Gary Burtless, Chair in Economic Studies, Brookings Institution
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Gary Burtless holds the John C. and Nancy D. Whitehead Chair in Economic Studies at the Brookings Institution in Washington, DC. He is also a research associate of the Center for Retirement Research at Boston College and of the Institute for Research on Poverty at the University of Wisconsin, Madison. His research focuses on issues connected with public finance, aging, saving, labor markets, income distribution, social insurance, and the behavioral effects of government tax and transfer policy. Burtless graduated from Yale College in 1972 and received a PhD in economics from the Massachusetts Institute of Technology in 1977. Before coming to Brookings in 1981, he served as an economist in the policy and evaluation offices of the Secretary of Labor and the Secretary of Health, Education, and Welfare. In 1993 he was Visiting Professor of Public Affairs at the University of Maryland, College Park. He has served as a consultant on pension reform to the World Bank, as an advisor to the U.S. Department of Labor on evaluation policy and social experiments, on technical advisory panels charged with analyzing the status and reform of U.S. Social Security, and as a panel member of the National Academy of Sciences Committee on the Health and Safety Needs of Older Workers.
A tax cut aimed at spurring job growth is an old and attractive idea. Unfortunately, it is not one that has a conspicuous record of success. The idea seems particularly compelling when unemployment is high and expected to remain high for a long time. The challenge is to craft a tax incentive that encourages employers to add to their payrolls while doing so at an affordable price and without creating unwanted side effects. My reading of the historical evidence is not encouraging. We are a long way from devising a reasonably priced plan with a good chance of success. The closest analogy to the… Read more
The near meltdown of U.S. financial markets in the past year points up the vulnerability of markets to the insolvency of just one or two major institutions. The bankruptcy of Lehman Brothers and the near-death experience of American International Group (A.I.G.) brought the nation’s financial system perilously close to complete collapse. Policymakers have two basic options for reforming the financial system so it is less vulnerable to the failure of just one or two major institutions. First, they can establish rules that shrink the maximum permitted size of U.S. banks and other financial entities. If Lehmann Brothers and A.I.G. had been one-tenth as… Read more
“A crisis is a terrible thing to waste.” - Stanford economist Paul Romer (November 2004) Paul Romer’s pithy and somewhat cynical observation was not inspired by the recent financial crisis. It surely applies to that crisis, however. The fallout from last year’s financial meltdown was so widespread and severe that sensible people hoped poplar revulsion would provide an opportunity for legislators to overhaul financial regulation. Such an overhaul would be especially important in the United States, but reform is needed in other rich countries as well. Fundamental reform now seems increasingly less likely. Since last winter asset prices have partially recovered and the immediate threat… Read more
The most recent CBO forecast predicts a deficit next year of $1.43 trillion, or a bit less than 10% of expected GDP. While this seems like a shockingly big number, it is unlikely to pose an appreciable risk to the recovery. On the contrary, the tax and spending policies that cause the deficit are providing much of the stimulus that has limited the severity of the recession and given us the prospect of economic expansion this year and next. The usual argument against big government deficits is that they boost interest rates and cut the flow of savings into private investment. Falling private… Read more
I reject the basic premise of the question. Neither the 2008 nor the 2009 stimulus package has “failed” or been shown to be a failure. The most recent business cycle expansion reached a peak in the last quarter of 2007. Since that time the number of payroll jobs has shrunk without interruption and total U.S. output has fallen 3.7%. The drop in private personal income was even faster. It fell 4.4% in the six quarters after the end of 2007, a decline of more than $500 billion at an annual rate. At the same time, the net worth of American households fell more than $12… Read more
The personal saving rate has soared in recent months. According to the national income and product accounts, personal saving in 2007, the last year before the start of the recession, was $57 billion. In the January-March 2009 calendar quarter, the annual rate of personal saving was $464 billion, an eight-fold increase. In May 2009, the rate of personal saving rose still further, reaching an annual rate of $769 billion, nearly fourteen times the saving rate in 2007. It may seem puzzling that personal saving would soar at a time of surging unemployment and falling wages and business profits. Private consumers are worried, however,… Read more
For people who do not make their living as economic forecasters, it is hard to make an informed critique of the forecasts prepared by an Administration. Like other observers, I was surprised last winter by the apparent optimism of the Administration and Federal Reserve economic forecasts. It seemed to me (and to others) that the severity of the financial crisis and the sharp drop in asset prices signaled the onset of a downturn that would be much worse than average. The potential severity of the recession did not appear to be reflected in the Administration’s or the Federal Reserve Board’s short- and medium-term… Read more
Two key features of the Great Depression made it “great” - - its severity and its duration. Between 1929 and 1933 real GDP in the United States fell almost 27%. U.S. GDP did not return to its 1929 level until 1936. Real personal consumption declined more than 18%. In 1933 about one out of every four Americans in the labor force was jobless. The National Bureau of Economic Research, which is in the business of dating recessions, estimates that after reaching a cyclical peak in August 1929 the U.S. economy shrank for the next 43 months, by far the longest period of uninterrupted… Read more
Who would have thought one year ago that economists and investors would be delighted when payroll employment fell “only” 540,000 in a month? But it’s true: April’s job loss of 540,000 looks pretty good when the monthly drop of payroll employment in the previous four months averaged 700,000. To be sure, the job decline in the private sector still looked awful in April. Part of the improvement in overall employment loss is explained by a big jump in federal government employment, much of it explained by hiring for the 2010 Census. Even in the private sector, however, the pace of… Read more
