correctly, because we really don't know. Some low-income households, maybe they're a social security recipient and they've saved a lot of money, they don't have wage income coming in, but they've got a buffer, right. So, it's going to be really hard to pick who needs the support most, to just upfront, give everybody a cushion. On the back-end, when we see the distress, when we see people getting sick, when we see people losing their jobs, then you target. Don't target on the front-end. If you get fancy, it's going to slow you down.

Sahm: I spend a lot of time talking about we cannot let the perfect be the enemy of the good.

Beckworth: That's great.

Sahm: We have got to move, and it'll be messy. It's not going to be perfect, but frankly, we don't have time. This is not our only... this is like a frontline. What I'm talking about with the direct payments, this is a frontline, we have to have a much more, not just array of policies, but a commitment to keep at it. I think to one point that I did want to... there's a couple things about the automatic stabilizers, and I've gotten questions. People are like, "Well, but the Sahm Rule hasn't triggered, should we wait?" And I was like, "Oh my gosh, no." I was like, "Just pick your head up and look at the world." The stock market is in free-fall, cities are shutting down, countries have shut down ahead of us, and people are already losing their jobs. I was like, "I don't need the Sahm Rule to tell me that we're in recession."

Sahm: The Sahm Rule has never triggered in the first month of a recession, which is technically the peak. I really think March of 2020 is the highest economic activity that we're going to see for a while.

Beckworth: That's the peak.

Sahm: So, the peak of the expansion is when the recession begins, downhill from here for a while. Recessions end. So, the thing was, is I see the Sahm Rule, for any kind of automatic trigger on and trigger off, as a backstop, right? So, in 2008, when the Sahm Rule turned on in March of 2008, it was not widely accepted or believed that we were in a recession.

Sahm: The Fed was actually... When I was there, Dave Stockton actually turned the recession call on March of 2008. Our forecast meetings went to invite only and these were staff. This wasn't in the FOMC. They went to invite only. We were instructed not to say the R word, recession, in the building, because it was not a widely held view outside the Fed. That's why I said last night, it was a big deal for Chairman Powell to say economic activity is going to contract next quarter. We didn't do that in 2008 because we didn't want to freak out the markets in March. We put the recession call in in March. It came back out in April, before the FOMC meeting. It went back in June, it never came out again. That was a time where the Sahm Rule really would have been, "Let's go. We are in this."

Sahm: Now, this time, we don't need that. I think it should be there. I don't want to slow the process down, but I think this could be a very important opportunity to build in in the legislation that's happening, automatic turn-ons like backstops, and maybe even we use that as a second round that still goes out. If this summer the unemployment rate does what I think it will, and it starts moving up notably, be ready to go with a second check or an extra bump up to safety net benefits. What is really important, and I have been working hard on ... The Sahm Rule is a trigger on. I've been working very hard over the last few weeks on triggers off. I'm really happy with where it's at right now. You need to have something that upfront right now, when Congress passes legislation they say, "We will keep these stimulus programs going until the labor market improves."

Sahm: Now, it’s a question, and what I'm doing with the triggers, not surprising because I think the unemployment rate is such a good way to summarize what's happening in the economy is looking, okay, is the unemployed rate falling? And you definitely want to look at this after it's peaked, and then how close is the current unemployment rate or the unemployment rate at this time in the future, to the unemployment rate right before the trigger happened, right before the Sahm Rule trigger?

Sahm: And you can think about, if you want to get within one percentage point, you're going to run those benefits a while, but maybe two and a half percent is okay. But you want something so Congress has a sense of, "Okay, this is what we're committing to doing." Now they can always ... Congress is an elected body. They can do what they want to do, they don't have to wait for the Sahm Rule trigger, they can send out payments now. If you get out in two and a half percent unemployment, still looks like a lot of dislocation, you can keep them running. But I think this is one thing we learned in the great ... Well, we learned a lot of things, but one of the things we learned in the recovery is that the commitment wanes, the budget deficit, these numbers are going to add up.

Beckworth: So you need to have the rule in place prior to engaging in this operation?

Sahm: Yes.

Beckworth: And I completely agree. You need to have the rule to create predictability, to help households feel confident about the future, to put constraints on Congress for that matter as well, that they will turn it off once we get to the point where the labor market, the economy is doing well. And I completely agree with you. One of my ideas, proposals is to tie these checks, no matter how they're dispersed, to some measure of household income, some measure of household economic outlook. And I think just having those dashboard indicators in front of us, if everyone understood them, it'd be very useful. Congress, the public, listeners of the show, just in general getting the message out that we're committed to do whatever it takes until these indicators improve.

Sahm: Yeah, no, and I think, yes, totally. We need a commitment that has a very good ... part of it's communication, so telling people the government has your back. We are asking you to do things like wash your hands, help take care of other people, stay at home, don't spread the disease, but they need to hear that the government is doing a lot. The government is doing a lot in public health space and the government is doing a lot to make sure that families get back on their feet. So it's important to say that. Commitments we will stay the course are a good way to help convey that and convince people, but you cannot just have words. There has to be money and there has to be effective policies.

We need a commitment that has a very good...part of it's communication, so telling people the government has your back. We are asking you to do things like wash your hands, help take care of other people, stay at home, don't spread the disease, but they need to hear that the government is doing a lot. The government is doing a lot in public health space and the government is doing a lot to make sure that families get back on their feet. So it's important to say that.

Sahm: So this is where [you should be] pairing it. Get it out of the gate, get big money, get money in people's pockets, make sure they know about it and then tell them if this is severe, we're going to keep doing this. Every year, we're going to send out these payments. Every year, we're going to keep the extra unemployment benefits. The extended benefits, the food stamps ... We're going to keep all of this going until things get better. But you can't just say it, you got to do it.

Beckworth: Right, right. So you want some kind of legislation, some kind of policy enacted that ties a specific amount of money to a specific indicator or rule? So I'm sympathetic to that. Again, it's good for communication, for managing expectations, for also tying the hands of Congress in both a good and bad way. But let me ask you this, how regularly should those checks go out? Do you have a sense of that? Mitt Romney suggested $1000. $1000 every month until we have a recovery in hand or every quarter. What should happen?

Sahm: Yeah. So I haven't looked at Romney's proposal carefully, but I thought it was a one-time $1000. But if it's $1000 a month, thumbs up. But I think there's a ... We need to get it out. I think in my proposal, in the chapter, the recession ready…

Beckworth: This is the Sahm Rule proposal now right?

Sahm: The Sahm Rule.

Beckworth: Okay.

Sahm: That once the Sahm Rule triggered, you'd get a check out. Frankly, I think we could do two checks this year. So get the checks out now get the checks out again when the Sahm rule triggers. Then what I said in the proposal, and this was very specifically to thinking about the Great Recession, is if it is a severe recession, the benchmark I use for that is the unemployment rate rises two percentage points or more in the first year. If that happens, so in the years from which the Sahm Rule payments go out, then you repeat them and you repeat them every year until you get this trigger off, like the unemployment rate comes down, and you can decide what that exactly is.

Sahm: So that's a commitment to have those payments go out, and running alongside that, that's where you have the extra amounts in the weekly unemployment insurance, the extended benefit. There ought to be, you can have a whole host of stimulus that runs inside of this.

Beckworth: So in your-

Sahm: Does that make sense?

Beckworth: Yeah. In your vision, you're saying you have this one big check that goes out and then you have all these other supplemental funds that go out through different programs. And then every year, another check could go out if the market, if conditions are still in a bad place until we see recovery?

Sahm: Yes, and severe recessions ... We don't ... This is not every recession, right? So-

Beckworth: But this is an exceptional recession it seems like, yeah.

Sahm: This is, by the criteria I use, this is the '74, '75, the '81, '82 and the 2008, 2009. Those are the three since the 1970s that are big.

Beckworth: Yup.

Sahm: So, that's-

Beckworth: And this is likely to be larger. Again, we're bringing the economy to a full stop. We had this discussion, I don't know, two, three weeks ago. Is this a supply shock or a demand shock? It almost seems silly now given what we've seen happen since then. But just a textbook discussion, you'd say, "Look. Well it is a supply shock. We've disrupted the productive capacity of the economy." But on top of that, we've seen the stock market decline almost 30% since its peak, and we know if that happens, it lowers the wealth of households which then lowers spending. We also know there's a high level of uncertainty which causes business to put off any kind of investment spending. The low interest rates tend to increase real money demand, again lower spending.

Beckworth: So we have all these large spillover effects on the demand side as well as the supply side. And again, we are stopping the US economy, the global economy, in its tracks and we've never done that outside of wartime.

Sahm: Yep. Yeah. No and I think Olivier Blanchard on Twitter today, he likened it to fighting a war. We're fighting a war against the coronavirus. We are fighting tooth and nail to keep this recession, to damp it as much as possible. We're not going to stop this recession. We're not going to turn this recession into the 2001 recession that wasn't that severe. This is going to be a very severe recession. We have faced as a country and as many countries, very severe disruptions. A war is as close as ... That's a very good, I think analogy. The Great Depression was on that scale too, and that's the mindset we have to have. And the thing I applaud Olivier Blanchard for bringing up, he's like, "In times of war, the budget deficit, we just set it aside." It got really high relative to GDP and that's okay.

Sahm: We shouldn't be doing that in normal times, but this is absolutely not the time to worry about adding to the deficit. And it's notable because when he was the chief economist at the International Monetary Fund, when we got into the recovery and fighting the Great Recession was costing a lot of the government a lot of money and in countries across the world, he was part of ... There was a whole group of academic economists and policymakers that said, "Whoa, this is getting too much," and advocated for pulling back on the stimulus. Olivier has come out since and said he was wrong. He understands the situation and so I was very happy when I saw his tweet today because he is reinforcing that we need to go big and he wasn't comparing this to the Great Recession. He was comparing this to war times.

