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The Federal Reserve May Rescue Public Schools if Congress Fails

May 28, 2020

Our local Rotary Club often gets speakers from Dartmouth College and one Dartmouth professor we often hear from is David Blanchflower, an internationally renowned economist. Yesterday Professor Blanchflower offered a very sobering report on the state of the economy as a result of the pandemic, noting that the real unemployment rate is now approaching 25% and that non-college educated whites are in the depths of a despair unlike any he’s witnessed in his many years as an economic forecaster.

During the question and answer session that followed, I asked him how state and local governments and school districts can survive without more money from the federal government. His answer was very reassuring: the Federal Reserve could buy long term municipal bonds issued by State and local governments that would enable them to, in turn, keep schools from suffering staggering cuts and assure that public services would remain in place. He felt that the Federal Reserve would be inclined to do so because they realize that the alternative is horrific.

One of my fellow Rotarians asked what would happen to the deficit… and Professor Blanchflower analogized our current situation to that of an attack from a foreign country, posing this question: “If we were attacked by a foreign country that killed 100,000 people would we worry about the potential long term impact of deficit spending?” The answer is: “Of COURSE NOT!” Cold 19 has wreaked havoc on our economy the same way an advancing army from a foreign country would… and we need to inject lots of cash into the economy if we ever hope to have a smooth transition from what WAS “normal” to a NEW “normal” that will undoubtedly have a different landscape.

I came away with a good-new/bad-news summary. The good news is that state and local economies have a means of staying afloat even if Congress fails to act. The bad news is, any thoughts of things “going back to normal” are out the window…. and since “normal” wasn’t that great for lots of students MAYBE a new normal will be fairer, more just, and more equitable.

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