Former Fed Chairs Testify Congress Must Act Boldly to Prevent Economic “Catastrophe”

Jul 17, 2020
Press Release

Washington, D.C. (July 17, 2020) — Today, the Select Subcommittee on the Coronavirus Crisis, chaired by Rep. James E. Clyburn, held a remote hearing with former Federal Reserve Chairs Ben Bernanke and Janet Yellen.

 

“Today’s hearing made clear that the federal government’s economic recovery efforts so far are not sufficient, and that without further action, we face even greater economic turmoil.  This turmoil will have a disproportionate impact on communities of color,” said Chairman Clyburn in his closing remarks.

 

Chair Clyburn’s Closing Remarks

 

At the hearing, Chair Yellen urged Congress to act fast to prevent a financial meltdown, saying she is “tremendously concerned”  that extended unemployment benefits are just days from expiring and stating, “I think frankly it would be a catastrophe not to extend unemployment insurance.” 

 

Chair Bernanke summarized recommendations from Chair Yellen and himself to protect the economy and working Americans:  “Our recommendations [are] first public health.  That has a very high return—both the medical side and also the safe opening side.  The second is unemployment insurance both because of humanitarian reasons and also because … the unemployed spend a great deal of their income.  And the third would be state and local.”

 

The witnesses provided the following additional testimony:

 

To Fix the Economy, We Must First Address the Public Health Crisis

 

  • Chair Yellen testified, “nothing is more important for restoring economic growth than improving public health.  Investments in this area are likely to pay off many times over.” 
  • Chair Yellen further explained:  “Money spent on public health yields a very high return and it means that the economy can get back on its feet more rapidly.  We can reopen and put people back to work and of course we also save lives in the process.”

 

Congress Must Act Boldly to Address the Scale of the Economic Crisis

 

  • Asked by Chairman Clyburn about the potential impact of capping the next fiscal package at $1 trillion, Chair Yellen stated:  “I would be concerned about capping it when we know that the needs of the state and local governments alone come close to that and a substantial amount will also be needed for unemployment insurance and for public health needs.” 
  • Dismissing the idea of a $1 trillion cap on a fiscal stimulus package, Chair Bernanke stated, “right now I think the priority ought to be doing what needs to be done. As Mario Draghi once said, ‘whatever it takes,’ is probably what we need to be thinking now.”

 

Extending Enhanced Unemployment is Crucial

 

  • Chair Bernanke explained the need for continued unemployment insurance:  “The unemployment insurance has a humanitarian aspect.  We want people to be able to pay their bills and to stay in their homes.  I think also I would add that we need to worry about health insurance which is another thing that happens when you lose your job.  The other purpose of the unemployment insurance is to increase aggregate demand.  People will go out and spend and that will help the economy generally.”

 

Congress Must Support State and Local Governments

 

  • Chair Bernanke testified that state and local governments “are both the first line providers of critical financial services—health, education and the like, and also the big employers, and one thing we learned after the financial crisis was that because of balanced budget requirements at the state and local level, as states and localities saw big declines in their revenues they also had to do serious cuts in their employment and capital investment, leading to a slower economic recovery.” 
  • Chair Bernanke explained that after the Great Recession state austerity measures, “cut a half-percentage point off the growth rate as the economy was trying to recover from that serious recession.” 
  • Asked by Rep. Andy Kim whether funding for states will “create incentives for mismanagement,” Chair Bernanke responded, “No, I think the money can be structured in a way that eliminates that incentive.”

 

The Federal Government Needs to Support Workers and Small Businesses

 

  • Chair Yellen stated:  “I think with respect to small business expenses, an approach that looked promising to me that is in the HEROES Act is an employee retention tax credit. [I]t would exist now, but the HEROES Act expands it.  And for small businesses, it provides a tax credit for expenses other than wage expenses.  And that struck me as a promising approach in terms of supporting smaller businesses.”

 

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116th Congress