Earlier this month, Dr. Heather Bullock, one of social psychology’s foremost experts in the areas of poverty and economic inequality, assumed her role as president of SPSSI. Dr. Bullock’s stewardship of SPSSI is well timed, as the U.S. and global economy enters a new period of uncertainty heading into 2025.

Transitioning out of the COVID-19 pandemic, the United States economy has been comparatively strong, experiencing higher-than-expected GDP growth and near-full employment (Irwin, 2024). In welcomed news, the benefits of the post-COVID economy have been greatest for lower-wage workers. Thanks to a tight labor market, gains among younger, non-college workers contributed to a dramatic decline in wage inequality, even after accounting for inflation (Autor et al., 2023).

This outcome was not an accident. Emergency COVID relief, the bipartisan infrastructure law, CHIPS and Science, and the Inflation Reduction Act injected trillions into the U.S. economy. Previously deficit-cautious policymakers had come to embrace Big Fiscal, a policy strategy that prioritizes big, fast, and broad actions to protect employment and the social safety net during economic downturns (Sahm, 2024).

There were, of course, tradeoffs. The robust fiscal response likely contributed to higher inflation, though supply chain factors and price gouging were a significant, potentially larger cause as well (Shapiro, 2023). Inflation has been, to say the least, massively unpopular. Despite low unemployment, shrinking inequality, and wage growth, the U.S. public is unhappy with the post-pandemic economy (Nadeem, 2024).

I often worry about the lessons policymakers are taking from the past four years. In departing from classic neoliberal paradigms, policymakers made more progress towards achieving progressive goals of full employment and wage equity than any point in the past half-century—and for that they have paid a massive political price.

In the next recession, will policymakers deem Big Fiscal too great a political risk, opting instead for a smaller, safer policy response at the expense of higher unemployment and economic insecurity for society’s most vulnerable?

This is a timely question, as another recession is always just around the corner. Weaker than expected U.S. hiring data in July triggered the so-called “Sahm Rule,” a real-time recession indicator favored by economists and policymakers in recent years (Sahm, n.d.). Up until now, the Sahm Rule has never had a false-positive (i.e., predicting a recession that did not materialize), suggesting that the U.S. economy is at higher risk of a downturn. 

Psychological science, like the work of Dr. Bullock and others, reminds policymakers that unemployment is more than a few percentage points on a graph. On an individual level, unemployment impacts mental health, life satisfaction, and interpersonal relations; on a community level there are implications for school funding, neighborhood cohesion and safety, and quality of life (Belle & Bullock, 2010). Psychological science also points to protective factors policymakers can bolster during economic downturns, like a robust Unemployment Insurance system.

I hope economic conditions continue to improve in a way that lessens inequality and lifts all workers and families. Should we face a recession, however, SPSSI will do what it has always done: marshal the latest research evidence to help policymakers find a path forward that alleviates insecurity, inequality, and poverty here in the U.S. and around the world.

Works Cited:

Autor, D., Dube, A., & McGrew, A. (2023, March 1). The Unexpected Compression: Competition at Work in the Low Wage Labor Market. National Bureau of Economic Research. https://doi.org/10.3386/w31010

Belle, D., & Bullock, H. E. (2010).  Impact of Unemployment. Society for the Psychological Study of Social Issues.  https://www.spssi.org/index.cfm?fuseaction=page.viewpage&pageid=1457

Irwin, N. (2024, January 31). U.S. winning world economic war. Axios. https://www.axios.com/2024/01/31/us-economy-2024-gdp-g7-nations

Nadeem, R. (2024, May 23). Views of the nation’s economy. Pew Research Center. https://www.pewresearch.org/politics/2024/05/23/views-of-the-nations-economy-may-2024/

Sahm, C. (n.d.). Real-time Sahm Rule Recession Indicator [SAHMREALTIME]. Federal Reserve Economic Data [FRED]; Federal Reserve Bank of St. Louis. Retrieved August 30, 2024, from https://fred.stlouisfed.org/series/SAHMREALTIME

Sahm, C. (2024, February 27). Big fiscal is a big win for Americans. Substack.com; Stay-At-Home Macro (SAHM). https://stayathomemacro.substack.com/p/big-fiscal-is-a-big-win-for-americans

Shapiro, A. (2023, November 8). ‌ Supply- and Demand-Driven PCE Inflation. Federal Reserve Bank of San Fransisco. https://www.frbsf.org/research-and-insights/data-and-indicators/supply-and-demand-driven-pce-inflation/

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