Sahm: So I think that that is the mindset. I feel you're seeing that the ... The world is changing very fast. Every day, every hour, and I take ... It is heartening to see people waking up and there is a chorus of voices that are saying, "It's now," and, well we can do this. We've done this before. This is not insurmountable, but this is a moment that's not like ... This is not business as usual.

Beckworth: It is heartening, but it's taken a good month to see a lot of people wake up and I can speak from personal experience. I won't mention any names-

Sahm: No, I think…

Beckworth: But people in my own community, people around where I live, it's been a bit of a struggle to convince them that this is more serious. It's not just a media generated panic. And for sure, we do overreact, we do race to grocery stores and hoard toilet paper foolishly. But in general, this is a very severe situation. I want to quote a comment by Derek Thompson, a great writer for the Atlantic on Twitter, he put this. It was a great way to illustrate how severe this could get, and he says, "This isn't like the great recession. In some ways it may be worse. It's a sudden stop, like a debilitating blizzard, except the snow storm is global. Some countries have run out of plows and the cold gives pneumonia to one to 10% of the population."

Beckworth: Okay Claudia. So Derek makes a compelling case that this is going to be a very severe recession. Do you have any other thoughts about the whole advanced warning where we were in the past compared to where we are today?

Learning From Past Recessions

Sahm: Right. So I find it frustrating. We're always going to refer to this as the Coronavirus recession. Frankly, I think that's giving too much credit to this virus. We had over six weeks notice of what was happening with this virus. We even three weeks ago, we should have seen, and frankly like you said, I missed some of the earliest signs. I can remember about three weeks ago, Tyler Cowen who is a complete germaphobe, started writing all these posts that were alarming about the Coronavirus. And I was like, "Could you just calm down? You're going to start a panic. We know how to do this health stuff."

Beckworth: Right. You're making it worse Tyler.

Sahm: But Tyler did point out about a week and a half ago that he was right and I was wrong. I was like whatever, but we had advanced warning. Even three weeks ago when it was clear in South Korea and when just as soon as we saw countries like China, the only way they were getting a handle on the problem was to basically shut down economic activity. It does not take a lot of imagination to think, "Oh wow. If that happens here, we are in big trouble." And we have less of a safety net and we have less coordination. There has been a degree of dysfunction in Washington for over a decade. So this is not ... We could have seen and I think frankly policymakers, people who have had a public voice trying to downplay this, they share some of the blame.

Sahm: Now is not the time to point fingers and I believe in redemption and we just need to roll up our sleeves, but we will need to learn something about structures both in the political… and we're also paying for a lot of structural imbalances in the economy. There's a lot of inequality. There's a lack of a safety net, there's a lot of concentration of power, whether it's in the corporate sector...we're paying for this now.

Now is not the time to point fingers and I believe in redemption and we just need to roll up our sleeves, but we will need to learn something about structures both in the political… and we're also paying for a lot of structural imbalances in the economy. There's a lot of inequality. There's a lack of a safety net, there's a lot of concentration of power, whether it's in the corporate sector...we're paying for this now.

Sahm: So I think we had more advanced warning. It doesn't really matter right now. People are waking up and yay, we need to do that. I think there is still a waking up to how precarious the situation is. I think a lot of people were surprised about last night with the Fed. Frankly, I was surprised we hadn't gotten to zero last week, but we got there last night and that was big and bold and I know you want to talk about...

Beckworth: Yeah, let's-

Sahm: Monetary policy.

Beckworth: Yeah, let's move to the Fed's big bold decision from Sunday evening, which all of us were surprised and I think it was the right thing to do. But before we move on, just one last thought on what you just said. I agree it's been a lot of dysfunction. We've been very polarized in this country and who knows, maybe this will be what brings us closer together again. We'll pull down those divisions. We'll work together. This is a war of sorts, we're going to fight against the virus and we'll be unified in our efforts just like we were in previous wars. But yes, the Federal Reserve had some very bold actions last night and I'm going to summarize them here briefly. I'm going to pull from Tim Duy's excellent Fed Watch. If you don't subscribe to that, please do. He's on Twitter as well. He's a friend of the show. He has been on here a few times and a friend of Claudia's and mine as well.

Beckworth: So just a quick summary. First, the Fed effectively cut interest rates to zero. They cut their range from zero to 0.25%. Effectively we're back at the lower bound, or at least the zero bound on interest rates. We might go lower than that. They provided strong forward guidance. They're going to hold rates at zero until they're confident the economy has weathered recent events and back on track the full employment. They have reintroduced quantitative easing, true QE. It's not to be confused with the other QE

Sahm: They don't call it that, but yeah. So whatever.

Beckworth: There's a lot of confusion over that because the Fed has been buying up treasury bills and such to help the plumbing of the financial system, but this is closer to the original QE. The discount rate was lowered, intraday credit was encouraged, loan guidance, reserve requirements were cut and just in general, very bold statement. Now unfortunately, the market was not convinced. It continued to fall the next day, today, and in fact, today they had to pull the trigger where they had the circuit breaker on. Again, as we mentioned, this is one of the biggest losses in one day on the stock market. So despite pulling out the big guns, the markets still had a very rough day today and that's just wealth being destroyed. Again, that's spending that won't take place in the future, even in the present. So again, it means more and more contraction of  economic activity.

Beckworth: So the Fed came out blazing last night Claudia, pulled out the big guns. So my question is do they have any big guns left? So we know Congress, as we talked about, can do some big things. They can send checks out, they can supplement existing social safety net programs, but let's talk about the Fed's toolbox. What is left in the Fed's toolbox? And the reason I ask this is because one, they've lowered interest rates to 0%, at least the short term ones, and they don't seem particularly interested in going negative. And even if they did go negative, there's not a whole lot they can do there. There's some lower bound where people would rather hold cash than some large negative interest rates.

Beckworth: So there's only a little bit more they can do in terms of lowering rates on the short end, and that also seems to be the case in the long end. So if they do QE or a yield curve control, there's not a whole lot of interest rate space left for them to do. Now there's other things they can do. They can buy municipal bonds. Skanda Amarnath has had a proposal out which could provide funding to state and local governments. Legally, they can do this. They have the currency swap lines with other countries because dollars will probably be highly demanded as this gets worse. But it seems like, at least on the surface, its toolbox is getting smaller and smaller, or alternatively, there's fewer tools left in the toolbox. So any thoughts on what the Fed can do or am I just not giving enough credit to what's left in the toolbox?

What are the Fed’s Remaining Policy Options?

Sahm:  Yeah. I have to say, David, you're usually the optimist, but I'm going to counter this. So I understand where it's coming from. I find the narrative or even the point of view ... Let's put stories aside, the Fed is out of ammo or the Fed's toolbox is empty or becoming empty fast.

Sahm: I was extremely frustrated last week, maybe it was two weeks ago when Larry Summers had an op-ed in the Washington Post and he, in his opinion, the Fed should not cut further. This was after they'd done the 50 basis point cut. He didn't want them to take the other hundred off the table. He said the Fed needs ammo and I feel very strongly that that is not the right approach. We have ammo for this very reason.

Beckworth: I agree with that.

Sahm: The flip side of this is I think Larry and a lot of others are being not creative enough in thinking about what the Fed will put in its toolbox. Okay. Remember when the Fed took interest rates to zero for the first time ever in 2008, most of us would look at that and say, oh wow, we're done.

Sahm: That's what they do. And they just stopped. Okay. In the years after that, and frankly in the months after that, we saw the Fed get really creative. Now they've paid a price. So when they use their emergency lending powers and 13(3) it's 13(3)(c) is the very specific clause. When they did that, and I think it's really important to go back and think about the context. I can remember sitting at my desk watching the emergency lending, the bailout go up to Congress, in 2008 Congress voted it down. I mean I saw it on my screen. I was thinking “I cannot believe you just voted that down.” The Fed stepped in very soon thereafter and they did the bailout. This is highly problematic. They had to do it, the financial sector was going to go over the edge.

Sahm: This is very bad. Wall Street, for all its flaws, we need it. You can't let it go under, but the Fed when they did that, they very specifically didn't … they violated the spirit of something a body of elected officials had said, we don't want to do, and the Fed did it. In Dodd-Frank, it is not surprising that those powers were taken away. They have to get Treasury’s thumbs up. They would not have gotten that in 2008 because Congress didn't want it, the administration didn't want it. So that's an example. I think that is the most poignant example of the Fed got really creative. Like I'm sure there were attorneys at the Fed working overtime trying to find anything-

Beckworth: That's why you hire lawyers.

Sahm: That wouldn't be an egregious illegal use of Fed power. But we saw, they did quantitative easing, they've tried valiantly to do communication… this not something economists should be entrusted with, but they've talked about and they've been doing a framework review like they embrace the fact that they need to expand the toolbox.

Sahm: I am confident that they are working 24/7 to figure out how to expand the toolbox just like they did in 2008 and 2009. I understand there are limits. Most of the tools the Fed has, I mean the Fed works through financial markets. It works through nudging interest rates and maybe asset prices. The interest rates, they were low before the Fed did the first cut three weeks ago. So people, it's a cash flow issue. If people aren't spending, if businesses aren't investing, if state and local governments aren't running their programs, it's not that the interest rates are too low and they can't borrow. It's because they don't have any money. I mean in a very Fed speaking way, I mean since Bernanke was chaired, they've basically been yelling at Congress like, please do something, do your job. Or they can't tell Congress how to do their job, they can't give them pointers.

I am confident that they are working 24/7 to figure out how to expand the toolbox just like they did in 2008 and 2009. If people aren't spending, if businesses aren't investing, if state and local governments aren't running their programs, it's not that the interest rates are too low and they can't borrow.

