22 United States The EconomistFebruary 6th 2021
T
he symmetryis fearful. Twelve years
ago, another freshly elected Democratic
president faced an economic crisis and was
forced to devote the first month of his term
to crafting a stimulus measure to cushion
the blow. Joe Biden’s experience then, as
Barack Obama’s lieutenant, informs his
calculation now. Mr Obama succeeded in
getting his bill, the American Recovery and
Reinvestment Act, but at considerable cost.
That was not just the literal, gargantuan ex-
pense (at least for its time) of $787bn, or
nearly $1trn in present dollars, but the
steep political cost, too. Opposition to Mr
Obama’s supposedly spendthrift measure
spurred the Tea Party movement, which
would eventually morph from deficit
hawkery to proto-populism and eventually
full-blown Trumpism.
Greater modesty is not the moral Mr Bi-
den seems to have learned from his tute-
lage in the last recession. Rather, he seems
worried about being insufficiently bold.
The enormous stimulus plan he unveiled
as his legislative priority, the familiarly
named American Rescue Plan, costs
$1.9trn, nearly twice as much as Mr
Obama’s hotly disputed rescue measure in- And it comes after Congress had al-
ready passed $4trn-worth of fiscal stimu-
lus to counter the economic fallout from
covid-19.
Having been poor practitioners of the
fiscal stewardship they preach, Republi-
cans have not yet mustered a rebuke as bel-
licose as in 2009. A counter-offer delivered
by ten Republican senators—the number
that would be needed to surmount the in-
evitable threat of a filibuster—costing an
estimated $618bn looks modest only on a
relative scale. A cordial Oval Office meeting
between the group of senators and Mr Bi-
den on February 1st was notable both for its
length (close to two hours) and its anti-cli-
mactic, non-committal resolution. How
the negotiations play out will be signifi-
cant beyond just the haggling over a few
loose hundred billion. They will also deter-
mine whether Mr Biden’s aspirations for
unity and bipartisan dealmaking are work-
able, or mere happy talk.
The president’s opening offer is a maxi-
malist agglomeration of Democratic ambi-
tions—left-liberal provisions with varying
levels of plausible justification. Some, like
the $160bn to accelerate vaccine manufac-
turing and distribution, are plainly need-
ed. So too is an extension of the federal top-
ups to unemployment benefits, which
would otherwise expire in March. A tempo-
rary boost to earned-income and child-tax
credits, which sounds stultifying techno-
cratic, would dent the alarming increases
in poverty and food insecurity that re-
searchers have noticed in recent months.
Some of the administration’s other pri-
orities are harder to justify. About a quarter
of the fiscal firehose ($463bn) would be
aimed at disbursing a third round of direct
cheques to most American households.
The promised amount, $1,400, is of du-
bious provenance. In the waning days of
his presidency, Donald Trump briefly flirt-
ed with rejecting the previous stimulus bill
(worth $900bn) because its $600 cheques
were too small. He favoured the bigger,
rounder number of $2,000—which his
own Republican allies in Congress re-
soundingly rejected. Seeking to make
much of this own-goal ahead of critical
Senate elections in Georgia, Mr Biden em-
braced the promise of $2,000 in total
(hence a new $1,400 cheque). The presi-
dent’s own economic advisers are reported
to be doubtful of its merits.
Democrats have also been attached to
sending an enormous cash infusion to
state and local governments since the early
days of the pandemic, when they (reason-
ably) feared huge budgetary shortfalls and
the resulting vast layoffs of public workers.
Stateandlocalbudgetshaveinfactdone
much better than feared—dropping by
only0.7%,accordingtoestimatesbytheCensus Bureau—although this has not
much dampened Democratic zeal to pro-
vide the funds. So much so that the $350bn
on offer exceeds the total estimated short-
fall in state tax collections over the first
nine months of 2020 by a factor of ten. The
long-held ambition of progressive Demo-
crats to raise the federal minimum wage to
$15 an hour is dutifully tacked on as well.
The Republican counter-offer treats
many of these additions as an editor might
treat the flabby copy of a correspondent.
There is no proposed rise in the minimum
wage and no bail-out for state budgets in
more or less fine shape. The proposed
spending on vaccinations remains the
same, but the direct cheques would be
more modest (only $1,000) and, somewhat
unusually for Republicans, more aggres-
sively means-tested (limited to people
making less than $50,000). The plan dis-
cards Democratic proposals for more gen-
erous means-tested tax credits that are pro-
ven anti-poverty policies. The $20bn
allocated to expeditiously reopen schools,
which in some parts of the country have
been closed for nearly a full year, is a frac-
tion of the $130bn Mr Biden would like.
Precisely how much stimulus the econ-
omy needs after the extraordinary mea-
sures taken in 2020 remains difficult to de-
termine. Modelling by the Congressional
Budget Office projected a faster recovery
than before even without any additional
spending—real gdpgrowth is expected to
be 4.6% in 2021, and the unemployment
rate is projected to drop from 8.1% to 5.7%.
Given that rosier trajectory and the general
oddities of a pandemic-driven economic
slump, the benefits of another large stimu-
lus measure are difficult to predict. One
analysis of the Biden plan by the Brookings
Institution, a think-tank, suggests that it
wouldincreaserealgdpby4%overthecur-
rent analysis; anotherrespected macro-
economic modeller, the Penn WhartonWASHINGTON, DC
Republicans test the precise meaning of Joe Biden’s talk of unityCovid-19 relief, episode 6Stimulating talks
Going solo1