President Joe Biden proposed a COVID relief bill with a price of $1.9 trillion.
He wants to "go big." It makes political sense, and he can do it.
I worry.
The Biden Administration entered office with three crises underway. There is the COVID crisis--3,000 people a day dying and a vaccine program noteworthy for its logjams. There is the economic crisis--businesses closing, people out of work, renters unable to pay rent. And there is a political credibility crisis--the public lost faith in our institutions of government.
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Biden lacks the charisma and excitement that Trump or Obama brought to the table, but he has decades of experience. He tackled the three crises.
He resisted the temptation to get involved with the impeachment. It is hard to notice things that aren't there, there were no headlines: Biden Blasts Traitor Trump. A lot of Democrats would have loved to see that fighting spirit, but it would have been a distraction from the agenda and exacerbated the political crisis.
The second thing he did right was propose a big COVID spending plan: $1.9 trillion and then immediately invite a group of Republican leaders to the White House to urge bi-partisan support. It was a gesture that didn't work. Their response was to suggest a bill costing a third of that: $600 billion. Again, notice what Biden did not do. He did not blast it as a disgusting outrage, proof-positive that Republicans like it when young mothers starve and small businesses fail. He simply rejected it, saying it wasn't enough. He stayed polite.
The third thing Biden did right was learn from Obama's mistake. Obama was elected amid the Great Financial Crisis of 2008. Obama wanted bi-partisan support for an infrastructure spending bill to address economic slack. He also wanted bi-partisan support for universal access to health care. Obama got played. On both issues, the GOP slow- walked, suggesting compromises, burning through the presidential honeymoon period when the public is looking to see what their vote accomplished.
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Nothing much. It was the worst possible message for a Democrat elected to office with a promise of "hope and change." Recovery was frustrating and slow. People went from having equity in their home to being under water. Republicans--and the wider public-- attributed the failure to Obama. He was "feckless," as became the word used repeatedly by Fox and GOP officeholders considering a run for president. The 2010 midterm election was a disaster for Democrats.
Biden noticed and learned. Democrats like to spend money because they are the party of active, engaged government. Republicans were willing to vote for spending when Trump was president because it brought credit to Trump for a strong economy. There was no Congressional constituency for fiscal discipline.
Now that a Democrat is in the White House Republicans are re-discovering fiscal discipline, but he is brushing them off. Biden has a tool Obama did not have: MMT--Modern Monetary Theory. Over the course of the past few years a delightful idea grew to dominate punditry and Congress. Spending doesn't "cost." Deficits don't matter. Debt doesn't matter. The United States can create new money without consequence so therefore there is no great need to show discipline or restraint in fiscal policy. The only real constraint is inflation, and we don't have it and don't see it coming any time soon, and a little inflation would be a good thing anyway, but we will deal with any problems if they come up, but they won't. It is a very happy, optimistic, and forgiving theory.
Biden is pushing ahead with the $1.9 trillion stimulus. He just got help from an unexpected source: Trump. Trump grabbed the limelight, making news with spectacular insults directed at Mitch McConnell, saying he is an ugly, dour, corrupt, incompetent Senate leader who cost Trump the election for president and the senate for Republicans with his ridiculous concern over fiscal restraint:
In "Mitch's Senate" over the last two election cycles, I single-handedly saved at least 12 Senate seats, more than eight in the 2020 cycle alone—and then came the Georgia disaster, where we should have won both U.S. Senate seats, but McConnell matched the Democrat offer of $2,000 stimulus checks with $600. How does that work? It became the Democrats' principal advertisement, and a big winner for them it was. McConnell then put himself, one of the most unpopular politicians in the United States, into the advertisements.
This is pure Trump. Some Republicans will love it, some hate it, but it has the effect of eroding any unified effort by the GOP to stop the Biden stimulus bill.
President Joe Biden is in a sweet spot just now. It won't last. Presidential honeymoons don't. Problems come up and they get blamed on the president, but for now each of the three crises look positive for Biden. President Biden likely has the votes to spend a great deal of money; states and localities are improving vaccine distribution; and Biden is doing his job while Trump reminds a majority of Americans what they didn't like.
Warning and worry.
I think Modern Monetary Theory is a crock of nonsense. Debts eventually get paid or written off. Debts are someone else's asset, and someone is counting on that money. In an environment of "free," people spend with abandon and it feels great. Free food at a buffet. Free stock trading at Robin Hood. Free credit.
Biden may get away with it. Luck and timing matter. But big deficit spending is dangerous. Biden may be planting seeds that will blow up on him, just as the "free money" era of mortgage security syndication blew up on George Bush.
Eventually the piper gets paid.
3 comments:
I see two other hopeful positives.
Most of us now believe, and rightly so, that Republicans are shysters and wreck the economy if in power. Their main principle, "trickle down" has been shown to be exactly that. Actually the term should be "slow leak".
The other is that COVID is now being treated as the national emergency. It's not "Democratic spending", it's necessary investment to help those devastated by the crises and helps everyone. The most important thing is to insure fairness. Americans are hyper-sensitive to this after four years of Republican graft and cronyism.
One other point should be made. We don't know how much it will take, only that it will be more. Climate change is a bigger threat than COVID, and can only be addressed by governments.
This bill is just the beginning.
I have no idea whether $1.9T is too much or too little, but there are portions of that proposed spending that will touch everyone in a way that will cause wounds.
President Biden has not bought in on the $50K forgiveness of student loans, but is willing to agree to $10K of forgiveness. The problem with either amount is the lack of what those students will do next? Will there be a public service commitment? A job to help others? A continuation of pursuing degrees that may never lead to a job or career?
What will be the reaction from those who didn't make the same choice of borrowing too much to pursue their dream? Like that couple over at Huffington Post who are in debt to the tune of $718K...
we saw with the previous COVID relief the lack of controls or need assessment to determine where to direct that stimulus money. Some got stimulus money that should not have. Others deserved stimulus funds, but did not receive anything. Or worse, state government inefficiency led to long delays in getting unemployment and other relief.
Yes, President Biden is in a period where many are willing to wait a bit, and are willing to give him a chance to improve things.
Still others in his own party are waiting for him to stumble so they can take over to pursue a more aggressive agenda.
While I am happy that we can move forward with a new administration, there does need to be some smart decisions that help not only in the short term, but also don't implement policies that will cost us even more in the future. Everything has a cost, but we can't kick the can of paying things back to far into the future.
Modern monetary theory reminds me of a quote from an Ernest Hemingway novel. Someone asks, “how did you go bankrupt?“ The response:
Two ways. Gradually, then suddenly.
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