In a press conference last week, President Joe Biden showed us his plan to get the economy back on track after a year of ravaging by COVID-19. It will be his first priority after Wednesday’s inauguration. Despite all that has been done so far, further action is an absolute necessity. Some of the plan will likely come with some bipartisan support while others may just be a beginning salvo in a negotiation with Republican leadership. With that in mind, let’s dig into some of the details.
The Good
The stimulus is mostly focused on helping people directly, which also happens to be the most efficient method of delivering stimulus. Let’s go piece by piece.
- Extension of federal unemployment through September with a $400 weekly supplement
- This is ideal because it is direct aid to those who need it most. The pandemic economy has been widely divergent with some people struggling while others have done fine or better due to lower costs.
- Earned Income Tax Credits are approximately tripled and eligibility for the program is expanded.
- This helps people whose hours have been cut, but it also expands the single most effective program we have for lifting people out of poverty. It is efficient in that it minimizes bad incentives and it is a precise instrument for putting money into the right hands. This should be a bipartisan slam dunk.
- Renews requirement for paid leave to workers and expands paid sick leave for federal employees.
- We do not want to force sick people to come to work to spread their ailments. This is particularly important in a pandemic.
- Funds vaccination and prevention efforts with $20 billion for vaccination, $50 billion for expanded testing, $10 billion for pandemic supply manufacturing, and $30 billion for the Disaster Relief Fund
- We can’t recover until the pandemic is over. This one is obvious.
- Puts $130 billion towards safely reopening schools
- The World Bank estimates a 5% loss of lifetime income from six months of missed schooling. Testing is already showing much worse learning outcomes for children learning remotely (especially low-income children). Kids need to get back to school, but protective measures are not cheap. This helps.
- Sends $350 billion in aid to state and local governments
- Most economists (and me) have been big proponents of this measure. People rely on services from their local governments far more than they do on the federal government.
- This decentralizes spending and allows people who are much closer to their constituents to determine how to help those constituents.
- For context, this is a bit more than 10% of total state and local government spending per annum
- Dedicates $5 billion to housing the homeless
- Data show that the best way to help homeless people re-enter society or prevent people from becoming homeless is to help them find housing. Outcomes for those who have housing are, unsurprisingly, much better. It also SAVES money by reducing the resources that need to be spent caring for people roughing it on the streets.
- Student debt forgiveness is NOT on this plan
- College graduates have done better in general, making nearly twice as much as those without a college degree. The pandemic has only exacerbated this disparity by putting more pressure on blue-collar workers. Student debt forgiveness is, in effect, a wealth transfer from low-income workers to higher-income workers.
- It may be a little weird to mention something not even in the plan, but Biden has been under pressure from many on the left side of the Democratic Party to make this a priority.
The Bad
Some parts of the plan misinterpret the problems we face, though. The economy is gushing with liquid cash; it just isn’t in the right places.
- The $1,400 stimulus check
- It is simultaneously the most expensive and least targeted measure. Referring to the above chart, you can probably gather that most Americans are doing OK. Why are we giving big checks to people who don’t need it? We need to be focusing on those who lost their jobs or exited the workforce because of the pandemic. This piles up debt without giving us the results we need. Unfortunately, this is also the most covered item, perhaps because it’s simple and everyone gets it.
- I do think we need to redesign our welfare system to make it simpler and focus on cash, but that is a discussion for another day. This is not the way to revive an economy, it’s the way to add to inflation and debt.
- The $15 minimum wage
- This is probably the worst item in the bill. I’m skeptical that it will pass, but it is bad even as a negotiating tactic. Median wage in Mississippi is $15 per hour. That means that half of all workers in that state make less than $15 per hour. There are many states in the union where the new federal minimum wage would be very close to the median. Costs are different in different places and making a blanket federal minimum wage this high would be disastrous for those places.
- Referring to the chart above, you can see that small business owner income (under proprietor’s income) didn’t do as well as other parts of the economy. Bringing wages that much higher would be disastrous for them. This is better left to the states.
- Extension of an eviction ban through September with $30 billion earmarked for renters and small landlords
- In theory, we do want to keep people in their homes. However, this policy has given disruptive renters a free pass and some are taking advantage of the situation to just not pay their rent. Other measures being taken should be enough to support people who have lost their incomes due to the pandemic.
- Additionally, landlords with portfolios of all different sizes are essentially being forced to pay for public housing. I’m quite sure they’d rather have the freedom to do with their property what they wished rather than a small supplement for dealing with bad tenants. There have been plenty of stories about landlords offering checks to tenants to just move out even after forgiving unpaid rent.
The OK
Some parts of the bill are better than doing nothing, but should be better executed.
- Tax credit for 50% of spending on childcare up to $8,000 per year on one child or $16,000 per family and an expansion of the child tax credit of 50%+
- Parents of young children have encountered some very real problems as schools have gone remote. It’s also important that we encourage people to have children; population growth is key to economic growth.
- Subsidizing childcare is, unfortunately, not the best way to help. This will lead to inflation in childcare costs, making it that much more difficult for those who pay less than $8-16k in taxes to afford that care.
- Instead, giving parents cash allows them to spend it on things they know will help their children. Is grandma taking care of the kids? Spend it on helping her pay for gas, food, and activities. Need to hire a babysitter? Do that instead! A famous lyric from an Eminem song says that food stamps don’t pay for diapers. Cash is good for anything.
- SNAP (food stamps) gets a 15% boost
- Again, helping people who are struggling is good and SNAP is pretty targeted, but cash is better because of its versatility (see above).
- Small businesses get $15 billion in grants and $35 billion in federal funds will be leveraged into $175 billion in loans to small businesses
- As you can see from the chart above, small businesses have not done very well over the past year. This is particularly true for restaurants, bars, and businesses relying on tourism or travel. Sending help their way helps bridge the gap until we get the virus under control.
- It is not targeted, though, and may be propping up businesses that would be dying even in the absence of COVID. Instead, giving businesses that have been forced to suspend offering their services or restricted in how they can do so due to lockdowns or stay-at-home orders grants of some percentage of their 2019 reported income could help them pay overhead while avoiding keeping zombie firms on life support.