November 25, 2020

How Failures of the Obama-Era Stimulus Could Guide a Biden Administration

“We have much better tools for tamping down growth that is too fast than we have the tools to boost an economy that’s too weak,” said Wendy Edelberg, director of the Hamilton Project at the Brookings Institution and a former chief economist at the Congressional Budget Office. “Once our economy gets into a slow-growth, grinding scenario, it is very difficult to change that course.”

At the same time, a sharp drop in interest rates even as budget deficits have risen has led many centrist and left-leaning economists to worry less about debt than they did in the Obama years. And Republican support for a $1.5 trillion tax cut in 2017 and a $2.2 trillion pandemic relief bill this past spring has helped reduce sticker shock over 13-figure cost estimates.

Ms. Edelberg published a paper with Louise Sheiner this month estimating that $2 trillion in fiscal stimulus would bring the economy back to its pre-pandemic growth path by the third quarter of 2021. In the absence of any action, they estimate, it could take as long as a decade.

Mr. Biden has cited his work on the 2009 stimulus bill, boasting of his work to prevent fraud and of the role the recovery act played in supporting state and local governments and clean energy. In discussing his 2021 agenda, he has promised “the kinds of investment that will stimulate the economy” and “to get back to full employment fast and help build back better than before.”

Those who advise him say he is aware of the historical echoes.

“Joe Biden doesn’t want to come into office and sit on a sloggy economy for four, six, eight quarters,” said Jared Bernstein, who advised Mr. Biden during his vice presidency and does so now. “If he gets the chance, I suspect there will be real motivation to do this deeply, effectively and quickly.”

In particular, Mr. Bernstein said, a Biden administration would seek “high-multiplier” policies that funnel money to people and businesses that need it and are likely to spend it, helping funds circulate through the economy quickly to fuel growth.

Article source: https://www.nytimes.com/2020/10/19/upshot/biden-stimulus.html

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