Joe Biden has proposed a $ 1.9 trillion (£ 1.4 trillion) bailout plan to help the US economy recover from the pandemic. Many republicans stand against, suddenly consumed by fiscal religion they unceremoniously abandon as long as your party controls the White House. The massive tax cuts that the Republican Party gave to billionaires and corporations in 2017 resulted in the highest fiscal deficits on record in the United States, outside of a deep recession or war. But the promised investment and growth never materialized.
Rather, Biden’s proposed spending plan is urgently needed. Recently released data shows a slowdown in the US recovery in terms of both GDP and job. There is overwhelming evidence that the recovery package will provide a huge stimulus to the economy and that economic growth will generate substantial tax revenue, not only for the federal government, but also for states and municipalities that now lack the funds they need to provide. . essential services.
Opponents of the Biden plan also falsely warn against inflation, that lurking bogeyman who is more of a fantasy than a real threat today. In fact, some data suggest that wages may be falling in parts of the economy. But if inflation emerges, the United States has ample monetary and fiscal tools.
The economy, of course, would be better off without zero interest rates. It would also be better if policy makers increased taxes by imposing pollution levies and re-establishing greater progressivity in the tax system. There is no valid reason why the richest Americans should pay lower taxes as a percentage of their income than those who are much less well off. With wealthy Americans having been the least affected, medically or financially, by the coronavirus pandemic, America’s regressive tax system has never looked uglier.
We have seen how the pandemic has devastated some sectors of the economy, causing high rates of business closures, especially among small businesses. There is a real risk that failing to pass a large recovery package will cause enormous and possibly lasting damage. This is because poor economic performance increases economic anxiety (aggravating anxiety induced by the pandemic itself), leading to a downward spiral in which precautionary behavior reduces consumption and investment, further weakening the economy.
In fact, whatever the cause, weak balance sheets and business failures fuel a contagion that will infect the entire economy, with powerful hysteresis effects coming into play. After all, companies that went bankrupt during the pandemic will not emerge from bankruptcy when Covid-19 is brought under control.
The poorest countries do not have the resources to support their economies that developed countries do. China played an important role in the recovery from the 2008 global financial crisis; But although it was the only major economy to grow in 2020, its recovery was markedly weaker than after the 2008 crisis (when annual GDP growth exceeded 9% and 10% in 2009 and 2010, respectively). China is also now allowing its trade surpluses to grow, which is less of a driver for global growth.
Because the Biden plan incorporates the key features of what to do, it promises to generate large returns. A first priority is to ensure the availability of funds to combat the pandemic, allow children to return to school, and allow states and localities to continue to provide the health, education, and other services that people depend on. Expanding unemployment insurance will not only help the vulnerable. By providing peace of mind, it will lead to increased spending, with benefits for the entire economy.
The moratorium on evictions until March 31 and assistance to low-income families will also boost spending. More generally, it is well established that the poor have a high propensity to consume, so a package aimed at increasing income at the base (including an increase in the minimum wage, child credits, and the income tax credit of the work) will help jump-start the economy. .
Under Donald Trump, programs that targeted small businesses weren’t as effective as they could or should have been, in part because so much of the money went to businesses that weren’t really small and in part because of a number of problems. administrative. It appears that the Biden administration is fixing those problems. If so, expanding aid to businesses will not only help in the short term, but will also put the economy in good stead as the pandemic fades.
Economists will doubtless argue over every feature of program design: how much money should go here or there; what the threshold should be to receive cash benefits; and the optimal triggers for reducing the unemployment insurance program. Reasonable people may not agree with these details. Adjusting them is part of the matter on which political commitment is made.
But where there should be no disagreement is that large amounts of money are urgently needed, and that the opposition is ruthless and dangerously short-sighted.
• Joseph E Stiglitz He is a Nobel laureate in economics, a university professor at Columbia University, and chief economist at the Roosevelt Institute.
George is Digismak’s reported cum editor with 13 years of experience in Journalism