Prepare for a recession

Recession risks are rising. According to economists and Wall Street firms, the odds of a recession in the next year are nearly 30%. There’s still a good chance the United States can dodge a downturn, especially with all the extra cash on hand that many households, businesses, and state and local governments have after the federal stimulus to fight the pandemic and with the quick rebounds in jobs, home prices and the stock market. But the latest warning signs of a potential recession are a reminder of how unprepared the nation is for another downturn.

Economists have been urging Congress for years to pass “automatic stabilizers” — a fancy way of saying extra federal aid for people who lose their jobs in a downturn — that would kick in if the unemployment rate rose above a certain threshold (for example, 6.5%). This would get help out swiftly without waiting for a sclerotic Congress to act.

Lawmakers managed to move quickly in March 2020 to enact aid for individuals, businesses and the health system. That action kept millions of households out of poverty. The most successful program was the stimulus checks that delivered cash to more than 160 million people by the summer of 2020. The pandemic was unique, however, because it touched everyone. Most recessions require more targeted aid, such as unemployment benefits and food assistance to people who are losing jobs or seeing their businesses collapse.

There is also a glaring need for the United States to overhaul its unemployment aid system. This should be the backbone of any recession response. It failed spectacularly in the spring of 2020 as tens of millions of Americans applied and the systems in most states could not handle anything close to that volume. Computer programs were outdated. What should have taken two weeks took, in some cases, months.

Two years later, the unemployment system is barely better. Congress approved money for states to upgrade their unemployment processing technology, but many of them say it’s not enough. They have spent money trying to fight fraud and have been slower to make other major updates.

Meanwhile, many states have reverted to much stingier unemployment aid in an effort to spur people back to work. If a recession does hit again, self-employed and “gig” workers would once again not qualify for aid in most instances, leaving out millions of people in a time of need. The pandemic laid bare the need for a better and faster unemployment system that reflects the changes taking shape in the workforce. Ideally, it would reduce fraud, speed up processing times and make more Americans who lose work eligible for relief.

No one wants another recession, but one day — perhaps soon — it will come. The time to get ready is now.