The U.S. is not ready for an impending recession

Recession risks are on the rise. Economists and Wall Street companies estimate that the economy is almost 30% likely to deteriorate next year. There is a chance that the United States can avoid it, especially given the extra money that households, businesses and local governments received as part of the federal government’s stimulus measures.

The money was earmarked to fight the pandemic and quickly restore jobs, home prices and the stock market. Nevertheless, recent warning signs of a potential recession serve as a reminder of just how unprepared the country is for another economic downturn.

Economists have been urging Congress for years to pass so-called automatic stabilizers – simply put, additional federal aid for people who have lost their jobs as a result of the recession. They would go into effect if the unemployment rate exceeded a certain threshold (e.g., 6.5 percent). This would make it possible to get help quickly, without waiting for Congress to get its act together.

In March 2020, lawmakers were able to quickly pass a measure to help individuals, businesses, and the health care system. The measure saved millions of households from poverty. The most successful program was the benefit check, with more than 160 million people receiving cash by the summer of 2020. The pandemic was unique because it affected everyone. Recessions most often require more targeted support, such as unemployment benefits and food assistance for people who have lost their jobs or businesses.

In addition, the United States clearly needs to reconsider its current unemployment subsidy system. It should be the backbone of any response to an economic downturn. In the spring of 2020, this system failed miserably, as tens of millions of Americans applied, and most state governments could not even come close to handling such an influx. The computer programs were outdated. What should have taken two weeks, in some cases took months.

Two years later, the unemployment response system was barely better. Congress has approved money for states to upgrade their unemployment processing technology, but many of them say it’s not enough. They’ve spent the money to combat fraud, but have been slow to make other major upgrades. In the past few weeks, Kansas, Michigan and Oregon have just begun upgrading their systems. Other states are predicting it could take anywhere from two years to upgrade.

Meanwhile, many states have returned to more modest unemployment assistance in an effort to encourage people to get back to work. If the recession repeats itself, self-employed and freelance performers in most cases will not qualify for cash benefits again, and millions of people will be left without help in their time of need.

The pandemic has exposed the need for a better and faster unemployment response system that reflects changes in employment. Ideally, it would reduce fraud, speed up processing time, and enable more Americans who have lost their jobs to qualify for benefits.