Beckworth: If they want to maintain their independence for sure.

Sahm: Yeah, and it's Congress's job. In a sense that they're also entrusted with this responsibility. The Fed is not elected by the people. The Fed does not get to decide how large sums of money are directly sent out and spent. Totally understand, but the Fed understands they can't do it alone. They have continued to point that, I mean, Congress and administration know deep down that the Fed can't do it alone. And what the Fed did yesterday on Sunday is that we're giving you all we got. Even in our unconventional toolbox. We'll keep working on it, we'll get more tools, we'll push it. And you're right. They have some tools that they like less than others, like the negative interest rates. You know, Miles Kimball would not want me to say this, there are some very operational issues with doing that, but you know what? They're going to do whatever it takes.

Beckworth: Right.

Sahm: I think there are some tools they have never used and I've talked online and in various forms about money financed fiscal policy, which is essentially fiscal policy that either the Fed does, I mean even academics don't talk about the Fed doing it alone. More common, the academic case is that the Fed finances the fiscal stimulus that goes out to Congress. The Fed puts it on the balance sheet, keeps it there. What's referred to as monetizing the debt so that it doesn't show up in the budget deficit for the country.

Beckworth: Yep. No, absolutely. And I like your point in my colleague Scott Summer will be very proud of you for pushing back against my defeatism and I was kind of playing it up to some extent. On one hand, you're absolutely right, there are many things the Fed could still do. I think in my view at least, one of the big things it could do is announce a level target. It could switch to a really firm makeup policy, whether it's a price level target or my favorite, I believe your favorite now, too nominal GDP level targeting, which aims to stabilize the nominal incomes of all Americans. I think that'd be a huge move, a beneficial move at this point in time. And in fact I would encourage Fed officials to move their announcement date up for that.

Beckworth: And you're right, they could do negative interest rates. It's true. And they could do yield curve control like during World War II where they effectively supported... So even if they run out of space on the yield curve, so the 10 year treasury goes to zero, they can still keep it, peg it there and allow Treasury to run large amounts of spending being financed directly by the Fed, which could be put to productive use. But I think first thing I would like them to do is move to a nominal GDP level target and then tweak with these other tools. The cynic in me though says, okay, fair. But ultimately a lot of these tools are all about tweaking interest rates, or pegging them and at some point you reach diminishing returns to that and we've kind of boxed ourselves into a corner because of the secular decline in interest rates.

Beckworth: And again, over the past three weeks or so, long-term rates have fallen. The Fed's been forced to cut the short term rates. And I think we may get to the point where the Fed does have to say, look, we've done all we can Congress and Mr. President, the ball is in your court. You now take the big move. And if Congress wants to give the Fed more power to do helicopter money as you propose and they should make it official, change a law, rewrite the Federal Reserve Act or if they want to do it themselves, they should do it. But I think we'll get to a place where we'll see out of necessity much more coordination between monetary policy and fiscal policy. My only hope is that going back to what we said earlier, it's done in a very predictable kind of rules based way with triggers, with signals that manage expectations that tend to calm markets as opposed to create uncertainty.

The Coordination Between Monetary and Fiscal Policy

Sahm: Yeah, no, and I absolutely agree if there's any kind of coordination between the Fed and the administration in Congress, like in terms of the Fed helping finance or even like you said, helping hold interest rates down, long-term interest rates down so that it's cheaper for Congress to do the kind of fiscal stimulus. If we get to that point. It absolutely has to be based on some kind of a rule. And that is a very dangerous situation for either the Fed to have discretion, they are not elected officials, or for Congress to have the discretion and then the Fed has to follow along and we have a long history in the United States and other countries. Once this starts happening where the President tells the Fed what to do and the Fed listens…but if the Fed listens and they are working together, the incentives, the goals of those, the responsibility of those two organizations are not the same.

That is a very dangerous situation for either the Fed to have discretion, they are not elected officials, or for Congress to have the discretion and then the Fed has to follow along and we have a long history in the United States and other countries. Once this starts happening where the President tells the Fed what to do and the Fed listens…but if the Fed listens and they are working together, the incentives, the goals of those, the responsibility of those two organizations are not the same.

Beckworth: That's right.

Sahm: When they become aligned, we have seen a lot of problems. Right? So I'm very uncomfortable with us getting to that kind of coordination where there aren't rules, rules that nobody can game, like good luck gaming the unemployment rate, the people at those agencies, I mean they would like full on revolt if you tried to get in there and mess around with those numbers. So you'd need to have rules. But even if we had that, it would be such a level of dysfunction if we have not been able to have monetary policies separate from fiscal policy. That would say so much about what has happened in our policy making environment in DC. That just to me, I don't want to go there because it's mixing, I mean I've said it more than once. It's mixing people who are elected, who are accountable to the American people with people who are not elected. They are not accountable. They do their best. They try really hard. They do their job the best of their ability that they do not answer to the American people. It's all kinds of wrong.

Beckworth: Yeah. So you don't want to give them a whole lot of power since they're not really accountable directly to the public. On the other hand though, the danger is you have Congress who is accountable and maybe they want to game it up so they get re-elected. So there's a juggling act we got to do here.

Sahm: Think about it, how we have Federalism in general, you have a Federal government, you have strong state and local governments, which frankly, I mean I should note the state and local governments are the ones really stepping up to the plate. We are seeing some really innovative, creative, forceful, bold responses to the Coronavirus at state and local governments. They are not waiting for the Federal government to get its act together. So just like in terms of on the fiscal [side], we've got the distribution of powers, right? And the President and Congress and the judiciary, there's all of that, well the Fed really fits in that system.

Sahm: It's not elective, but you want all of these pieces going because they do create checks and balances. They do have different incidence, they have responsibilities. If all of a sudden like Congress checks out, there's a problem, if the President checks out, this is a problem, you know? So it's like you cannot expect the Fed to pick that up, that it's just, in talking about fundamental structural problems, that is a big one and that goes way beyond the economy. So, but hopefully this will be a wake up call on a lot of dimensions.

Beckworth: Right. And that is a silver lining here. I think there will be innovations, there will be reconsiderations of what we do and hopefully in a productive direction. I mean there might be innovations from everything from like drone deliveries actually working and getting us goods when we're stuck at home to maybe driverless cars going online, to maybe better governance and maybe we will see some changes. It's one thing to talk the talk, but when it comes time to actually implement change in policies, we need a slap in the face, a shock. And this might be it.

Sahm: We're going to wake up.

Beckworth’s Policy Proposal

Beckworth: One way or the other. One way or the other. Well let me throw at you my proposal. Okay? So my proposal is much more Fed centric and it does get at both a rules based approach, but it also says, look, we are going to be at this point, maybe we are already at this point where the Fed is going to be largely ineffective. And I don't like to use that term but it's going to need more tools in its tool box, put it that way. And so my proposal is kind of a threefold proposal.

Beckworth: Number one, the Fed needs to have a dual reaction function or two rules that it follows. And if it does this, it has to be much more explicit. It has to actually write them down, put it in its statement at the beginning of the year that it does every year. And the first rule says when interest rates are above 0% you follow something like a Taylor rule. So you write down your favorite Taylor rule, put it in there. When the interest rates get to zero or below, you follow the McCallum rule. And this is named after economist Bennett McCallum. And for listeners who may not know, the McCallum rule actually for a while had a running along with the Taylor rule, but eventually the Taylor rule left that in the dust.

Beckworth: But the McCallum rule basically is a rule that tells you how to adjust the monetary base given some nominal GDP target or you could pick any target. But the McCallum rule specifically says nominal GDP. And so once you get to zero and assuming the Fed doesn't want to go negative or can't go very far negative, the only option it has left is just to adjust the monetary base. Well, how do you do it? Do it in a rules based fashion such that you're trying to hit some kind of target. And my third, well that's my first part.

Beckworth: My second part is you use a nominal GDP target, which is implied by this rule. My third part though is to give the Fed via changes in its law, a standing fiscal facility that can only be used once you hit zero. So when the McCallum rule kicks in, it does it with the fiscal facility, such that it sends checks directly to households. So, it's rules-based, it's trying to hit some kind of nominal GDP level target and it's sending funds directly to households.

Beckworth: And if there is a recovery and we get positive rates, we flip back into a normal kind of regime of a Taylor rule. So that may be a little too complicated, but that's kind of the direction I would like to see the Fed go. That would require, of course an act of Congress. And of course the devil's in the details. Well, what kind of indicator, could you really use nominal GDP and maybe not, maybe you use a monthly measure? We talked about this before when you're on the show, maybe use some big data measure of spending, household income, some kind of indicator that tells us whether households are doing well or not. Now you mentioned the unemployment rate, but some kind of measure of household dollar income would be my preference. But I'd love to hear your thoughts on that.

Sahm: I haven't thought a lot about the McCallum rule, like the more details of your proposal, I do completely affirm the idea that we're moving into a toolbox that we haven't used before. And we really need to think about that. I had various conversations and brainstorming about the Fed giving money directly to people, right? So this money financed fiscal policy or you call it helicopter drops, whatever you want to call it. And there is a real discussion about what can the Fed legally do right now? What would Congress have to change to open that up? How would they want to? There are a lot of details once you get into a space we've never done before. But that's… frankly, we should be doing that when we are not in a crisis. A crisis is not a good time to dot all the I's and cross the T’s, you did not have time.

Sahm: You have to act. And when you act fast, you're going to make mistakes. So, I think we should be thinking. I don't know that I'd want to see, and I talked about why I don't really want to see the Fed sending out money right away. I do think, well, I think they're going to have to have framework review 2.0 next summer, and that's a discussion where this is just laid bare that there are much bigger issues than the interest rate transmission mechanism is weaker than it was 10 years ago. So I like that. I think that's a kind of big and bold thinking that we have to have, but that's a big discussion.

