Biden can’t afford to repeat the mistakes made 12 years ago, when he headed the recovery effort amid the financial crisis. The Obama administration checked its proposals to combat the worst economic downturn since the Great Depression only to face criticism that the response was too small, leading to a painfully slow recovery.
The political and economic realities have changed a lot since 2009, which is allowing Biden to trade restraint for ambition.
And this is only the first step. The President intends to release a recovery plan at his joint address before Congress next month. The size remains to be seen, but Biden has said it will include “historic investments” in infrastructure and manufacturing, innovation, research and development, and clean energy.
Those proposals, however, need approval from Congress and will likely be scaled back as they work their way through the legislative process. Already, Republicans — even moderate ones like Sens. Susan Collins of Maine and Mitt Romney of Utah — have expressed doubts or opposition to passing another major relief bill on the heels of the $900 billion package.
The President can do this because it’s a regulatory change for a mandatory appropriation, said Brian Deese, director of the National Economic Council.
Shift in political views
Though some Republicans have already expressed concern about spending more federal funds, overall the political landscape has changed greatly, said Douglas Holtz-Eakin, president of the center-right-leaning American Action Forum and chief economic policy adviser for late Republican Sen. John McCain’s 2008 presidential campaign.
“This is an environment where there is very little regard for the consequences of higher federal debt, if any, on both sides,” Holtz-Eakin said. “The parties have changed. You don’t really have core constituency of fiscally conservative centrist Democrats or fiscally conservative Republicans.”
New members of Congress are not steeped in the importance of having things add up, so they don’t push for legislation to do so, Holtz-Eakin said.
In the most recent quarter, the federal budget deficit was $572 billion, up more than 60% from the same period a year earlier, largely because of federal pandemic relief programs.
“There’s just a sense that they want to do bigger things,” said Jason Furman, an economic policy professor at Harvard, of the progressives. Furman, who was a deputy director of the National Economic Council in the Obama administration, helped craft the 2009 American Recovery and Reinvestment Act.
New economic ideas
“There seems to be more openness to borrowing, especially during downturns,” said Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget, which advocates for fiscal responsibility but believes that deficit spending is important during the pandemic to deal with the virus and stabilize the economy.
Low interest rates make it more palatable to borrow. The rate on the 10-year Treasury bond is hovering around 1.1% versus 2.4% in January 2009.
The nation’s top policy makers have also given their blessing to continue to spend, saying the economy is still too shaky to pull back on assistance.
“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” Powell said. “By contrast, the risks of overdoing it seem, for now, to be smaller. Even if policy actions ultimately prove to be greater than needed, they will not go to waste.”
“Neither the President-elect, nor I, propose this relief package without an appreciation for the country’s debt burden,” she said. “But right now, with interest rates at historic lows, the smartest thing we can do is act big. In the long run, I believe the benefits will far outweigh the costs, especially if we care about helping people who have been struggling for a very long time.”