The COVID Relief Package is a Good Bill
Joe Biden's covid relief package is arguable the most progressive relief package in American history.
Joe Biden’s covid relief package is poised to become law. There have been ups and downs throughout the process, but it is on the cusp of passage. Like anything in a representative democracy, it is filled with things I like and compromises that make the package worse off.
But the covid relief package attacks the coronavirus and helps millions of Americans in dire economic straits. I’m disappointed it doesn’t include a $15 an hour minimum wage and that Joe Manchin watered down the unemployment insurance benefits and the stimulus checks, but I am still elated that the bill passed. 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 help Americans struggling economically. Thanks to a competent federal response, we’re already seeing the beginning of the end of this pandemic. Daily vaccinations are rising and distribution is ramping up. Thanks to the Biden White House, we should have enough vaccines available for every American by the end of May.
Biden’s covid relief package helps to accelerate vaccine distribution and puts struggling Americans on surer footing. It also sets up the American economy for a post-pandemic boom, just ahead of the 2022 midterm elections:
Fight COVID: It increases funding for covid vaccine distribution, contact tracing, testing, virus monitoring and other tools we need to fight this pandemic.
State, local, tribal, and territorial aid is in this bill: While some states have not been hit as badly as we thought they would, cities and localities within some well off states will still need the aid. And the majority of states, controlled by both parties, are still facing budget shortfalls.
$1,400 stimulus checks: This money doesn’t just fulfill a campaign promise, it will substantially help millions of American families struggling to make ends meet and sets the American economy up for a strong comeback.
Unemployment insurance: UI will remain at the additional $300 until September, helping those Americans most in need.
Tax credits: This bill will substantially cut child poverty thanks in large part to the massive expansion of the child tax credit.
This is just scratching the surface of an incredibly popular and progressive piece of legislation. It’s a good bill and Democrats should sing its praises.
It's not perfect
Of course, 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. For the stimulus checks, a single person making up to $75,000 and couples at $150,000 will get the full $1,400. The checks will then phase out much faster compared to the House version and Biden’s original proposal: $80,000 for a single person and $160,000 for couples.
Unemployment insurance was also reduced somewhat. In the original House and Biden proposals those on unemployment would have received an extra $400. It was reduced to $300.
Both of these haggles are due to the unfortunately outsized influence of Joe Manchin, the Democratic Senator from West Virginia. He is absolutely dead wrong on both fronts. Cutting unemployment and reducing stimulus check eligibility will help less people who need it. Manchin’s cutoffs are arbitrary and will save the government little on the overall price tag. It will unnecessarily leave 17 million Americans out of the next round of checks who could have otherwise needed it.
That said, tanking the bill based on these concessions to Manchin is not the right move, as some have suggested. Millions will get assistance, child poverty will be slashed, and the light out of the pandemic will only get brighter. We should not give up on the minimum wage and there will be opportunities to continue the fight, but I don’t think delaying this covid relief package is the way to do it. This money needs to get out the door quickly. It will help millions and speed up the end of the pandemic, which will be a substantial win for Democrats in 2022.
Debt and deficit fear-mongering. Plus an honest discussion on inflation risks.
Not everyone is as jazzed as I am about this bill. Republicans obviously hate it, but even some left-leaning economists worry this bill could lead to an overheated economy with 1970s level stagflation as a result.
The easiest argument to dispense with is from Republicans: we’re adding too much to the debt and deficit. This is a bad argument. Besides the fact that the debt and deficit went up under Trump thanks in large part to the 2017 corporate tax cuts—a law many of these so-called deficit hawk Republicans gleefully voted for—there is little to no evidence that America will face a debt-driven doomsday. America is at virtually no risk of defaulting on debt. That’s because unlike the average person or state government, the federal government is the only legal entity allowed to print its own currency, meaning the US has monetary sovereignty over the US dollar. If they need to pay interest on their debt, they can find the cash. Now that doesn’t mean the Treasury can just hit print all day long and start rolling in it, but the idea that America will ever default is a little silly. There are other concerns with printing too much money, but debt default is not one of them.
The questions surrounding possible inflationary pressures are more persuasive to me, though I don’t think they’re right. Many, including people like Larry Summers and Steven Rattner, have been sounding the alarm: by spending $1.9 trillion we will be putting too much into the economy. It will overheat leading to a spike in prices. I’m more sympathetic to these worries than those from the so-called debt and deficit hawks. But I think there are others out there arguing that the risks of runaway inflation are much smaller than people like Larry Summers and Steven Rattner would have you believe.
Paul Krugman and Mattew Yglesias have been leading persuasive counters to the warnings of Summers and Rattner.
First, Krugman 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 really trying to kick start aggregate demand and get the economy “moving again” because we’re not ready for the economy to come roaring back. For it to kick-start sustainably that would mean sectors of the economy that have been closed like restaurants, travel, hotels, tourism etc. would be open and operating. Since those sectors are where this virus spreads, we want to limit that. Instead, we want to spend money to help people through shutdowns (stimulus checks and UI), accelerate vaccine rollouts, increase testing, get schools open etc. The sooner the pandemic is over, the sooner restaurants can open. In the meantime, here’s $1,400 to help get you through.
Second, there is some debate surrounding the numbers people like Larry Summers is using to get to his inflation warnings. In his WaPo Op-Ed, his main point surrounds what is called the output gap, the difference between where the economy actually is and where economists think it could be. Summers is using the Congressional Budget Office’s projections of what the monthly output gap will be this year, calculated with the already passed $900 billion relief package from December. Here is his main point:
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.
What Summers is saying is that the output gap we need to fill with stimulus is much smaller than what the Biden covid relief package is going to put into the economy. This will result in inflation. But a very simple counter is: what if those CBO numbers are wrong. The CBO has often been inaccurate when it comes to these types of projections. In 2018 and 2019 they said the American economy was operating above potential and would start to slow down. They were wrong and the economy continued to grow, adding hundreds of thousands of jobs up until the beginning of the pandemic in 2020. If the CBO was right, we should have seen spikes in inflation in 2019 and into 2020. We didn’t see anything close to that. I don’t think Summers is crazy to worry about inflation, but I’m more persuaded by those who say that the CBO output gap numbers are wrong and underestimating the true gap.
Krugman makes another good point: 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 it or pay down debt. Similarly, the people getting that additional $300 a week won’t add to pressures on inflation, they will be using that money to pay for basic things like rent or food. Plus, much of the remainder of the package will be going to directly fighting covid: vaccine distribution, testing, contact tracing, and tracking the virus’s spread.
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 and the subsequent jump in production and public spending very well could lead to spikes in prices. But to not spend this much would be even more catastrophic and quite frankly political malpractice for Democrats going into the 2022 midterms.
Conclusion
All in all, this is a good bill. A great bill even. It will help millions of Americans who need it, poor Americans and families, schools, children, and it will accelerate the end of the pandemic in America. It’s absolutely true that it doesn’t include a minimum wage increase and I think the bill suffers because of that. But I think we can pressure people like Biden and Schumer to get it back on the agenda in the future. In the meantime, let’s help people and get this pandemic behind us.