The Case Against Biden's Stimulus

When "Go Big" Can Be Too Much

The vaccine roll-out is going well, Covid-19 cases and hospitalizations are plunging, and the economy is forecast to boom, so why is Biden calling for a $1.9 Trillion “rescue” plan? A stimulus package of this size doesn’t make sense right now, and such a large package may ultimately cause more harm than its worth.

Rescuing America

Congress has already spent huge sums of money in the fight against Covid-19. Leaving aside actions by the Federal Reserve, which themselves amount to trillions of dollars of lending into the economy, the United States Congress has already passed three major stimulus bills.

The first large spending bill, passed during the height of Covid-19 uncertainty in late March, the CARES Act, was projected to cost about $2.2 Trillion. Congress followed the CARES Act with a $480 billion “interim” stimulus in April. Note that not all of this money was spent….about $400 billion remained unused. Congress then topped that off with another massive $900 Billion spending bill in late December 2020 that made use of those unspent funds.

The stimulus packages have sought to plug holes in demand left by the pandemic as people hunkered down in their homes, avoided travel, and refrained from eating out. By most measures, they have been successful. The stock market reached all time highs in 2020, the GDP grew at a record 33% in Q3, and a strong 4% in Q4. The unemployment rate plunged from over 19.0% at the pandemic’s peak, to about 7.3% today. This unemployment figure includes misclassified workers who are not normally included in the headline number.

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America is Recovering Well

Even without a single dollar of new spending, the economy is expected to roar to life this year. Covid-19 cases are plunging, owing partly to a successful vaccine roll-out that is saving lives. States are gradually lifting Covid-19 restrictions, and public confidence in travel and leisure should improve rapidly, unleashing a year’s worth of pent up demand for movies, eating out, hotels…etc.

In 2021, the US economy is expected to expand 4.6%, while unemployment is forecast to drop to 5.3%. America is recovering. Growth numbers like these call the wisdom of another massive stimulus into question.

Envision the Pandemic timeline as a bookshelf. The first book in the series would be the arrival of the virus and the immediate economic chaos that followed. The last book is the arrival of the vaccine and subsequent recovery.

The arrival of the virus in late winter saw Congress spend $2.3 Trillion to rescue the economy from imminent collapse. This makes sense. Most of the country was locking down, no one knew how deadly the virus was, how easily it would spread, or when restaurants and hotels would reopen.

But in the last book of the Pandemic, we find that Congress, as the infections subside, the shops reopen, and the vaccine gets into arms, passes two more stimulus measures totaling $2.8 Trillion. We are spending more money on this Pandemic as it ends than we did when it began, this does not make sense. Further, we are spending this money when the economy is already doing well, unnecessarily exacerbating America’s debt, and possibly stoking inflation that may do more harm than good.

The Middle Way

This is not to disregard the plight of those who are still struggling at the hands of the Pandemic. It is evident that the Pandemic recession has disproportionately affected certain income groups more than others. More stimulus may be needed to ensure that unemployment falls more quickly. That’s reasonable and perhaps necessary.

The GOP’s $600 Billion stimulus offer, which was handily rejected by the Democrats, would have been sufficient to provide an extra economic boost, without blowing a massive economic bubble or unnecessarily inflating the national debt. If not summarily rejected outright, it may have been possible to draft a moderate stimulus package in the ~$800 Billion range that would have been more appropriately sized and targeted to the challenges America faces.

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