Simon Johnson offers a clear and basically sound analysis of the nation’s financial crisis. As is now widely acknowledged, the close ties between Wall Street and the U.S. government played an important role in creating a regulatory environment that allowed financial institutions to become dangerously over-exposed to risk. In a democracy where campaign contributions are vital to lawmakers’ chances of getting elected, it is not astonishing that the biggest and richest industries get the most effective representation in Washington. Nor should it be surprising when handsomely paid representatives of those industries routinely outwit and overmatch modestly paid civil servants in both regulatory and… Read more
The current financial crisis and the events that preceded it do not reveal a new problem in capitalism. They do, however, highlight problems that have been obvious to careful observers for many years, and in some cases for centuries. One central problem underscored by the present crisis is the disconnect between the financial interests of senior company managers and the owners of the companies they work for. For practical reasons, day-to-day control over publicly traded corporations is placed in the hands of company managers rather than the shareholders who own the company. Managers have wide latitude on how to organize… Read more
Since I am not an economic forecaster, I have no special advantage in predicting the future course of the economy. Nonetheless, I have been surprised by the comparative optimism of both the Administration's and the Federal Reserve Board's forecast of economic growth over the next couple of years. An optimistic forecast has a clear short-term advantage. A pessimistic forecast might cause consumer and investor confidence to erode faster, contributing to the drop in private demand. For the Administration there is a second short-term advantage. With an optimistic economic forecast, the budget outlook looks less frightening. The Administration can pay a price for an over-optimistic forecast, however. … Read more
I may have missed the memo in which the President promised he would keep everyone’s taxes low, maintain social benefits, and put the budget on a path toward fiscal rectitude. Because the President obtained his office as a result of a political campaign that lasted nearly two years, it’s likely he said a couple of things that can be interpreted as mutually inconsistent. Still, I don’t think President Obama promised to keep taxes low for every taxpayer or said benefits would be fully preserved for every current and future recipient. In fact, I recall him campaigning to repeal or let lapse some… Read more
Aid for the nation's training and re-training system is a form of counter-cyclical stimulus has so far received little attention. In a recession worker training can serve two kinds of functions. First, it can help equip unemployed and underemployed workers for good job opportunities when the economy begins to recover. Second, it can reduce the number of jobless workers who are looking for work by giving them a useful way to spend their time outside of a Job Service office. Adults who are devoting all their time to upgrading their skills in a training center or college classroom will not… Read more
If policymakers wish to stimulate consumer spending through temporary tax reductions, a cut in the FICA payroll tax offers a couple of advantages. First and probably most important, it is comparatively straightforward and would be inexpensive to administer. It can be implemented with little delay. The IRS does not need to process a year’s worth of income tax returns in order to determine who is eligible and the size of the rebate. Second, a FICA tax cut would reduce the marginal tax on labor earnings faced by workers or employers (or both). This may slightly improve labor market incentives and… Read more
The bankruptcy and liquidation of any of the Big Three automakers would represent a serious body blow to an already weak and declining economy. To understand the possible impact of an automaker collapse, let’s begin with some basic employment numbers. In November 2008 about 830,000 U.S. workers were employed in auto assembly plants and businesses involved with supplying parts for new cars and trucks. Of these, a little less than a quarter of a million workers were employed directly by the Big Three. The other workers were employed in auto parts supply businesses and in foreign nameplate assembly plants. Tens… Read more
Paul Krugman is surely correct that 2009 and 2010 should not be years when policymakers devote most of their efforts to spending restraint and short-term deficit reduction. Almost all observers agree the U.S. is in a recession. Output and consumption are likely to weaken further before they recover. When there are abundant unemployed resources and the government faces very low borrowing costs, it makes sense for the government to increase its borrowing in order to put some of the idle resources to productive use. Next year and the year after are likely to be years when increasing the public debt… Read more
There is a strong case for offering federal guarantees of new loans to the Big Three. However, these guarantees should only be provided if they are accompanied by tough federal requirements that force Chrysler, Ford, and GM to take cost-saving measures that will make the firms profitable in the long run. In addition, federal taxpayers should be given a claim on part of the appreciation in the three companies’ share prices if and when they return to profitability. Note that the 1979 federal loan guarantees to Chrysler met all these conditions. Under the pressure of tough federal conditions, Chrysler emerged… Read more
The President-elect’s tax plan has one big advantage compared with other proposals to stimulate the economy through tax cuts: It represents a permanent cut in taxes for a large proportion of people who pay income and payroll taxes. Most economists agree that households are much more willing to spend out of a change in their net income which they perceive to be permanent than they are to spend out of a change that will last only one or two years. Some macroeconomists claim that the tax rebate paid out to households earlier this year had only a small impact on… Read more
One goal of a sensible stimulus package is to provide protection to Americans who are economically vulnerable and will face elevated risks as a result of a downturn. The first group that comes to mind is the newly unemployed. A recession boosts the number of workers placed on layoff, and at the same time it increases the expected duration of unemployment spells. Because job openings will become more scarce relative to the number of job seekers, laid off workers will have to look harder and longer for their next jobs. For this reason, any serious stimulus package must include a… Read more
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