Beckworth: Well, with that, our time is up. Our guest today has been Claudia Sahm. Claudia, thank you again for coming on the show and come on back when things have gotten better.

Sahm:  Sounds good. Thanks so much. I appreciate it.

Photo by Alastair Pike

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David Beckworth
Calendar Date: 
Mar 18, 2020
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Libsyn Podcast ID: 
13592372
Subtitle: 
Sending direct payments to individuals may be the most crucial and immediate step the government can take to soften the blow of the coronavirus crisis.

Claudia Sahm on the Sahm Rule and Using Big Data to Inform Policymaking

Claudia Sahm is the director of macroeconomic policy at the Washington Center for Equitable Growth, and was formerly at the Board of Governors as a section chief in the Consumer Community Affairs Division as well as serving on the staff macro forecast. Claudia specializes in macroeconomics and household finance, and she joins the show today to talk about some of her work. David and Claudia also discuss her experience working at the Federal Reserve Board of Governors, the conception of the Sahm Rule, and the importance of big data for economic research and policymaking.

Read the Full Episode Transcript

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to macromusings@mercatus.gmu.edu.

David Beckworth: Welcome to Macro Musings, the podcast series where each week, we pull back the curtain and take a closer look at the important macroeconomic issues of the past, present, and future. I'm your host, David Beckworth of the Mercatus Center. We are glad you've decided to join us.

Our guest today is Claudia Sahm. Claudia is the director of macroeconomic policy at Equitable Growth, and formally was at the board of the governors as a section chief in the consumer community affairs division as well as serving on the staff macro forecast. Claudia specializes in macroeconomics and household finance and joins us today to discuss some of her work. Claudia, welcome to the show.

Sahm: Thank you. I'm so excited to be here.

Beckworth: Well, I'm glad to have you on. We have been Twitter friends for a long time. Been trying to get you on the show, so finally, you have arrived, so glad to get you on board. Now, you've had an exciting career. You’ve worked at the Board of Governors for 12 years?

Sahm: 12 years.

Beckworth: 12 years, so you've been inside the belly of the beast. You've seen it all. You probably have chuckled a few times when those of us on the outside make our comments about the things going on.

Sahm: Mm-hmm (affirmative).

Beckworth: You're probably smirking. Maybe sometimes you're gritting your teeth at us. But here we are. You've now joined us on the outside. You're a director at the macroeconomic policy part of Equitable Growth. This is exciting. But I want to begin the show by asking, how did you get into economics? What made you choose this path for a career?

Sahm: Well, so obviously, I went to undergrad. I went to Denison University, and before I started, I really thought I'd be an English major, so that was in my head. Sometimes before I went to actually sign up for classes and summer orientation, I was like, "I don't really want to do that. I don't want to study what people wrote a long time ago," so when I signed up for my classes, I took an economics, a political science, German, and then a third-year math class. It so turned out that I had a triple major in economics, political science, and German, and I figure after doing an economics PhD, I basically picked up the math. It would've been good to have done an undergrad not at night after being a research assistant.

First of all, I mean, I am a very liberal arts person. I love economics, but I appreciate the political economy aspect, and the education I got at Denison was unlike what I got when I went to Michigan, which, great education at Michigan. I had my advisor, Sohrab Behdad, who was excellent. He was actually my first economics professor and gave me a lot of positive feedback on how I was doing in economics, so I think that matters. There's research that shows that matters, especially for women students. I mean, I got really good grades, too, so I had affirmation in different places. He was a Marxist.

Beckworth: Oh, really.

Sahm: That is his background. He had training that was more traditional at Michigan State. He was from Iran, went back, then had to leave when the politics turned against, and he was my thesis advisor. I wrote a thesis, I was very interested in what was happening in the eastern part of Europe. I graduated in 1998, so it was well past the wall coming down in '89, but I was very interested in the economic transition, and him being who he is, he said, "Well, you're going to go back and study the formation of capitalism, the industrial revolution. Then you'll read Marx, and then ...", so I spent a year reading a lot of history of economic thought. My thesis… I like to impress Brad Delong with the fact that I actually have read up on history, and I did a lot of it. It was a really interesting project.

After I graduated from Denison, I went to Germany and spent a year in Dresden at the Technical University. I was studying economics, and there I was really interested in the transformation, a little more modern-day. Living in Germany for a year, I definitely saw that. My husband, well, actually, it was right before we married. We're now co-parents, but he's from Dresden. I love German and Germany. So I did a full Fulbright, and I will say, that year was the closest I came to not becoming an economist. I thought I'd learn about East Germany. What I did come to understand is the East German economics professors were some of the first to lose their job after the wall came down. In many ways, this makes sense. They were very tied to the socialist government. It was time for a change.

The professors who were there were West German. Mainly, they just came in for some classes during the week and went back home. There was nothing in the instruction that focused on East Germany and its transformation, and I can remember I took their masters-level courses. I was in a class that was game theory. It was all in German. I mean, it wasn't hard for me to find game theory textbooks, and I can do the little trees and whatever, so I got through the class, but I was just like, "This is not the economics that I was taught and fell in love with.

This isn't policy. What is this?" When I was coming back to the United States, I had another professor at Denison, Dick Lucier, who had spent a year at the Brookings Institution. I was really fishing around and applying to HR jobs. I didn't know what I was going to do, and he said, "You should apply to be a research assistant at Brookings." He said, "That's a great place. It'd be a great experience for you." That was the only research assistant application I put in, because this was not something I'd been exposed to.

I was very fortunate. I was hired. Barry Bosworth and Gary Burtless were my senior fellows. They're amazing. They've been extremely good mentors. So, they hired me. That was an amazing year. That got me totally back. I want to be an economist.

Beckworth: Loving economics again.

Sahm: They had me co-author on a paper towards the end, and what I realized is I could do a lot, very empirical, work hard, but I got to a place where I couldn't contribute. There were aspects of the theory and building the macro model, and so I knew I needed to go to graduate school, so I went with a purpose. I found that very important to get through the first year, which reminded me a lot of German. It's very technical and theoretical. Michigan has a strong applied macro program. I did macro and labors of field. Obviously, labor, they have excellent applied labor folks. Matthew Shapiro was my advisor at Michigan. Again, an excellent mentor, so I had a whole string of professors and senior fellows at Brookings who were incredible mentors. I never had a woman economist as a mentor until I was years into the Fed. Now, I feel like I do, and I, you know ... So I really feel like you can be a good mentor and an ally regardless of whether on some demographic dimension or life experience dimension you match up.

Beckworth: So for those out there who have the opportunity to mentor, do it. Take advantage of it. And you yourself are doing this. I've seen this evidenced on Twitter of all places, but you have taken it upon yourself to go above and beyond what you have to do at work, at home, you've got children, that you go and you read job market candidates, their papers, so these are freshly minted PhDs right now on the job market, they're all getting nervous because this is the time of the year when you hope and you pray you get some interviews, and you're helping them. You're taking time out to advise them on their papers, giving them advice, so that's great. That's great that you're doing it, and I know a number of listeners on the show are grad students. They've come and talked to me, so I'll say on their behalf, thank you, Claudia, for doing that.

But any advice you would give them? Because you've been many years inside the Federal Reserve, so some of them might be headed there, or you've been inside the other government agencies. You've toured those as well. Now, you're coming outside. Any career advice you would give a freshly minted PhD?

Sahm: I think especially those who are getting ready to do their interviews, the annual meetings, have an open mind about what comes next in your career. When I was applying for jobs, and so I told my advisor, Matthew Shapiro, "I'm not going to apply to the board." There was something about going to the board that reminded me of the never-ending macro seminar. I loved macro. That seminar was a little different than the labor seminar, and I was just like, "This is a pretty heavy dose of macroeconomics." Michigan sent a lot of people to the board, and my advisor in particular, and I am kind of one of these, I like to be the odd duck and do something different. Those who follow me on Twitter know this, and my colleagues at the board, so I wasn't going to apply.

Matthew looked at me, he's like, "You are going to apply to the board. You'll be a perfect board economist." I was like, "Okay," so I applied. I think that's this open-mindedness, you don't-

Beckworth: So cast your net wide.

Sahm: Yeah, and even when you go to think about jobs you accept, pay a lot of attention to the department. I had some fly-outs where it was really clear early on that it was a viper's nest, and this happens with faculty. Like, somebody has a favorite person. Someone has another favorite person.

Beckworth: Oh, faculty are the worst at times. Yeah.

Sahm: And that should be in the faculty meetings when they go to vote. When you can see that in your job talk, that is a huge red flag. And I also had a university where, in one of my office visits, the faculty member badmouthed their grad students, not being high enough quality. And I'm like, "I am out of here." I almost tried to cancel the dinner, because I'm like, "I'd rather go home and sleep."

Pay attention to that. I had a colleague when I started the board, and she's like, "Well, this is the best job I got. Best offer," and I'm like, "Well, frankly, that's ..." For all of us, right? We go where it's the best, but best has a lot of dimensions to it, and it's feeling like you fit, it fits your life, you think there are colleagues there, more than one, that you'd be close with. I mean, every department's got a jerk in it, and you can stay away from them.

Beckworth: Normally, several.

Sahm: Yeah. So, ask the students. Ask the faculty. “What's it like to be here?” And think about government, private sector and academia. I think some students unfortunately have advisors and committees that are maybe not to a fault of themselves, but they try to create little mini-me’s, so for them, it's the academic placement. That's what you should go for. That was not the mentoring I got at Michigan, but even when I was choosing between jobs at the board and I had some options, I was like, "You want me to be a macro forecaster?" I mean, that wasn't my research, and I couldn't see it, but the people who were hiring me, they could see it. So sometimes, you don't even know where you fit best, and you've got to be open-minded, so I think that's that.

