US stimulus falls short of what is needed


The agreement on a new US stimulus package is too little too late — but it is also welcome for being better than nothing. Congress have spent nearly nine months debating what to include in the bill. In that time the coronavirus pandemic has continued to spiral out of control and, without government support, millions of Americans have been driven to destitution and thousands of businesses have failed.

On Sunday, congressional Republicans and Democrats finally agreed to make $900bn available for the economic response to the pandemic. This will be the second largest economic stimulus bill ever in US history. The funds are not only intended to help the US economy survive what will be a difficult winter but also to help finance the rollout of vaccines to protect the country’s citizens.

The package will not be enough. It follows a much bigger initial stimulus in March when Congress made a deal on $2.2tn worth of spending that aimed to help the US economy survive the first wave of coronavirus. The latest stimulus is far smaller but the pandemic is no better today than it was in spring. In fact, on many metrics both the public health and economic emergencies are now worse: earlier this month the US had its worst week in terms of deaths of the whole pandemic. The number of Americans registering for unemployment benefits has, once again, begun to increase — as have poverty rates.

Democrats seem to have deferred to Republican desires to keep the total amount of spending below $1tn. Before the November election, Democrats rejected as insufficient a proposal by president Donald Trump for a $1.8tn package. The politics have changed and there were reasons for urgency. The calculation appears to be that, with Mr Trump soon to leave the White House and a likely divided senate or, at best, razor-thin Democratic control following elections in Georgia, Republicans will soon rediscover their commitment to balanced budgets and hold back further spending.

The deal still represents substantial progress. The agreement will extend both the current system of unemployment benefits and the Paycheck Protection Program, which provides loans for small businesses that keep employees on the payroll, as well as launch a new round of direct payments to ordinary Americans. All of this is sensible. Thankfully, too, an attempt by Republicans to neuter the Federal Reserve’s ability to use emergency lending programmes to respond to any turmoil in bond markets was stopped.

The incoming administration of president-elect Joe Biden and his Treasury secretary Janet Yellen must now decide how to build on this support package. More will soon be needed — not least because the extension to some programmes will only last three months. Unfortunately, there was no agreement on support to cash-strapped state and local governments. Without some federal underpinning, a wave of public sector workers will soon face redundancy alongside their private sector peers.

Mr Biden could already provide some reassurance to workers and companies by setting out now what he will do on his first day in office. His ability to spend more money is constrained — that is an exclusive power of congress — but he could, via executive order, repeat his predecessor’s decision to raid other budgets to extend unemployment benefits. He has even more creative options; senate minority leader Chuck Schumer, for example, has suggested forgiving student debt. If more bilateral action on Capitol Hill removed the need for such measures, so much the better.


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