Biden’s Stimulus Should Stay the Course
Spending packages need triggers to sustain aid when the recovery lags and cut it off when things improve.
President Biden has proposed a bold and ambitious $1.9 trillion plan for economic recovery. The plan would benefit from one important change: It should be contingent on the pace of recovery. The Biden plan provides substantial support for the economy through the end of September but essentially ends on that date. It could be improved by including provisions that automatically continue assistance as long as the economy is weak and needs it. In exchange, these provisions could also phase out aid more quickly than Mr. Biden proposes if the economy rebounds faster than expected. Most important, this recession insurance should be made permanent to mitigate future recessions.
The economy is more than 11 million jobs short of where it should be, and important labor-market indicators have steadily worsened since the summer, including long-term unemployment and the number of unemployed workers not on temporary layoff. The supply-side constraints created by the virus are the biggest limit on the economy. Aggressive deployment of vaccines plus testing and other measures will likely solve the supply problem over the coming months.
A full recovery will require more than open restaurants. People must also be able to afford to eat in those restaurants. That’s where the demand side comes in: The Biden plan would provide relief for many of the households that need it most, including low-income families and the unemployed, turbocharging demand to meet the expanded supply.
Covid has had an unprecedented impact on both supply and demand. Anyone who ventures a confident prediction about the course of jobs, inflation or any other aspect of the economy may be wrong and is certainly wrong to be confident.The pace and magnitude of virus mutations raise the concern that the virus will become immune to current vaccines. The ossification of unemployment could make the last phases of the recovery slower and more painful as people are unable to return to their old jobs quickly and may need to find new ones in different industries. Global events could disrupt the U.S. economy. For all of these reasons more rescue and relief may be needed long after September.
Historically, Congress has done a good job of rising to the challenge when crises first hit, but it often lapses into polarization and gridlock as the initial shock passes. Major elements of the Cares Act expired over the summer and weren’t renewed until December, despite mounting health and economic problems. We shouldn’t risk another lag in the national response, for the sake of both the long-term economy and the millions of families who suffer when support is interrupted.
Mr. Biden proposes adding $400 a week to unemployment insurance through the end of September. Assistance should be continued if the unemployment rate remains elevated, though scaled down to reflect any improvements in the unemployment rate. If the rate falls rapidly by June or July, the $400 a week could be automatically reduced even earlier. The formula should be based on state unemployment rates to account for a potentially uneven recovery.
Another measure that should be automatic is fiscal assistance to states. Many states have balanced-budget requirements and high borrowing costs, so it makes sense to increase revenue sharing—backed by federal borrowing—during downturns. One way would be to tie the federal government’s Medicaid payments to the state unemployment rate, as I proposed with Matthew Fiedler and Wilson Powell. The House passed this provision as part of the Heroes Act last year. This measure could also reduce state and local assistance if the economy recovers faster than expected.
Other provisions in the Biden proposal lend themselves to similar contingencies, like nutritional assistance and temporarily expanded assistance for needy families.
Making federal relief contingent on economic conditions wouldn’t only help tailor aid to the pace of the recovery; it would be an essential step to building back better. New contingencies could be preserved as formulas to ensure that relief and economic support are automatically delivered whenever and wherever needed. These measures would also help ensure that assistance phases out when it’s no longer needed. The persistently low interest rates of the current economy are likely to limit the potential monetary response to future recessions. By bolstering the fiscal response, Mr. Biden will boost the recovery and take a big step toward reducing the severity of future recessions too.
Mr. Furman, a professor of practice at Harvard, was chairman of the White House Council of Economic Advisers, 2013-17.
Leonard S. Feinman
Joe seems to be the fellow who eternally pushes on a door clearly marked “pull.” An economic stimulus is important when economies collapse and need to get on track, but that road must be paved first. Giving away money will always bring people to your side, but paying it back has always been where you lose friends.
When Social Security was enacted, it was a hybrid Ponzi Scheme, in that you always knew what to expect and there would be no losses, except if you died before retirement age. It was an investment plan and all you needed to do was live long enough. That was fine until it was gutted.
Likewise, pouring in lots of money could also stimulate the economy, but what counts is who spends that money, and how long can we afford to give it away. Would we do better with loans? As Student Loans have taught us, repayment has never been a high priority. Worse yet is the dispersal of that money where it was not previously needed, That there will be Fraud is a given, but that always happens in any giveaway program.
I am not in favor of giving money for the sake of giving money and I have to wonder if all of that money is really needed? I know that if the government gives one person some money, then other people will want an equal share regardless of their need. They don’t want to be left out.
Mike
My recollection is that conservatives including the cynic were critical of the Obama recovery for being the slowest recovery ever and, those critical of it attributed that to Obama policies.
At the time of the Obama stimulus package after he was elected we now know that the recovery package was purposefully kept low not withstanding the urging of others who thought it was totally insufficient.
Recall that Paul Krugman who many have criticized for never being correct, was in fact correct for saying that the stimulus was insufficient.
What President Trump proved with his stimulus package was that in fact the economy works by trickling up from the consumer to the “corporations and not vice versa.
As for the current proposal on the floor by Biden, it seems excessive and, it looks like it will be limited at least in some respects in the process of becoming legislation
And yes the liberal newspapers do publish op Ed pieces by conservatives and I’m sure will continue to do so