My other big advice is be kind to your peers. This is a high-anxiety time. Economists with PhDs are highly employable, especially if they keep an open mind about where they could go. First step. It's not like it's a job for life. You can go to another job. But it's a really high-stress time, and it's important to find ways to both reduce the anxiety in your own life, like stay off that job market rumors blog because that's only anxiety.  That was my first year on the market, and it created more anxiety for me.

You don't want to see who got the offer at the place you were really gunning for. So, find ways to keep your anxiety level low, and be kind to your classmates. And I will say, you mentioned this, I've been reading these job market papers, which has been so much fun. Like, I don't read widely in macro anymore because I read for my research papers things that we need to cite and be aware of. I work in a lot of consumer consumption behavior. I mean, I've read so many rejections of the permanent income hypothesis, I'm just like, "This is great."

My other big advice is be kind to your peers. This is a high-anxiety time. Economists with PhDs are highly employable, especially if they keep an open mind about where they could go. First step. It's not like it's a job for life. You can go to another job. But it's a really high-stress time, and it's important to find ways to both reduce the anxiety in your own life, like stay off that job market rumors blog because that's only anxiety. So, find ways to keep your anxiety level low, and be kind to your classmates.

Anyways, and I read my referee reports. So again, that ties back to my research. I don't have a lot of time to read widely.

Beckworth: Yeah, we all specialize in areas.

Sahm: When I have research time, I'm writing my research. Anyway, so what I realize, I had asked for all job market papers in macro, and I had so much fun because I was reading really widely in macro. What I had offered them is I would read the abstract, the introduction and all their table and charts, because I believe communication is extremely important. One of my jobs as a section chief for the last two years was to read the papers of my economists. I have to sign off on them before they become Fed working papers, and I had early-career researchers, actually, frankly, some of them were further along, who their introductions weren't good. The technical part of their paper was so sound, and I said, "You know, as a referee, if I'm falling asleep on page five, this is not going to help you." They were getting desk rejects on some papers, and I'm like, "This is your problem."

So I had one person who, he's like, "You made me revise it, like, 12 times." I'm like, "Yeah, you're going to do 13. You're getting close, but ..." So I realized this was a gap in a lot of economists' education, and so I wanted to help these job market candidates, give them tips. I had no idea how much fun it would be. I underestimated that. Second, I had no idea how bad the writing would be, and I read papers from MIT, Stockholm, India, UC, the California's.

I mean, I read them from all over, and they were all bad. The core of their papers were amazing, and they would hide things like their contribution to economics in the fifth sentence of a 10-sentence paragraph, and I was like, "No." So I felt like I had really contributed to them, they were all very thankful. When they asked me as a group, "What can we do to pay this back?" I was like, "You can be kind to your classmates on the job market."

That was a great experience. I think for mentoring and doing work like this, I spend a lot of time on Twitter talking about why I think diversity and inclusion in economics is so important. On a lot of dimensions, but on one important dimension for the economics and the policy advice, and then I thought, "I got to put my money where my mouth is." Time is our greatest asset, so I was like, "Ah. I'll do this."

Beckworth: Well, that's very nice of you to do that, and I'm sure they appreciate it. And I've heard it before too, economists sometimes aren't good communicators, and that's a big part of the battle, right. The messenger might destroy the message in the way they bring the message to the public.

Sahm: Mm-hmm (affirmative).

Beckworth: Well, let's talk a little bit more about the Fed, and then move on to some of your research. I'm just curious, working at the Fed, did you run into Jay Powell and all, "Hey, Jay, how's it going?", or, "Hey, Leal, what's up?" That kind of casual ... Or when you met him is like, "Yes, Governor Brainard?" I mean, what was a typical day like at the board of governors?

Claudia’s Experience at the Board of Governors

Sahm: That typical day has changed over time. I've been there 12 years, and I've seen a change in our culture. That was an intentional change from the very top, and I think that's good. But I came in, my first year, my first forecast at the board was in January of 2008. I follow consumer spending. My first year I did it, and I did well, but it was a mixture of impostor syndrome, all of our models broke, stress does not bring out the best in people, and I'm an emotional person, and watching that data come in and how it was hurting people, and how-

Beckworth: That's rough, huh.

Sahm: And they were being super creative. It just, it was bad. So for me, on a lot of levels, that was a really tough introduction to the Fed. I came in, Bernanke had not been there that long when I came in. There was an aura of Alan Greenspan at the Fed. I started in the summer of 2007. I had some research time, was kind of watching things start to move around in the economy, but I decided, "I need to read Greenspan's memoir, because I got to figure out what this is here." I made it through more of that than I made through Bernanke's memoir. That's another story. The culture was a lot more buttoned-down, much more structured and strict and formal. Bernanke wanted to change that, but he just, what he stepped into, we didn't need to ease up, we just needed to hold on and do the work.

So I was trained, and there's a lot of training. We go to briefer's school before we're allowed to do a briefing in the boardroom as a staff person. We go to a week-long school. We learn how to write the briefings. We are videotaped talking, and then we do a mock briefing in the boardroom, which in some ways is scary because these are our senior colleagues, and that's the first time you sit in there. Anyway, so it's a lot of training. That training goes on. When I did it, it was formal because at that point, the staff briefings, and we do the data briefings, and then before the FOMC meeting, there's a briefing. You have to be more experienced to do the more important ones. They're written, prepared text. We have a meeting where we edit as a group and go line by line, word by word.

Beckworth: Sounds painful.

Sahm: But you learn something. Like, I have the Fed decoder ring now. I know what words mean, and a lot of the words sound like people words, but they have a quantitative meaning. Anyway, so when I started, it was chairman this, governor that, and actually, some of the most obnoxious things that were said to me and hoops I had to jump through would be somebody in my office saying, "The chairman wants this. The chairman wants that. The chairman doesn't care about your research, doesn't care about what you think about monetary policy." Anyways, and those were not pleasant experiences. There was a set of them that were really unpleasant and early in my career, before I knew how to tell people, "Get out of my office. You're being unfair and unkind."

I actually had a set of them because I had emailed Ben Bernanke because the American Economics Association is doing a lot. They put out a harassment policy, and I sent it around at the board because I think it's really important, and especially to my team, I wanted to emphasize, like, "This is a real thing," and so I emailed him to be like, "This is the email I sent around to my staff. I'm so happy you're doing this," and I said, "It's so important because I had these experiences."

I shared some of the things, not in his name, but in his title, and I told him, I was like, "I knew you didn't initiate that, but I also knew if I caught you in the elevator," which, we'd see him, and sometimes he'd sit at lunch with us. "If I'd asked you if he'd ..." The boom would've come down. Not from him, but... So that just wasn't allowed, and that's fine. I knew. But he confirmed in this email. He's like, "I didn't start any of that," and I was like, "I know," but I got yelled at, or scolded, multiple times after I walked out of his office in some kind of a staff… because I didn't use the right words, or I got a little too feisty.

Beckworth: But you're saying it got better over time, that culture?

Sahm: I got better at handling it.

Beckworth: You got better ... Okay.

Sahm: And I think broadly the culture has gotten better. I think we're still very hard on new people, mainly because, I mean, a research assistant hadn't gone to econ PhD. They have not chosen to be in our culture. I like how economists are direct and we fix problems and work. I think there's a difference between being critical and direct and being… undercutting someone and trying to make them feel bad. Anyway, so I think it's gotten better, but it's gotten better because, and I am not alone in this, is because there are many staff and leaders of the board who have put a priority on, "We're going to fix this."

Beckworth: Fix the culture of the Fed.

Sahm: Yeah.

The Sahm Rule

Beckworth: Well, good for you, and you've put forth some effort toward that. Lots of war stories I'm sure you could tell, and maybe we should have another whole episode on that. Of course, I'm sure you want to keep some things close to your chest. Let's talk about some of your work, because you've done some things that are pretty fascinating. I want to go to something that I would think is probably something you've received the most notice, recognition for, especially lately, and that's called the Sahm Rule. That's your last name, Sahm Rule. This is something that you wrote as part of an article for the book *Recession Ready*. The article was titled *Direct Stimulus Payments to Individuals*, and it's a rule. We'll get into what the rule is, but before we do that and explain what this rule is, I just want to explain to our listeners, those who aren't in this econ world. To have a rule named after you is a pretty big feat, a pretty big accomplishment.

Just by comparison, there's a famous economist named John Taylor, and there's a rule called the Taylor Rule, which is huge in macroeconomics. Most central banks in one form or the other follow something like a Taylor Rule, whether they are explicit or implicit about it, and it's named after him. Here's the interesting thing, I was thinking about this in getting ready for the show, Claudia. You're there about a decade, okay, 12 years at the Fed, I'll say a decade, approximately, and you got a rule named after you. John Taylor started, I looked this up, '73. His paper where the Taylor rule comes out is '93, so that's two decades, and it probably took a few years after that article, so it took him two decades. It took you about one decade, so you really have kind of set a pace it's going to be hard to match for anybody else in the future. You have a rule named after you. You've done it at a blazing pace.

This rule now is on Haver, it’s on Bloomberg. Haver is a place you can get your data. Bloomberg, same thing, FRED. All these data sources have the Sahm Rule, so are you pinching yourself and you go onto Fred or Bloomberg and you see this rule named after yourself?

Sahm: Yes.

Beckworth: That's pretty amazing.

Sahm: It was a surprise to me. It was a recession indicator in the book.

Beckworth: So you don't call it Sahm Rule in the book?

