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At the outset of the pandemic, the government undertook a deliberate effort to reduce economic activity in what was widely thought to be a necessary measure to slow the spread of COVID-19. Whereas most recessions call for policy that stimulates the economy, the COVID-19 recession called for the opposite — measures that would enable workers and businesses to hit pause until a vaccine or therapeutic became widely available.
Now that vaccines are being administered, policy-makers face a different challenge — not keeping Americans inside, but getting them back to work as quickly as possible. In this context, President-elect Biden’s $1.9 trillion stimulus package misses the mark.
The proposal gives a nod to public health — with $20 billion allocated to vaccine distribution, $50 billion to testing, and $40 billion to medical supplies and emergency-response teams — but fails to address the most pressing hurdles to COVID-19 immunity. Vaccines sit unused not for lack of funding but thanks to burdensome rules determining which patients can receive shots and which doctors can administer them. Additional spending to speed up vaccine distribution is welcome, but its effects will be muted if bureaucratic hurdles remain in place.
Even if the public-health provisions were to succeed in reopening the economy, much of the rest of Biden’s plan guarantees that it will reopen weaker. For one, an expanded unemployment-insurance top-up of $400 a week would mean more than 40 percent of those receiving unemployment benefits would make more off-the-job than on-the-job at least until September, and possibly for longer. The food-service and retail industries hit hardest by the pandemic would see the largest shortfalls in labor, exacerbating the challenges they’ve faced over the past year. Enhanced unemployment may have been reasonable when we wanted workers to stay home, but it’s catastrophic when we want them to go back to work.
Meanwhile, Biden’s proposed minimum-wage increase to $15 nationally would eliminate an estimated 1.3 million jobs, hitting low-income states hardest. In Mississippi, where the median wage is $15, as many as half the state’s workers would be at risk. A minimum-wage hike may be high on the Democratic wish list, but it does not belong in an emergency-relief bill.
The Biden plan isn’t all Democratic priorities, though. He took a page from Trump’s book and proposed $1,400 checks to households, bringing the second-round total to $2,000. With household income now 8 percent above the pre-pandemic trend, additional checks would do little more than pad savings accounts. Indeed, 80 percent of the recipients of last year’s checks put the money into savings or debt payments, not consumption. The flagship item in Biden’s plan would do little to spur economic growth even on Keynesian assumptions.
The same goes for state and local aid, for which Biden is seeking $370 billion on top of $170 billion in public-education grants. The total of $540 billion far surpasses the roughly $50 billion hit to state and local tax revenues last year. As we wrote in December, states and cities are slow to spend federal grants, so the lion’s share of this stimulus would not show up until 2023. Rather than attempting to stimulate the economy, Biden is hoping to launder bailouts of profligate Democratic states through COVID-19 relief.
Other parts of the bill — expansions of the earned-income and child-tax credits — are defensible long-term structural reforms, but as year-long emergency measures, they will have the same muted effect as direct checks. By including a slew of proposals unrelated to the pandemic, Biden has weakened his hand in negotiations and made it less likely that urgent measures pass quickly.
In the depths of the COVID-19 pandemic, economic policy-makers rose to the occasion. Following an unprecedented external shock, the U.S. economy has emerged in relatively good shape, with less unemployment and bankruptcy than most feared. But the policies implemented to curb COVID-19 are not suited for what will begin to become, over the course of this year, a post-pandemic economy.
Biden may have campaigned during a recession, but he is taking office during a recovery. He should govern accordingly.