How will we know if coronavirus relief works?
By: Heather Boushey
Tags: Economy, Recession, Data, Coronavirus, Congress

How will we know if coronavirus relief works?

The answer is we need to measure it. Here’s how.

This week, Speaker of the U.S. House of Representatives Nancy Pelosi (D-CA) unveiled a new, comprehensive coronavirus relief bill. It is the first and only of such relief packages that would effectively measure how low- and middle-income families are faring amidst the crisis and beyond.

This provision would support efforts by the federal government to determine how gains — or, in today’s stark reality, losses — are distributed up and down the income ladder. That matters because it’s the only real way we can measure the success of whether the relief packages Congress enacts are actually working.

The measure is based on the Measuring Real Income Growth Act of 2019, which has been endorsed by two Nobel laureates, three former chairs of the president’s Council of Economic Advisers, former Federal Reserve Chair Janet Yellen, and dozens of other economists. That bill would require the Department of Commerce’s Bureau of Economic Analysis to break out estimates of income growth into growth for low-, middle-, and top-income Americans, and it’s grounded in a project the Washington Center for Equitable Growth has named GDP 2.0. In effect, it distributes Gross Domestic Product growth so we can see who wins and loses from changes in the economy.

Overall, this proposed fourth legislative package may have some flaws, but it is also a major step forward that provides Congress the opportunity to make a significant down payment on economic recovery. As proposed, the bill would extend enhanced Unemployment Insurance benefits, provide additional relief payments to most families, extend significant relief funds to state and local governments, and increase benefit levels in the Supplemental Nutrition Assistance Program to reduce the hunger and food insecurity accompanying the coronavirus recession. It would also ensure that those working are protected, giving more workers access to paid sick time and providing essential workers with premium pay.

But if all these provisions are enacted into law, how will members of Congress know whether they have succeeded in moving toward an economy where gains (and losses) are shared? Without the proper data, we may not know whether or not the economy has recovered for average Americans. That’s where GDP 2.0 comes in.

To understand the present, let’s look to the past.

This is not the United States’ first economic calamity to trigger a need for enhanced data to understand it. The previous time we had unemployment this high, during the Great Depression, the U.S. Department of Commerce commissioned National Bureau of Economic Research economist Simon Kuznets to develop estimates of aggregate national income. In 1934, he presented his team’s first findings, which offered finely detailed data drawn from independent sources and statistical abstracts across every major industry and relevant government agency.

Photo by Sonder Quest on Unsplash

In 1942, at the start of U.S. involvement in World War II, the first U.S. national income statistics were published. Based on Kuznets’ work, which earned him the Nobel Memorial Prize in economic sciences, these accounts helped policymakers understand what the nation produced and what industries were thriving or contracting. They allowed the nation to marshal its economic resources for the war effort, and ever since, we have used these data to compile Gross Domestic Product.

During the Great Depression and the war, the data compiled by Kuznets and his team helped policymakers navigate the two crises. Then, from the postwar era until 1980, because economic growth was broadly based, GDP growth reasonably reflected economic progress for Americans across the income spectrum.

However, since 1980, the benefits of GDP growth have accrued disproportionately to the wealthy, especially the top 1 percent. We know this because researchers Thomas Piketty, Emmanuel Saez, and Gabriel Zucman have spent years developing and refining the methods to disaggregate GDP so we can see who wins and loses as the economy grows. Their latest data show that since 1980, the richest 10 percent of Americans have captured more than half of all growth in the economy. Meanwhile, working-class Americans with below-median incomes have received just 10 percent of all growth. Since white families are disproportionately at the top of the income ladder, this also means that families of color have been less likely to benefit from economic growth.

Since 1980, the benefits of Gross Domestic Product growth have accrued disproportionately to the wealthy, especially the top 1 percent.

The Bureau of Economic Analysis still releases data on GDP as an overall figure, not broken down for people across the income spectrum. Yet though it appears to take into account the entire economy, increases in GDP largely reflect added income for well-off Americans. This renders it fairly useless for measuring incomes of average Americans. This fact has not prevented economists, policymakers, and the media from focusing on GDP as the single most important measure of how the economy is performing. That attention has been deeply misplaced.

Kuznets himself was well aware of the limitations of GDP. He was always careful to differentiate between the idea of aggregate economic output and “economic welfare.” GDP, he pointed out, was not a measure of well-being.

Since GDP is the metric we have, it’s presented to the public as an important measure of the nation’s economic progress. Yet because it is not reflective of how people across the income spectrum are faring, recent research shows that this attention to GDP skews reporting on the economy to reflect how the wealthy are doing. The press reports as though everyone is doing well, when, in fact, only the wealthy are doing well. As Equitable Growth’s Austin Clemens has written, “Because GDP growth is released frequently and prominently and has a long history as an important indicator, journalists rely on it, and the consequence is that the American public is led to believe that the economy is good when, in fact, it may only be good for a narrow slice of people at the top of the heap.”

With the potential enactment of the Measuring Real Income Growth Act, we have an opportunity now to reframe our national economic conversation to match this moment.

Because of earlier congressional actions, BEA has already begun laying the groundwork for providing these reports. BEA recently released new estimates of how growth in personal income between 2007 and 2016 was divided among high- and low-income earners. This first release establishes the methods that BEA will use to report these data annually, starting as early as this year. Enactment of this new measure will provide BEA critical support as it seeks to give policymakers, academics, and the public the tools we all need to understand how the economy is being experienced by all Americans, not just the wealthy. Ideally, over time, the BEA will work to deliver these data by race and across places so we can truly measure who gains when America grows.

Supporting the publication of distributional accounts — preferably quarterly as soon as that is feasible — is fundamental to the purpose of the next coronavirus legislation. Without the knowledge we gain from distributional measures of income growth, we don’t know if what we’re doing is working. Looking back to the Great Recession, we know wealthy people’s incomes bounced back quickly, while most Americans struggled. Without real-time data, the press did not report on this on a quarter-by-quarter basis. Had we had these data over the past decade, policymakers might have felt more pressure to make sure the recovery was a recovery for all, not just those at the top.

We have a chance to get it right this time. Trillions of dollars are being spent. Let’s make sure the American people get the best possible return on that investment while putting our nation on a path to stronger, more stable, and broadly shared economic growth.

Heather Boushey is President and CEO of the Washington Center for Equitable Growth and the author of the book Unbound: How Inequality Constricts Our Economy and What We Can Do About It.