Wrong Stimulus, Wrong Time – WSJ

Democratic economist Larry Summers and former GOP senator and economist Phil Gramm disagree. But if they do, it is probably worth paying attention to. Now both are warning that President Biden’s $ 1.9 trillion spending plan has more risks than benefits.

Mr. Gramm made the case on our sides this week and Mr. Summers in the Washington Post on Friday. Their economic outlooks are different, but both suggest that the Biden Act’s focus on spending so much right now to boost consumer demand is out of place. They are increasingly supported by economic data.

That is despite Friday’s report that the economy created a disappointing 49,000 new jobs in January. The job report fell short of expectations, but the details show that most of the damage in the labor market is due to government lockdowns and supply shortages. Payrolls were revised down a total of 159,000 in November and December as states closed their shops.

Manufacturing employment fell by 10,000 in January due to a lack of components and labor. Some have hired office workers to run their assembly lines. In particular, the average working week for all private and manufacturing employees rose by 0.3 hours as the companies employed their employees more.

Job losses were particularly striking in nursing homes (31,000), in home health care (13,100), in transport and storage (27,800), in general goods stores (30,500) and in online retail (14,800). It is imperative for employers in these industries to hire, which Congress made difficult by reintroducing the $ 300-a-week for improved unemployment benefits by mid-March. Most low-income workers can make more unemployed.


President Biden and the Democrats jumped on the job report as justification for passing their $ 1.9 trillion spending bill. They say it will take another six months of increased unemployment benefits, $ 1,400 checks for individuals, $ 130 billion for public schools, $ 350 billion for state and local governments, and a potpourri of transfer payments to keep the economy going To give a shot in the arm. It could be bad medicine.

Democrats compare the current moment to the 2009 recession and Barack Obama’s $ 800 billion spending bill. They say it has to be bigger. This comparison works in the opposite direction, however, as the current economy is far stronger than it was in February 2009.

At that time the economy was still in a recession that didn’t end until June 2009. The unemployment rate rose and would peak in October 2009 at 10%. Today the economy has been growing for two quarters, including 4% in the fourth quarter. The unemployment rate has already fallen to 6.3%, a rate that it did not reach in the Obama years until spring 2014. The unemployment rate in January (9.2%) is already lower than in the first 79 months of the Obama presidency.

In terms of spending incentives, the $ 3.7 trillion Congress passed on virus control last year already far exceeds Democrats’ spending during the 2008-2009 recession. Income from personal remittances increased by $ 1.1 trillion last year, or roughly from 2008 to 2010. Couples earning up to $ 150,000 received direct payments of $ 3,600 plus $ 1,100 last year Dollars for loved ones. That’s three times more than the 2008 Bush tax breaks.

Personal savings jumped to 33.7% in April under the Cares Act and were still at a healthy 13.7% in December before Congress passed another $ 900 billion in Covid aid. This means that, unlike in the 2009 recession, households will not be burdened with debt.

Personal bankruptcies, home foreclosures, and loan defaults were the lowest this fall since at least 2003. The mortgage default rate was 0.7% in the third quarter of 2020 compared to 7% in the first quarter of 2009. Home purchases and prices are rising thanks to low interest rates , and people can take equity out of their homes to spend when they need it.

Wages are rising in most industries as employers compete for workers. By December, total employee compensation had exceeded the level in February. It took 34 months for the economy to reach this milestone after the 2008-2009 recession. Millions of recreational and hospitality jobs should return as soon as lockdowns wear off and vaccines are introduced.

According to a recent estimate by the House Budget Committee, $ 1 trillion was unspent from last year’s bills – including $ 59 billion on schools, $ 239 billion on health care, and $ 452 billion on small-scale loans Companies. The state and local authorities created 67,000 jobs in January. You no longer need federal money.


All of this suggests that the economy is poised for a strong recovery as the pandemic subsides even without new federal spending. The money for vaccines and low-income workers who suffer the most is justified, but much of the remainder will far exceed economic or social needs. As Mr Summers puts it, if the Biden Plan is passed, Congress will have spent the equivalent of 15% of GDP responding to Covid before addressing other Mr Biden priorities such as public works.

Sooner or later, all of these expenses will have economic and political costs. The Biden spending calculation is the wrong tool for a growing economy. The best economic incentive is to end the lockdowns and speed up the introduction of the vaccine.

Potomac Watch: House Republicans agree on Liz Cheney and punishing Marjorie Taylor Greene. Images: AFP via Getty Images Composite: Mark Kelly

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