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In open letter to Congress, Dean Rouse and U. professors call for further economic relief

Cecilia Rouse
Former SPIA Dean Cecilia Rouse.
Jon Ort / The Daily Princetonian

Several University-affiliated economists — including Dean of the Woodrow Wilson School Cecilia Rouse — have signed a letter urging Congressional leaders to pass an economic relief bill in the wake of the “parallel health and economic crises” caused by the COVID-19 pandemic.

From 2009 to 2011, Rouse served on President Barack Obama’s Council of Economic Advisers.


Congress has already passed three emergency coronavirus bills: the Coronavirus Preparedness and Response Supplemental Appropriations Act, the Families First Coronavirus Response Act, and the Coronavirus Aid, Relief, and Economic Security (CARES) Act. 

The CARES Act, which was signed into law on March 27, is a $2 trillion investment that includes historic provisions for investments in the healthcare system, a small business rescue plan, and direct payments to American workers. 

As the bill will expire in July, over 100 prominent economists have called for further governmental action. 

Spearheaded by Rouse, former Chair of the Federal Reserve and former University professor Ben Bernanke, and president and CEO of the Washington Center for Equitable Growth Heather Boushey, the letter calls for a new relief bill to include “at a minimum, continued support for the unemployed, new assistance to states and localities, investments in programs that preserve the employer-employee relationship, and additional aid to stabilize aggregate demand.”

“The initial extended benefits that were provided by the initial CARES Act are scheduled to run out, so it is important that a new bill is passed … because obviously those who lost their jobs are not going to get their jobs back within the time frame of the initial bill that was passed,” economics professor and Julis-Rabinowitz Center Director Atif Mian, who signed the letter, told The Daily Princetonian.

Mian explained that the new bill must address two main concerns: insuring the unemployed and providing support for local and state governments.


“It is important to provide support to those [who have lost their jobs], who tend to be on average lower-income households, income protection,” Mian said. 

He also described how supporting the unemployed can benefit the entire economy. When people lose their jobs, they lack usable income, which can result in demand headwinds, slowing down economic growth and causing a short-term exacerbation of the overall economy.

Rouse voiced similar concerns in an interview with the ‘Prince,’ arguing that employment levels in the United States will continue to rise if no action is taken. 

“In the Great Recession we had aggressive fiscal policy when unemployment peaked at 10 percent, which is lower than what we have now,” Rouse said. “If this were another recession, we would be saying, ‘this is really, really bad.’”

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People have cited the recent decline in unemployment, from 14.7 percent in April to 13.3 percent in May, as a success. In Rouse’s view, however, this improvement does not indicate economic restoration.

“With social distancing ... we’re not snapping back to the economic levels we had in January or February,” Rouse said. 

Economics professor and former Federal Reserve Vice Chairman Alan Blinder ’67, who also signed the letter, discussed the need to implement unemployment benefits, but in a different manner than in the CARES Act.

“We need to keep the extended coverage, and we need to keep a higher level of benefits,” Blinder said in an interview with the ‘Prince.’ “But the problem with the original CARES Act, which was not such a problem in March but has become a problem now that the economy is reopening, is that there’s a $600 bonus on unemployment insurance checks. Now for somebody who earns $500 a week, and there are such people, adding $600 if you stay unemployed is paying you more to remain unemployed then to go back to work. That’s not a very sensible policy anymore.”

Blinder has proposed two solutions. One is turning the $600 bonus in unemployment insurance check into a bonus that incentivizes returning to work. The other is to boost unemployment benefits above normal, but by a fixed percentage instead of by a fixed dollar amount. Regardless, he believes that failing to renew unemployment benefits would amount to “cruel and unusual punishment.”

The increased unemployment rate has also led to a sharp decrease in state and local tax revenue, at a time when state and local governments desperately need funding for necessities such as COVID contact tracing. Because they operate under a balanced budget environment, local governments cannot spend money as fluidly as the federal government, which can run deficits and borrow money. 

“So that is why you need the federal government to provide [local governments] with support or line of credit in the short term for them to tie over these few months,” Mian said. “Think of it like insurance. We have to, as a society, insure one another for these few important months to make sure that the initial shock does not exacerbate.” 

While the CARES Act did provide constructive economic assistance, Blinder, Rouse, and Mian all agree more attention should be paid to the details of implementing a new bill. 

“The problem with the CARES Act was that it was a trillion dollars and put together rather hastily, and I think we can do better,” Rouse said. “The money needed to go out quickly, but we also need accountability.”

The Paycheck Protection Program (PPP), a major component of the CARES Act, offered forgivable loans for businesses that would keep its employees, Blinder explained.

He added, “some of the money went to businesses that probably didn’t need it, [and] some of the businesses that needed it didn’t really have the understanding to apply for it.”

Last month, the House of Representatives passed the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, a $3 trillion relief package. The Senate has yet to ratify the bill.

“I do believe that we need something ambitious that is commensurate with the scale of the problem, which is really big, and I think that the HEROES Act largely hits a lot of the right areas,” Rouse said. “I think this Senate is unlikely to pass the HEROES Act as written … although really I believe that it is an important piece of that legislation. They [the House and Senate] can work it out in conference [committee]. I’m more concerned that they recognize the urgency, and that we’re in this for quite some time.” 

Other signatories of the letter include Nobel Laureate Michael Spence ’66, Harvard University professor Jeremy Stein ’83, and economics professor Janet Currie.

Learn more about the role of government in COVID-19 response from The Daily Princetonian’s video interview with Dean Rouse:

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