Sahm: No, absolutely not. They've blindsided me. So *Recession Ready* was a co-sponsored volume between the Hamilton Project of Brookings and Equitable Growth, so the employer now. The whole book, and I really would recommend it to people who are interested in economic policy and macroeconomic stabilization, so fighting recessions. Every chapter was on a different automatic stabilizer, some of them exist right now, like unemployment insurance, like extended benefits, how to strengthen those automatic stabilizers. My chapter, and there was another one on infrastructure, was taking a fiscal stimulus policy that's often turned on in recessions and making it automatic. I was looking at direct payments to individuals. In 2001, there was a tax rebate. In 2008, there was a stimulus, economic stimulus payment-

Beckworth: Yes, those checks we got from-

Sahm: Right. There were checks, electronic funds transfer. There was money that went out to households in chunks. 2001 was like 500. 2008 was 1000.

Beckworth: But it was kind of ad-hoc is your point?

Sahm: Well, they were what we call discretionary.

Beckworth: Discretionary.

Sahm: So there was a past precedent of it, but there was legislation drafted on the Hill when it was clear the economy was having some trouble, and then it had to pass Congress. Often in fighting recessions, everybody gets on board. Especially when a recession starts, this is not typically a time of partisan bickering. But it takes time. It takes time to draft legislation. It takes time to get it through Congress. One of the things, and seriously, the public servants at the Internal Revenue Service and Social Security Administration should've gotten a medal for how quickly they were actually able to do the logistics.

My proposal was to make these automatic. To make something automatic, you have to have a trigger that says, "Now it goes." This could all be agreed in legislation before, when we're not in a recession. There's actually been a lot of interest recently in maybe we could do this. Well, maybe we could. Or, there's a whole volume now that you could pull off the shelf when it does like a recession and get going on legislation.

My proposal, I think it's really important, another aspect of the automatic is you would give time for the logistics to be put together. The government actually does not have, and this may be a good thing, the address, the bank account, of every American, so they had to pull ... I mean, the IRS has information because they do the tax returns. That's timely. The 2008 went out to retirees, people who didn't have a tax liability. Social Security Administration, they cut checks, they know where people are. You had to have collaboration. No, this was more 2001.

You can only push out so many checks. The government can only cut so many checks in a week, so there were just all kinds of logistic things. In my chapter, and I talk about this, we could get this ready. If you had a system in place, it wouldn't be a mad dash. You could turn them out during tax season, which was impossible in 2008.

In any case, I think there's a lot to be gained, and I drew on the research that I've done on fiscal stimulus since 2008. I studied the 2008 tax payments, or the stimulus payments, making work pay, which was tax credits that went out over time, and then the payroll tax cut. I had to follow this literature because this was stuff we put in the forecast, so I had learned a lot. I had a lot of opinions about how to do stimulus, and really, that was the core of my chapter. That was what I thought I was writing the chapter for, but of course, you need this trigger.

I kind of knew this would work from the beginning. I spent many a Saturday morning fiddling with this thing. I eventually pulled the real-time data, so data that was available at the time, because that's a much more legitimate test. When I presented it the first time at an author's conference, it was either late January, early February, and Jay Shambaugh, who'd been the member I worked for-

Beckworth: A previous guest of the show.

Sahm: ... When I was at the Council of Economic Advisors... Oh, yes. Jay is great. He said, "Claudia, this is good." Because he'd worked on something in early 2016 when the economy wasn't looking so hot, so he was at the council, and so he had kind of fiddled around, and even Jason Furman, who was the chair then, he's like, "Half a percentage point. This is bad." But I knew this from working at the Fed. If the unemployment rate rises a small amount, this is not a good sign.

Beckworth: Tell us the trigger. We're kind of walking around it. What actually is the Sahm Rule, and what is the trigger amount?

If the difference is half a percentage point or more, we're in a recession, so this is not a forecasting device, this is an indicator that says, "We're in a recession, and we're early in it." It triggers two to four months. This is helpful because at that moment in a recession, we don't know we're in a recession.

Sahm: Okay, so what I do is I take the monthly unemployment rate, I calculate the three-month average, so the current rate and the two prior. Why do that as monthly data? Any monthly data's noisy, so you don't want to overreact to little ups and downs, so take the three-month average. Then I look at the current month, and I compare it to the low of that same series over the prior 12 months. So I take 13 months of data [for] this comparison. If the difference is half a percentage point or more, we're in a recession, so this is not a forecasting device, this is an indicator that says, "We're in a recession, and we're early in it." It triggers two to four months. This is helpful because at that moment in a recession, we don't know we're in a recession. Because at the National Bureau of Economic Research, there is a recession dating committee, which is not a fun-sounding dating committee. This is a group that sits down, very senior economists who work in macroeconomics, I think largely or all academics. I don't think there's any government economists.

What they do at that time, and they do not call recessions until 12 months, more afterwards. And at that point, they have a whole host of data that they look at, including the unemployment rate, and they will choose the month in which the recession started, and then they will later choose the month in which it ended. This is important news, but 12 months into a recession? I mean, we should still be doing stimulus, but this is not the first time you want to push something out to the economy, and so you can't wait for the dating committee. You also… there's a very common belief, which has some basis to it, that two months of negative GDP growth is a recession. Okay, so there's a problem with using that also as an early recession indicator because GDP growth, that's quarterly, it takes time, it gets revised. When you've got two months of negative GDP growth, you're also well into it.

12 months into a recession? I mean, we should still be doing stimulus, but this is not the first time you want to push something out to the economy, and so you can't wait for the dating committee.

Beckworth: I was going to say, that's quite a delay, six months. I mean, that's ...

Sahm: Yeah. So that's a tough one. What I used works. The thing that really caught attention, there were a few things that caught attention. One, there are no false positives. Since the 1970s, when it turns on, we're in a recession.

Beckworth: It's always worked. Yes.

Sahm: It's always worked. There is a case after the 1975 recession where it kicks back on, but in my proposal, that's one of the big recessions, and I not only have a stimulus payment go out at the beginning of the recession if it's a big one. In '75, 2008, obviously, I think '81 or something like that, they were all big. They had more than a two-percentage point increase in unemployment in the first year. This is bad, bad. So for those, I said, "Okay, once that happens, you're going to send out a check every single year until the unemployment rate comes down not to its pre-recession level, but gets a lot closer." So for me, my policy, we were still into the cutting checks when this thing went a little bit above .5. In any case, no false positives. And this actually was a design principle, and I thought this was important, I talked about it in the chapter: it is so simple. It's the unemployment rate. That is the most followed national indicator, and it matters.

To me, that is the core of why a recession is so bad is people lose their jobs. That is really a problem. In the recession, many households do not have a lot of money sitting by the side, and certainly not to cover months of pay. So it's bad in recessions, and there is a lot of research that shows this. If you lose your job in a recession, it takes a long time, and maybe even has a career negative effect. So to me, the unemployment rate is just where it's at in terms of thinking about a recession. It's easy to calculate, it's a monthly series, it comes out very soon after the month is done, and frankly, I think the transparency is important.

To me, that is the core of why a recession is so bad is people lose their jobs. That is really a problem. In the recession, many households do not have a lot of money sitting by the side, and certainly not to cover months of pay.

Beckworth: Yeah, and I think what makes this appealing probably on both sides of the aisle is what you're proposing, at least in the way I see it, is a plan that makes it systematic, makes it rules-based, makes it predictable, and of course, the goal would be to actually do it now. Get Congress to maybe legislate this now so as you head into a recession, you're prepared. In fact, I would argue if you have a rule like this in place, it might actually reduce the severity of a future recession. Just the anticipation that there's going to be that backstop, people will be less likely to get panicked, to hoard funds, to save more, cut back on spending, so on many levels, just the preparation, the mental psyche part, that would be useful.

Beckworth: Okay. Yeah, so I talked to your now current boss, Heather Boushey, about this. We interviewed her about the book. She agreed that one of the things you want to do is to get these ideas in play now ahead of time, systematic, because we know what will happen. What will happen is Congress will do something, and I think particularly so now that interest rates are getting low, my worry is the Federal Reserve's going to be very limited in the next few recessions. In fact, the minutes from the past few FOMC meetings, the staff forecasts have the Fed basing the effective lower bound, zero. They can't cut their rates, and it looks like long-term rates are going down as well, so the Fed, I think, will be kind of limited in what it can do with conventional tools, so what you're proposing is a predictable, systematic way of addressing it instead of having Congress make things up on the run and hoping it works.

So I hope they take it seriously, they think about it, they're proactive. With all that said, though, I want to go back. How did the name come about? You had this great idea, this great trigger. The Sahm Rule, the now-famous Sahm Rule, is about the trigger, not the whole package. You have a package, how it works. I think that's the point you were making, but let's play this up. I mean, it's a rule named after you. Who called it the Sahm Rule? Was it Jay Shambaugh that called it the Sahm Rule, or someone else?

Sahm: I've gotten some of the history from Jay, but again, they totally blindsided me at the launch event in May. I was going to be a panel in the middle. Karen Dynan was going to talk to me about the book. Everyone else who had a chapter, there were two other panels. They open the event with kind of a fireside chat with Christy Romer and Ben Bernanke, because they were very key players. Christy was the head of CEA, and Ben was obviously the Fed chair. Even in that talk, that first one, the Sahm Rule came up somewhere in there, and then it started. I'm sitting there, and I'm like, "What's happening?"

Beckworth: "Hey, that's my rule."

Sahm: Jay told me later that they actually had been calling it internally the Claudia Rule, but then they decide before the launch event, they had to get it a little more serious…

Beckworth: One syllable.

