Biden’s trumped-up rescue plan is a solution looking for a problem

The Biden administration hit the ground running with an explosive agenda focusing on three crises that require immediate attention without delay: first, the COVID-19 pandemic; second, the related purported weak economy, especially COVID-related job losses that require a stronger stimulus than we have seen so far, in President Biden’s opinion; and third, the economic inequality crisis. 

The trilogy of crises follows former White House chief of staff and Chicago mayor Rahm Emanuel’s famous adage: Never let a crisis go to waste. President Biden has invented three to focus his attention and build voter support, in part because three is more compelling than one. Current emphasis is mainly on the second leg of the trilogy — the economic fallout from the coronavirus — probably because it is the most likely to quickly disappear without the opportunity to spend a massive sum, $1.9 trillion, to truly shock voters with the size of the problem and its solution. The third leg of the trilogy stool — the war on economic inequality — is longstanding and Biden’s $1.9 trillion plan does not directly address it.

Biden’s proposal, termed the American Rescue Plan, is bound for the Senate after House passage early Saturday. It comes on top of three laws passed in March 2020, costing more than $1.9 trillion and addressing the same subjects while deaths from the virus rapidly surged. A fourth bill signed into law on Dec. 27, 2020, restored federal unemployment assistance to $300 per week (down from $600 from mid-March 2020 through July, and $400 from August to about mid-September) in January 2021 through mid-March, and provided a new one-time payment of $600 to couples earning less than $150,000 per year and lesser amounts to individuals, as well as other extensions. This fourth bill cost $900 billion and brought the total to $2.8 trillion. The Biden bill will bring that total to $4.7 trillion, over 40 percent of which is in this latest effort.    

Biden apparently has forgotten his experience as vice president. When the Obama administration was reelected eight years ago, the economy had been recovering slowly for 17 months from a deep recession that raged on for 13 months until they took office; it continued for 18 months of their first term. Biden played a key role in the passage of the American Recovery and Reinvestment Act of 2009, which cost about $800 billion and included tax cuts but larger spending, especially infrastructure and other capital spending incentives. Nonetheless, the unemployment rate when the team was reelected in November 2012 was 7.8 percent, about the same as the 7.7 percent when they won four years earlier. While the unemployment rate had risen to a peak of 10 percent in October 2009, it declined only grudgingly. Even by January 2013, when the second term began, the unemployment rate was 8 percent. Nonetheless, the Obama administration was sufficiently comfortable with economic performance that no major new stimulus was planned or proposed. 

In sharp contrast, by last November’s election, the unemployment was only 6.7 percent, down 8 percentage points from a peak of 14.7 percent only seven months earlier. It was even lower, at 6.3 percent, in January when Biden’s term began. Despite an unprecedented recovery from an equally astonishingly brief but deep recession from last February April, the administration now feels it necessary to provide $1.9 trillion in new stimulus. 

Much of this spending is for items unrelated to the coronavirus, but the federal unemployment assistance is proposed to rise to $400 per week and to last until Aug. 29. A one-time payment of $1,400 to each member of a couple making less than $150,000 a year, or an individual making less than $75,000, is included.

Almost half the proposal is for federal, state, local and territorial and tribal public health agencies for costs related to distribution and administration of vaccines, with additional support specifically for making sure the process reaches underserved areas. Of course, these components were also covered in legislation two months ago and the demand for them started shrinking almost immediately.

There is little case for another generalized transfer to most taxpayers, either. Given the progress of bringing down unemployment, there also is little case for increasing the already generous federal unemployment payments. These benefits should begin to be tapered back to zero, where they were until last March, rather than being increased and extended for over five more months. The unemployment rate is likely to be well below 5 percent by then, a level that some had even believed to be full employment during the earlier Obama-Biden regime. 

Moreover, a federal extension of state unemployment benefits to the self-employed and others who never before were eligible for unemployment benefits should be phased out soon, not extended for five more months. Lacking another major surge in the coronavirus, such as occurred in November and December, or other related new shutdowns, there is no reason for treating the economy, which is back to a rapid expansion mode, like it is sick. 

There is far more in this proposed coronavirus relief plan, including massive aid to state and local governments, despite the fact that most state and local governments have benefited handsomely over the past year from COVID-19 relief, are running balanced budgets or fiscal surpluses, and many have ample rainy-day reserves. There are many benefits for state and local governments, especially for schools and health care, that are largely unspent from the law passed less than two months ago.  

The Biden rescue plan is massive and is more clearly unnecessary with each passing day. This is why the administration thinks it is so urgent for the plan to meet this particular crisis immediately, before it disappears. A leading forecast updated daily shows this quarter to be another of the strongest quarters in recent history, and widespread forecasts for rapid growth throughout the year raise serious questions of the case for stimulating an already strong economy.  

While the pandemic has killed more than 500,000 people in the U.S. since March and infected tens of millions of people, the number of new cases, hospitalizations and deaths now have fallen back to levels not seen since the first surge last spring, and they continue to plummet. Meanwhile, new vaccines are beginning to spread through the population, offering hope that a return to more normal conditions could arrive by June, according to Dr. Anthony Fauci. 

The anticipated path of future COVID-19 costs was well-funded in the earlier legislation. It is also giving the economic recovery renewed strength so that the unemployment rate is likely to decline to close to 5 percent and achieve full recovery to its pre-pandemic, real GDP level in the current quarter. This is much faster than forecast earlier in the year, even without Congress passing the largely unnecessary American Rescue Plan. The plan is a boondoggle looking for an already-addressed problem.

John A. Tatom is a fellow at the Institute for Applied Economics, Global Health and the Study of Business Enterprise, Johns Hopkins University, and a former research official at the Federal Reserve Bank of St. Louis.