There were ups and downs, but Joe Biden’s covid relief package is poised to become law. Like anything in a representative democracy, it contains things I like—and some compromises I don’t like.
But at its core the plan strengthens the attack on covid-19 and rescues millions of Americans in dire economic straits. There are even some who say this is the most progressive relief package in our lifetime. I happen to agree.
Let me make the case for why.
Attacks the pandemic and economic fallout
Biden was elected to get this virus under control and to help Americans who have struggled through this unprecedented time. Thanks to his competent leadership, we’re already seeing the beginning of progress. Daily vaccinations are rising fast. So is vaccine production and distribution. Thanks to the Biden White House, we are likely to have enough vaccines for every American by this summer.
Biden’s covid relief package is comprehensive. Here’s what it does:
- Fights COVID. It increases funding for covid vaccine distribution, contact tracing, testing, virus monitoring and other crucial public health tools.
- State, local, tribal, and territorial aid. While some states have not been hit as badly as we thought they would be, cities and localities even within some well off states still need aid. And other states, whether controlled by Republicans or Democrats, are still facing budget shortfalls.
- $1,400 stimulus checks that don’t just fulfill a campaign promise but will make a crucial difference for millions of families in distress.
- Unemployment insurance will offer an additional $300 a week until September.
This is a good bill and Democrats should sing its praises.
It’s not perfect
Yes, it’s not perfect. It doesn’t include a $15 minimum wage and there was a lot of unfortunate haggling around the stimulus checks and UI. The number of people eligible for new stimulus checks was reduced by as many as 17 million, according to some estimates. In the original House and Biden proposals those on unemployment would have received an extra $400 versus the new $300 in the Senate version.
Both of these changes were forced by Joe Manchin, the Democratic Senator from West Virginia. I think his changes are arbitrary and unnecessary. Cutting unemployment insurance or reducing the number of stimulus checks will save little in terms of the overall price tag.
That said, tanking the bill based on the concessions to Manchin is not the right move, as some progressives have suggested. Millions will get vital assistance and the pandemic will end sooner.
Debt and deficit fear-mongering. Plus an honest discussion on inflation risks.
Not everyone is as jazzed as I am about this bill. In addition to the Republicans, who unanimously oppose it, there are a number of left-leaning economists who worry that the measure could lead to an overheated economy with 1970s level stagflation.
The easiest argument to dispense with comes from the Republicans—that we’re adding too much to the debt and deficit. Aside from the fact that the debt and deficit soared under Trump thanks in large part to the 2017 corporate tax cuts—a law many of the self-proclaimed deficit hawks in the GOP gleefully voted for—there is little to no evidence that America will face a debt-driven doomsday. America is virtually at no risk of defaulting on debt, assuming Republicans don’t play politics and refuse to raise the debt-ceiling. Unlike the average person or state, the federal government is the only legal entity allowed to print its own currency. If we need to pay interest on debt, we can always find the cash. That doesn’t mean the Treasury can just print Benjamins all day long, but the idea that America will turn into Greece is far-fetched and indeed silly.
An honest discussion on inflation risks
Recently, Democrats like Larry Summers and Steven Rattner have been sounding a different alarm on inflation, contending that $1.9 trillion is too much to be pumping into the economy. These discussions on inflation risk are more serious than the Republican fear-mongering, but the majority of leading economists who disagree with Rattner and Summers are more persuasive to me.
First, there is Nobel-prize winning economist, Paul Krugman.
He makes the case that we shouldn’t be thinking of this as a normal stimulus for a normal recession. 2009 is not 2021. We’re not trying to kick-start aggregate demand and get the economy “moving again.” For it to come back successfully sectors like restaurants, travel, hotels, etc. have to be open and operating. Since those sectors are precisely where this virus spreads, we have to limit its capacity to do so. So we have to spend money to help people through shutdowns (stimulus checks and UI), accelerate vaccine rollouts, increase testing, and get schools open. The sooner the pandemic is over, the sooner restaurants will return to normal.
Second, there is debate about the numbers experts like Larry Summers are using to support their inflation warnings. In his Washington Post Op-Ed, his main point involves the output gap, the difference between where the economy actually is and where economists think it could be. Summers is invoking the Congressional Budget Office’s projections of what the monthly output gap will be this year, calculated using the already passed $900 billion relief package from December. Here is Summer’s main argument:
The gap between actual potential output will decline from about $50 billion a month at the beginning of the year to $20 billion a month at its end. The proposed [Biden] stimulus will total [about] $150 billion a month. That is at least three times the size of the output gap.
This, he contends, will trigger inflation. But one important counter is: what if those CBO numbers are wrong? After all, they’ve been wrong before.
In 2018 and 2019, the CBO reported that the American economy was operating above potential. They missed the mark by a wide margin and the economy continued to grow without inflation, adding hundreds of thousands of jobs right up until the beginning of the pandemic in February of 2020. If the CBO had been right, we should have seen spikes in inflation in 2019 and early 2020. They never materialized.
Another persuasive point from Krugman is: how stimulative will UI and $1,400 stimulus checks truly be? For the people who really need the checks, they’re not putting extra money into the economy; they’re using it to replace lost hours, wages, and income. For those who don’t need them, it’s more likely that they will save the money or pay down debt. Similarly, the people receiving the additional $300 a week in unemployment compensation won’t add to inflationary pressures; they will be paying for basic things like rent or food. Finally, much of the remainder of the package will be going to directly fighting covid.
This covid relief package will be stimulative much like war time spending is—as Krugman has pointed out. Governments ramp up spending to win the war, but that does not inevitably spark persistent inflation and anything like 1970’s level stagflation seems unlikely at best.
All in all, this is a good bill. A great bill even. Let’s get it over the finish line and sell it to the American people ahead of the 2022 midterms.