Incoming President Joe Biden has announced a $1.9 trillion plan to relieve the pandemic’s economic stains. Parts of the plan might help ease some of the suffering caused by the anti-virus lockdowns and quarantines. Other parts of it, however, have nothing to do with the pandemic. At this point, much of it is probably unnecessary.
Half the spending plan concerns aid to households. It would offer $1,400 direct payments to most households, topping up the monies offered last December to the $2,000 originally promoted by Donald Trump. The plan would add $400 a week to unemployment insurance payouts through September 2021, expand paid leave, extend the 15 percent increase in food stamps presently in place but set to expire, and extend the moratorium on evictions and foreclosures. As already announced with his tax initiatives, Biden would also increase the child tax credit from $2,000 to $3,000 and add $600 more for each child under six. This plan would also offer $10,000 in student debt loan forgiveness and raise the national minimum wage to $15 an hour.
The second part of the proposed action would dedicate $50 billion to increase virus testing and $160 billion to establish a national vaccination effort in addition to the state-managed plans already in place. Additional funds would go to help Medicaid administer vaccinations and would add to the $8.4 billion passed in December to help states with the vaccination rollout. The new plan would also establish a $30 billion general national disaster relief program and earmark considerable additional funds to help states and cities bear the more general financial burden of coping with the pandemic.
In his speech announcing these plans, Biden quite rightly excused them from the usual requirements on new spending initiatives. To stem the tide of red budget ink, each new spending initiative typically must find compensating spending-cut offsets or tax increases to justify itself. He made dubious claims that his proposed spending would pay for itself by stimulating economic activity, but Biden is on firmer ground when he claims that it is an obligation of the federal government to use debt to meet needs in an emergency. His is the same argument used to justify using debt to fight an existential war. Future generations will bear the payment burden, but they also benefit from the immediate effort to protect the nation. In other words, it is unreasonable to ask the generation that fights the war (copes with the pandemic) to pay for it as well. If his desire to use debt is reasonable, Biden’s plan still leaves two questions: Are these measures well suited to people’s needs and are they necessary at all? On both counts, there is ample room for doubt.
For one, much of the $1.9 trillion aims more at the middle class than at the working families most affected by the lockdowns used to contain the pandemic. Student debt relief, for instance, however debatable in other respects, hardly seems suited to the immediate needs of pandemic relief. A payment moratorium might have a place in such an effort, but outright forgiveness would use funds that could otherwise help those in greater need. After all, student debt implies that the person involved has at least some college, which would imply that they have advantages not shared by many others. Similarly, the plan to send $1,400 checks to households will by nature have only a one-time impact on economic activity. These funds also could be better targeted. Analysis by the Tax Policy Center has concluded that almost 60 percent of these checks would go to families with over $50,000 a year in current income and some would go to families with annual incomes of over $200,000. Nor does a hike in the national minimum wage do much to put people back to work. It might enrich those who already are working, but it would discourage many already struggling small businesses from hiring and may even convince already strapped small business owners to close down altogether.
It is unclear if these measures are well suited to the economy’s immediate needs. These proposals generally come from the standard anti-recession playbook, aiming to stimulate economic activity by stimulating consumer and business demands for goods and services. But a shortage of demand is not today’s problem. To be sure, those thrown out of work are spending less than they otherwise would, but at the same time, large portions of the population would happily spend if they could. So, too, would businesses spend to rebuild if they had reason to expect these consumers to visit them. Instead of an insufficient willingness to spend, there is, in fact, a huge pent-up demand that would generate considerable economic activity were it not blocked by the strictures put in place by the various state authorities. The extent of that potential buying flow is clearly evident in the Commerce Department’s report that savings have increased cumulatively by almost $3.0 trillion since last March, almost $2.0 trillion more than would normally have been the case. Last spring and summer made clear how even a partial lifting of these anti-virus strictures allowed that pent-up demand to propel economic activity and hiring at an unprecedented pace. With vaccines promoting a greater economic reopening, there is good reason to expect a similar surge quite aside from any federal stimulus. Indeed, federal stimulus on top of this surge could invite economic distortions.
Whatever the virtues and risks of this plan, it is a long way from becoming law. Although the president’s party controls both houses of Congress, its majority in the House is slim, and it is even slimmer in the Senate. General procedures usually require sixty votes in the Senate to pass legislation. Reconciliation bills allow a simple majority, which Vice President Kamala Harris could give with a tie-breaking vote, but that can happen only a limited number of times, and the party might not want to use one up for these measures. On these bases, the eventual legislation seems subject to the watering down that inevitably occurs in debate and compromise.
Milton Ezrati is a contributing editor at the National Interest, an affiliate of the Center for the Study of Human Capital at the University at Buffalo (SUNY), and chief economist for Vested, the New York-based communications firm. His latest book is Thirty Tomorrows: The Next Three Decades of Globalization, Demographics, and How We Will Live.