Sahm: Well, and to tie it to my last name, which is more unique than Claudia. Anyway, so I'm sitting there, and they also know I'm not the kind of person that would've named it after myself, so it was kind of fun, I think, to watch me want to crawl under my chair. But after the event, Christy Romer, I was talking to her for various reasons related to my proposal and some of the comments she made in the panel.

That was all recorded. I think it's a really nice event, especially that beginning, to listen to. After the event, I said, "Oh, the Sahm Rule," and she looked to me, and she's like, "Claudia, you have got to own this. Any man economist would own this," and I was like, "This is true. I've never heard John Taylor push back on the Taylor rule," so I've tried really hard. I have gotten pushback. I've gotten pushback from the staff.

Beckworth: Really?

Sahm: I can come back to that, the Fed. But what's hilarious, and this is… I think everyone should have an ego check, having a teenage daughter is an excellent ego check. She said a few things. When it came out the first time and it was getting some attention, she was like, "Mom, that's dad's name, not your name." We're co-parents now. I was like, "Well, child, I kept it because I like to have your last name." Anyways.

Beckworth: Brutal.

Sahm: So then, like, two or three weeks ago when it got more coverage, I think this was when the Wall Street Journal article came out, we were driving home in the car, and she looked at me, and she's like, "Mom, are you worried that you've peaked with the Sahm Rule?"

Beckworth: Wow.

Sahm: And I was like, "Wow, child."

Beckworth: Mean.

Sahm: Later, she was like, "Well it was a question,” And I was like, "Still," but I looked at her, and I told her, I said, "I aspire not to be a one-trick pony, but if this is the only trick I've got, I am proud of this one."

Beckworth: That's a great one.

Sahm: So, yeah. Teenagers are great. The ego is in check. I still am amazed at the reception. I was amazed at the reception at the event. We had a discussion before with a lot of the contributors, and a gentleman who has worked for decades in economic policy in DC, not monetary, but a lot of advising on fiscal policy at a research think tank, and he told me, he's like, "When I heard about your rule," this half a percentage point increase, he's like, "There was no way that can work," and he's like, "Then I saw it does." That was a clue to me that something I knew that would work, I mean, I didn't know exactly what the formula would have to be, but I knew it was going to work, and I had people with a lot of experience in policy, like, "I had no idea." So I was like, "Okay." That's why it's gotten the reception. That's why it didn't use three databases.

And like you say, I don't expect the automatic stabilizer policy to go into place before… I don't expect this to happen now, but people are following the Sahm Rule, so they'll be in awareness of when the economy is starting to have trouble. I had an individual who works in the Ohio government who said they're thinking about using it to tie some of their safety net adjustment…

Beckworth: Oh, really?

Sahm: I was just floored. Now, the reason, there was a Wall Street Journal article that in the headline, Kate Davidson wrote this, whoever is her editor I want to send a thank-you-note to, because the headline was amazing, but the end of the headline was, "The Experts Agree: Ask Claudia Sahm." Okay, this ran. I got a lot of emails at work about this.

I am sure that if those experts were 80 percent Fed economists, former Fed economists, there's no way if you asked them they would say Claudia Sahm. Which is fine. Again, remember, I thought it was obvious. I never worked on the labor forecast at the Fed. Andrew Figura was my first group manager. His research is in labor. After this event and the Sahm Rule, when I was like, "Oh, people are paying attention to this," so I asked him, I was like, "Andrew, did I scoop the inside Fed rule? Because I know there's this increases..."

He's like, "No, Claudia." He's like, "Our go-to is a three-tenths increase." I was like, "Thank goodness. I didn't scoop." At that point, it wouldn't have been the Sahm Rule. If I had scooped it, it was going to be the Fed rule or something, and so I was like, "Okay." Now, at that point, I knew three-tenths has false positives. I mean, I'd spent enough time with that spreadsheet, and I know where at least one of them is at, and so I was like, "Okay." But you did, like, small increases, and I'm like, "That's fine." You do that. I remember at the time in the press, and I think even someone had mentioned to me on a deep background call with the journalist, he said, "Well Bill Dudley has a three-tenths rule, so like yours isn't special."

And I was like, "Yeah, okay, nice person.” He didn't write an article about me. And I actually got an email from Bill Dudley like a week or two ago. And the subject line of the email was, for what it's worth, here's my three-tenths rule I put it in a Goldman Sachs newsletter in 2000, 2001 and he did a little screenshot of the Goldman thing, highlighted the sentence, he'd written and then there was a table. A table, not a chart of like how it worked in recession. I didn't reply to him. I don't plan to, this is an opportunity to the world to reply to him. And it really encapsulated a lot of things that I had trouble with at the Fed and are part of why I feel pretty good about having left the Fed. 

One, I mean, I really don't appreciate this. Like you're doing a good job. I'm going to undercut your work, but whatever, that's an ego thing. And not saying that he has an ego, but I mean, I've seen this pattern before, so whatever. And okay, I know I have no false positives, right? So, and I know his three-tenths does but it's a good rule. Like in print, there's a lot of shared principles, so fine. The piece I had the most problem with was telling me it was in a Goldman Sachs newsletter and private sector macro people, they're important, they're great, it is important. The financial sector knows what the heck is going on in the economy. But that gentleman who works in the Ohio government, I would lay good money that he does not get the Goldman Sachs newsletter. I got attention because people didn't know about it outside the Fed or outside of the places Fed bank presidents and Fed staff go to work. So I understand that and there's a lot of examples-

Beckworth: That's a great point though, that....

Sahm: ... In the Fed.

Beckworth: That the few people have access to those newsletters from Wall Street and you're kind of like tearing down that veil, opening the veil that everyone now has access to the truth. So great, great stories and great rule and we can talk a lot more about this, but it's in the book *Recession Ready* and we'll provide a link to it in your article on the webpage for the podcast. So Sahm Rule is great. Again, kudos to you for not just having a rule named after you, but a practical rule that can make the world a better place if it is paid attention to along with your proposal that goes with it.

Sahm: Thank you.

Beckworth: But I want to move on to something else you've done and you talked about being a one trick pony, but that's not you. You're being very harsh on yourself because you've done some interesting work with some colleagues at the Fed, I believe. And this is using big data to inform policymaking. So I believe the paper, you have an NBER working paper and you have a bunch of notes, that surrounds this. It’s not the only thing, but I think your big paper, correct me if I'm wrong, is *From Transaction Data to Economic Statistics: Constructing Real-Time, High-Frequency, Geographic Measures of Consumer Spending.* And that paper constructs kind of a real-time measure of economic activity spending, I believe based on credit cards and transactions. So talk us through that. How would it be useful for policy? How would it be useful to FOMC meetings, for example?

Using Big Data to Inform Policymaking

Sahm: Yeah, so the working paper, which is a little bit of a mouthful with its title, so that's our method's paper. It will appear as forthcoming in the NBER, has a volume called Big Data for the 21st Century. I think I'm getting that about right. And that volume has… we're contributing to that. Another flagship, a big data project at the board using ADP data. So looking at labor market, it has a chapter, many different government agencies, Bureau of Labor Statistics, Bureau of Economic Analysis. Many of them have these big data where they're taking private company data that was not intended to be an economic statistic and they're transforming it into something that can be used potentially in official statistics. And in our case, our statistics are developed primarily for internal use. Like we're years away from publishing these on, I mean the Fed publishes economic statistics. We might get there, but not yet. 

So what this project is, and I've been working with an amazing team on this. So Aditya Aladangady, Shifrah Aron-Dine, she was actually a research assistant at the time and now is at Stanford for her PhD, Wendy Dunn, Laura Feiveson, Paul Lengermann and myself. That basically makes up the consumption analyst researcher group at the Fed. And we put aside a lot of our research time over the last three years to pour ourselves into this data. As you note, there are several Feds’ notes. We needed some output and we also needed it… I mean those Feds’ notes have a corollary of inside research, most of them. We also needed to do that to show these data can be used in policy settings. And the chapter has a lot more details on how we construct these.

We use the economic census to make sure that there's a representativeness to our data and that's really important for policy work. The numbers matter, not just the sign. So we did a lot of work. We partnered, I mean First Data gets a lot of credit for being willing to share their payment data. We did an in a very-

Beckworth: So this credit card and debit card transaction data?

Sahm: It's basically any card swipe. So First Data, they partner with merchants, those little machines you have to stick your card in. Many of them, not all of them, are First Data merchants or partners. So we get cards swipes, we get credit cards, debit cards, we get electronic benefit transfer cards. And so we have all this data, massive amount of data. First Data is a large payment processor and they had partnered with Palantir as their technology partner. So Palantir for just First Data's use was doing things with the data so they could make judgements about their business model.

So we worked with Palantir, we had an amazing programmer, Dan Moulton, who was the lead there in helping us transform the data. We worked with a lot of Palantir staff over time and we got it to a good place. So as two examples where this has been used, the first was in 2017. We used the data to do real time tracking of hurricane Irma and Harvey for the FOMC. I was writing Teal Book at the time, so I guess Harvey was first. I was writing Teal Book, which is our big forecast document that goes to the FOMC. And we had a section we added to that about the hurricanes. The data are extremely granular. They're daily data, they're geographically specific.

Beckworth: And they’re measuring transactions.

Sahm: Well, in what we do, the transactions are the underlying data after a lot of filtering. We create series that are comparable to the retail sales data that comes out of census.

And we didn't benchmark to them, but we're doing our comparisons to see how good the data were. We'd go to the place where there's overlap. So census, it's national, it's monthly. We spent a lot of time on seasonal adjustment. But then once we were comfortable with that, then we would use the granularity in our First Data series. The fact that it's daily, it has geographic specificity and we get that data within two days, three days. So-

Beckworth: It's amazing.

