The economy has regained about half of the ground lost when the pandemic hit, but the recovery has stalled and high unemployment remains, along with growing housing and food insecurity. President Biden’s $1.9 trillion American Rescue plan appears to have widespread approval, both among the public – nearly 70 percent of whom supports it in polls – and economists. However, the memo doesn’t seem to have reached Washington, where the plan has divided the two parties, leading Senate Democrats to pursue passage through the obscure “reconciliation” procedure.
A sign announces a coronavirus closure at a flower shop in Jay on April 16, 2020. Stimulus checks, along with increased unemployment insurance, have been effective at providing a safety net. Robert F. Bukaty/Associated Press
Many components of the package are uncontroversial – expanded unemployment benefits, direct funding for fighting COVID and child tax credits, which, with other measures, could halve child poverty. However, critics – most notably Republican senators, including Susan Collins – are arguing that it is too large and will unnecessarily add to the national debt.
They appear most opposed to the proposed $1,400 “stimulus checks.” Indeed, there is valid reason to question their effectiveness in this unique recession. An early version of the proposal included upper-middle-income earners, reinforcing concern that recipients wouldn’t increase spending sufficiently. Analysis shows that the average person spent only about 40 percent of their stimulus check from April. However, lawmakers look to be putting a reasonable income cap on the payments, ensuring that funds go to lower-income households who are most in need and most likely to spend them. Crucially, we know that the pandemic has also exacerbated poverty and inequality. Stimulus checks, along with increased unemployment insurance, have been effective at providing a safety net for the economically marginalized.
State and local aid has also been criticized as a bailout for blue states and cities. However, budget issues are not unique to left-leaning locales. A cursory look at states with the biggest revenue drops shows red and blue states alike losing significant funding. During recessions, states and municipalities lose tax revenue and face increased expenses (e.g., unemployment aid), creating deficits that they can’t borrow to close. As a result, they are forced to cut spending and lay off employees; 1.4 million have lost jobs since last February. Addressing this issue will prevent spending cuts from dragging down the economic recovery.
Concerns over inflation and debt are similarly overblown. Our last major bout of inflation was 40 years ago, and a new consensus believes that this reflects an underlying weakness in labor markets. Even Republican economists like Federal Reserve Chairman Jay Powell argue that we need to run the economy “hot” to overcome long-term wage stagnation. Moreover, in the absence of the Biden plan, economists project that it will take three or more years to return to full employment, the point at which inflation becomes a potential problem. Regarding debt, there is very little short-term cost to additional borrowing in an era of persistent, very low interest rates and a global savings glut. Moreover, future economic growth enabled by current stimulus can limit the debt burden.
Biden’s decision to pursue one large package is also good statecraft. He has learned the lesson from the half-sized, half-effective Obama stimulus package of 2009 and the half-year stalemate over further relief in late 2020. Barack Obama’s stimulus package was structured so that nobody noticed they had received it, and the underwhelming recovery soured the public on further action, enabling Republicans to regain the House majority in 2010 and block additional spending that was sorely needed. Quick, bipartisan passage of direct COVID measures would make it difficult to get other, needed parts of the package through Congress, given that Democrats can use reconciliation only once a year.
Thus, it would be political malpractice to approach the relief package any other way. The policy has widespread public support, and voters are unlikely to care how it gets through Congress. The keys to successful relief are providing a safety net to businesses, workers and local governments affected by the crisis until we can resume a semblance of normalcy, and injecting the funding and investment needed to mobilize a “whole of government” strategy to get the pandemic under control and finally end it.
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