Biden’s Stimulus Is the Dawn of a New Economic Era

There is a lot of debate right now about the meaning of U.S. democratic leadership on the world stage. In light of recent events, any pretension to that role on President Joe Biden’s part can easily seem hollow. Former President Donald Trump refuses to leave the stage. The shadows of the disputed election and Jan. 6 still hang over Washington. Republicans are as obstructive as ever. The battle to protect U.S. voting rights will have to be fought one gerrymandered and voter-suppressed district at a time.

But democratic leadership requires not just the rule of law and the observance of constitutional propriety. It requires more than just reasonable behavior on the part of all the major parties. It also needs to be demonstrated, simply put, by enacting popular policies when they are needed. Democracy is measured by how rapidly and forcefully it responds to crisis, particularly when that crisis hits those with the least security and the least influence. The urgency of those who are most hard up must be visibly felt within the political system. There are moments when democracy consists precisely in ensuring that obfuscation and procedure do not stand in the way.

On this all-important metric, the Biden administration is delivering. The $1.9 trillion stimulus package to address the United States’ ongoing social crisis, forced through by means of reconciliation in the teeth of Republican opposition, is a true example of democratic leadership in action, one that Europe would be well advised to follow.

Furthermore, in the economic realm, national policies spill over. Far more than in the 2009 recession, the U.S. economy’s rapid recovery that the Biden administration seems determined to unleash will boost global demand. Therefore, it will not just set an example. It will materially assist the recovery of the rest of the world in 2021.

The $1.9 trillion package currently passing through Congress is shaped by compromises within the ranks of the Democratic Party. These frustrate the left. A package with a $15 minimum wage would have been better. A living wage is a basic issue for democracy. It would have made the United States a world leader in at least one dimension of basic labor market standards.

The effect of that example would have been real too. In Germany, the minimum wage is just over $10. In recent weeks, I’ve been asked by anxious business journalists in Berlin what might happen if similar standards applied on both sides of the Atlantic Ocean.

The good news is that although the minimum wage push is not in the stimulus, it is not dead yet. The decision to limit the full stimulus checks to those earning less than $75,000 is frustrating. It is bad politics for minimal fiscal gain.

It is no doubt true that the scale and extreme urgency of the package is necessitated by the patent inadequacy of the United States’ unemployment insurance system. One can only hope that in due course, the Biden administration sets about building a more adequate system.

It would be even better if the package was larger and included longer-term spending on investment as well as immediate relief. The Biden team promise the investment program will be rolled out in the next stage. It, too, will be forced through if necessary through reconciliation.

But for all these caveats, what has to be underlined is how significant it is that the $1.9 trillion bill is being passed. That it is happening so soon after the December stopgap. That it is being forced through regardless of Republican opposition. And that, for all the concessions to Democratic centrists, it is of historic proportions.

Opinions differ about how far below its trend rate of growth the U.S. economy currently is. But it is clear the Biden stimulus is comfortably larger than any of the credible estimates of the output gap. This means the stimulus is designed to deliberately generate a high-pressure economy.

This involves an element of inflationary risk. Bond markets are having a mini tantrum about that prospect. So far, the administration and the Federal Reserve System should be congratulated for holding their nerve. They clearly agree that the risk of doing too little is larger than the risk of doing too much. That is a matter of technocratic judgement. But, as the howls of protest from economist Lawrence Summers make clear, it is more than that. How you strike that balance is a matter of politics. And what we are seeing in 2021 is the balance shifting in favor of the left.

For more than a generation, all the way back to 1993 and the Clinton administration, the bias of technocratic judgement has been the other way. In both fiscal and monetary policy, the preference has been for erring on the side of caution, for penny-pinching when it came to stimulus, and for raising interest rates preemptively. That has left millions of people unemployed when they might have found jobs. It has undercut the bargaining position of working people when they might have been able to demand better pay and conditions. It has made it harder for organized labor to mobilize. It has undercut the case for minimum wages to be raised to a decent level. It has provided little incentive to prioritize investment in increasing labor productivity. And all of this has disproportionately disadvantaged Black workers and especially Black men.

Spending money now to achieve the most rapid recovery possible is the imperative of the moment. It is good for the economy in the long run. And it is the essential prerequisite for a policy orientated toward social justice and racial justice in particular. The full employment mandate enshrined in the Humphrey-Hawkins Act of 1978 is a legacy of the civil rights movement. The Biden administration is arguably the first to take that mission as seriously as it should be.

The twin stimulus packages planned by the Biden administration in 2021 are a vigorous and well-conceived bid to break the desperate cycle of Democratic presidential victories and midterm defeats. A repeat of 1994 or 2010 would be a disaster. In light of the crisis that rocked the United States’ democracy in 2020, the stakes could not be higher.