Economists See Much to Like in Biden Stimulus, Even If Imperfect

Economists saw much to like in how President-elect Joe Biden’s $1.9 trillion stimulus plan will attack the pandemic and support the recovery, even if key elements may be inefficient or fail to provide long-lasting relief.

Billions in spending to distribute vaccines and improve testing was seen as a positive, along with expanded jobless benefits. At the same time, widespread direct payments won’t necessarily go just to people who need them the most, and it’s not clear if more ambitious parts of the plan could clear a closely divided Senate.

The plan includes proposals to send $1,400 checks to millions of American households, raise the federal minimum wage to $15 an hour from $7.25 and expand unemployment benefits. The package would also devote about $400 billion to speed Covid-19 vaccinations and school re-openings, and about $440 billion mainly to aid “the hardest-hit small businesses.”

This will be followed by a broader program introduced in February focused on longer-term goals such as infrastructure and climate change.

The initial proposal is “essentially a disaster-relief package,” said Michael Gapen, chief U.S. economist at Barclays Capital. The proposals are “not meant to be changing spending and taxes. Their effect is likely to be more limited in terms of multipliers, and effects on economic activity.”

What Bloomberg Economics Says…

“Parts of President-elect Biden’s plan target constraints to faster economic recovery, including funding for vaccine rollout, testing and treatments, areas likely to have high bang for the buck. Extending unemployment benefits past the mid-March cutoff will also ease burdens on the most vulnerable parts of the population. Yet getting the full $1.9 trillion plan through Congress will prove challenging, with state aid and rebate checks to high earners among elements that may be pared back, in our view.”

— Andrew Husby, economist

The plan didn’t immediately spur major shifts in economic forecasts, which generally see an economic rebound in 2021 following last year’s contraction. Gapen said the plan was broadly in line with his expectations for the proposal and his economic outlook.

Some of economists agreed that containing the virus was the most important thing Biden could do for the economy, and the package could help if vaccination spending is done smartly.

“The highest-order things that would be beneficial for the economy are more money for the medical system to treat the sick and handle the logistics of vaccinations,” said Carl Tannenbaum, chief economist at Northern Trust Corp.

Stephen Stanley, chief economist at Amherst Pierpont Securities LLC, said with supplemental unemployment aid set to expire in March, more assistance “obviously needed to be done.”

However, he called stimulus checks a “scattershot” approach.

“Beside being expensive and inefficient, in a normal economic environment it doesn’t work very well,” Stanley said.

Diane Swonk, chief economist at Grant Thornton LLP, said the extra fiscal support was badly needed but might be difficult to pass.

“There’s a reality check that it’s a slim majority in the Senate,” said Swonk, referring to the fact that Democrats will only control the chamber after Biden’s inauguration due to the vice president’s power to break its 50-50 partisan split. Biden’s proposal, she added, may prove “aspirational.”

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