Sahm: Yeah, no, it is totally amazing. So when I'm working on this, writing it up, I mean, it's so exciting. We stuady weather a lot. And I'd never been able to do it in real time and I'd never been able to do it in real time for the FOMC, I will say, and this is the power of these data and I really wish everybody, particularly outside of the government, thought harder about what the ethics are of these data.

I can remember sitting at home revising the draft on my computer and I had the New York Times. I'd flipped over to it online. And it was the story about the woman who they found like floating through some drainage ditch holding her baby above her. The woman had drowned and the baby was alive. And I'm sitting here so excited about these data and people while I'm writing this up are in a really bad place. And we were actually instructed by David Wilcox, who was the division director at the time, that what we wrote up had to be sensitive. Like it could not, just in general, how we were talking about the hurricane. We did that. So it's really powerful data.

Beckworth: This is I guess where I see great opportunity here. So it sounds like this real time data has already been fed into FOMC meetings.

Sahm: There's another really good example. So this was this year in 2019, there was a federal government shutdown. That shutdown affected Census so they could not publish retail sales when they normally would. And even after the shutdown ended, they were delayed on their publishing because their source data and getting a survey and they would just, everything got thrown off. We had the First Data, this was a time where the economy was being a little uncertain and we were able to give that to the FOMC. They didn't have the official stuff. We look at a lot of data, so there's other stuff we could look at, but it's a real, the official statistics were the best thing we have. And if they're not there, there's a little bit, I don't want to say flying blind because I don't want to scare anybody, but it was really helpful to have those data and we didn't have that in the last shutdown.

So we had that and it was like, wow. And that is detailed in our working papers. I don't want [anybody to] think that I'm leaking stuff here. But that shows how powerful those data are. I do want to close with one point. Partnering with private companies can be difficult because they're there for profits. Totally important. I'm an economist, yay. Profit maximization. In the government putting these statistics together we're trying to create public goods. Those are not the same thing.

Partnerships happen because somebody in the company gets it. Like we've got information this can help the world. People changing companies, the cost of it is actually realized and then those partnerships fall apart. I don't know of a single big data effort within the consumption space… and these are academics… that hasn't shut down at some point because the match gets lost. So we are in a position where we are not going to have access to these data at least near-term. So we're working on it, but we've had to rejigger and we're high maintenance. And-

Beckworth: I guess kind of my couple of thoughts on this, my big kind of takeaway, to me, it's kind of surprising that we still use data based on surveys. I know the traditional data after several revisions is good, but to make policymaking in the 21st century seems like big data would be the first thing we turn to. I mean I understand it is still being developed. There's all kinds of seasonality. There's new different types of activity being done. There's a lot of issues to work through. But I would think this is something we would do already. I've heard many stories of hedge funds who use this type of data, credit card transactions, debit card transactions. I've heard of satellite lays, satellite pictures to measure economic activity. So my hope is that at some point policymakers will get to the point where that's kind of like their First Data they have, it's real time, they can see what's going on and you're making a valiant effort to get us there.

But it sounds like there may be some bumps along the road, which leads me to the second point I would make is, and again this is an outsider looking in, you can correct me here, but the Federal Reserve has a budget and it seems to me if they really wanted the data they could find the funds to make this a more reliable source of information. They could pay partners to get this anonymized information in. I mean they remit a lot of money back to treasury. They could take some of that and pay a vendor to regularly send this data. I mean, JPMorgan Chase has its big data set, I think it’s 64 million, 14 different metro areas. I mean getting a partner with someone like them or this vendor you mentioned earlier. I think that's essential. It's useful putting the government into the 21st century and how it makes decisions. Your thoughts?

Sahm: So I'll start with your second point, but I do want to come back to the first, because I disagree with you on the first. So we do pay First Data and Palantir for the data and is not trivial. I mean this is amazing data. So I mean we should get to the value of the marginal product. Well, money can be enough, but there are constraints on the Fed's data budget and it's large, but I mean we buy a lot of data because data's important. All kinds of data. So actually I will come back to your first point. I love all data. 

A lot of my research is using survey data. We just ask households directly. What'd you do with the stimulus, more or less? The official statistics are so important. So like retail sales where it's a firm survey, those are really important. The economic census… Well, many of those surveys to firms are mandatory reporting. That's important. 

I love big data. I love this idea of taking information that's just being kicked off by the process of doing data or doing business. I think that we should try to combine the data and use each to its comparative advantage. So I think that’s a lot of what we see right now in the landscape. I do agree that big data needs to be more developed, needs to be more integrated in official statistics where it's more helpful than the surveys. So I'm all on board with an integration. I'm not sure, I think it'll be a long time before the weight falls more on the big data. But let's see.

I love big data. I love this idea of taking information that's just being kicked off by the process of doing data or doing business. I think that we should try to combine the data and use each to its comparative advantage. So I think that’s a lot of what we see right now in the landscape. I do agree that big data needs to be more developed, needs to be more integrated in official statistics where it's more helpful than the surveys. So I'm all on board with an integration. I'm not sure, I think it'll be a long time before the weight falls more on the big data. But let's see.

Beckworth: Fair enough. And I know there's some big concerns also of using big data, even if you had this world that I'm dreaming of here, the problem is you're measuring like nominal transactions. You're not measuring value added. I mean, growth, GDP is value added. It's final sales and we're looking at total activity. So there's some conceptual problems.

Sahm: There are projects. So there's a project in the opening of this volume that looks at price data, right? So there's an understand we need prices that each of the chapters is focusing on a different sector of the economy. So there's this effort going on. I did want to say one more thing on your second point. So I was on a panel at the National Association of [Business] Economics. They have a tech conference that was in Seattle, this is recently, David Wessel organized a panel on using private data for economic statistics. So I was invited to be on the panel and I talked about this, our biggest challenge right now is getting these partnerships figured out.

It is not a technical problem. We do figure out how to create the statistics. It's just official statistics, or frankly the Fed. We can't rely on stuff that we think it's there and then it's not. And then there's this holdup problem because you double…anyways, so he gave this talk and I was kind of grumpy but I told him like, "Hey, I'm a macroeconomist, you're getting grump." And I also said, this mismatch in goals is that it is not my life dream to teach private companies how to monetize their data. Because we were basically helping them create data sets that they can sell to Goldman. They can sell to Wall Street, but their goal is not create public goods. So I get it, we just have different incentives and we can find partnerships that work.

And I also said, this mismatch in goals is that it is not my life dream to teach private companies how to monetize their data. Because we were basically helping them create data sets that they can sell to Goldman. They can sell to Wall Street, but their goal is not create public goods. So I get it, we just have different incentives and we can find partnerships that work.

Like I'm really happy with First Data, like what they have given us an opportunity to do. Okay, so then it gets to question and answer, because it's a tech conference. They come up on the iPad to David Wessel and someone from the audience is like, "Well, why doesn't the Fed just tell the companies that they have to give them the data?" And I was like, yeah, I'm on the West Coast. You all don't think too hard about burden. It's like that would be such a nonstarter and get the Fed in a lot of trouble. But it could be that we work… maybe industry groups come together and pool data and maybe there's a way to take the data and give it back to the companies in a way that's helpful for them. So I have hope, but these are not simple answers.

Beckworth: I wonder if the Office of Financial Research as part of Dodd-Frank with FSOC... I wonder if they could play a role on this somewhere.

Sahm: Well, in one of our earlier big data projects, and we've done several and this is the first one that worked. I mean we learned a lot from the failure. So I think that was good. We had one project where we were using the Y14 data and that's data that after Dodd-Frank, the Federal Reserve had the authority to collect. And it's also granular. It's like banks reporting monthly account balances. It probably gets a lot closer to what JPMorgan Chase has for data except it's more of a universe. Again, it's collected for supervisory purposes. It is not collected to create a twin to retail sales.

So there is regulatory data and the agencies, they're working with administrative data to do their big data project. There's a lot of issues about sharing data even within the government. IRS data doesn't go to a lot of other people for very good reasons, but it can be very helpful as administrative source for say income. So it's a really exciting area. I am so blessed to have gotten to work on this. And the Federal Reserve… this is an important mission that they have and there's multiple projects going. They're putting the resources behind it.

So it's a really exciting area. I am so blessed to have gotten to work on this. And the Federal Reserve… this is an important mission that they have and there's multiple projects going. They're putting the resources behind it.

Beckworth: So they are working on this.

Sahm: Yeah.

Beckworth: Yeah. So I mean I guess what my dream would be to make this concrete and clear as possible as one day we'll have something similar to the Billion Prices Project at MIT where they're scraping data off the Internet and they have this index of a billion prices I guess. They construct an index that looks a whole lot like the CPI, but it's real time. So one day we will have the billion transaction index along those lines. And I think it's hugely important because I think back in2008 when GDP was coming out in the second half of the year, we were in a steep fall, the economy. But the GDP data didn't show it until it was revised the next year. So you needed some kind of other indicators to push the Fed a little harder to move way more aggressively.

But with that said, you've been on the front end of this effort and you've done a lot of work and we appreciate what you're doing and what you continue to do and we'll look forward to more progress on this.

Beckworth: Well with that, our time is up. Our guest has been Claudia Sahmn. Claudia, thank you so much for coming on the show.

Sahm: Thank you.

Beckworth: Macro Musings is produced by the Mercatus Center at George Mason University. If you haven't already, please subscribe via iTunes or your favorite podcast app. And while you're there, please consider rating us and leaving a review, this helps other thoughtful people like you find the podcast. Thanks for listening.

People: 
David Beckworth
Calendar Date: 
Dec 2, 2019
Podcast Series: 
External People: 
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Libsyn Podcast ID: 
12236720
Subtitle: 
The newly minted Sahm Rule may be a crucial development for identifying and responding to economic downturns in the future.