As the battle over President Biden’s $1.9 trillion stimulus plan intensifies, he must contend with more than just Republican opposition. Some Democrats are skeptical also. At the same time, some congressional Republicans may come around to supporting it. This unusual bipartisanship for and against the plan centers on one simple question: Is $2,000 too much?
Specifically, is a $1,400 check for most Americans, with partial payments going to families with incomes as high as $300,000—on top of the $600 payments authorized in December—the best way to combat the pandemic’s economic damage? That question is turning conventional politics upside-down. It isn’t often that Democratic economist Larry Summers and the libertarian-leaning American Enterprise Institute (AEI) see eye to eye, but they agree that paying out so much so broadly would do more harm than good.
President Trump first advanced the two-grand idea in December, thinking the $600 that Congress had just approved was too stingy. For the first time in his tenure, virtually all other Republicans opposed him. When the Democratic-controlled House then seized the irresistible opportunity to pass a bill authorizing $2,000 checks—embracing their sudden ally, Trump—two Democratic congressmen joined the Republican members voting no. Populist Republican Sen. Josh Hawley and democratic socialist Sen. Bernie Sanders both favor the big checks. Democratic Sen. Joe Manchin of West Virginia and Independent Sen. Angus King of Maine, who caucuses with the Democrats, remain skeptical.
This four-figure number’s strange power to blenderize usual loyalties arises from two different ways of looking at it. Seen at the micro level, it’s a lifeline to millions of Americans who lack jobs or are otherwise suffering as the pandemic rages; plus, sending large checks to constituents is generally good politics. But seen at the macro level, it’s hundreds of billions of borrowed dollars flowing out of the Treasury while creating little prospect of strengthening the economy.
That second view is what unites Summers, the AEI, and legislators of both parties who oppose plus-size stimulus payments. The problem is that more buying power—the purpose of stimulus checks—isn’t what the U.S. economy needs. While the unemployed clearly require help, the vast majority of Americans still have their jobs, pension checks, Social Security benefits, and welfare payments. Combine that fact with previous stimulus measures, including last spring’s $1,200 checks and increased unemployment benefits, and the result is real personal disposable income that’s higher today than it was pre-pandemic—in fact higher than it has ever been.
The pandemic has also frightened Americans into saving more, and many recipients of the previous stimulus checks banked much of that money. Personal savings have surged by over $1 trillion since the pandemic began and now total more than $11 trillion, by far the highest in U.S. history.
Bottom line: The U.S. already holds more spending power than ever. Increasing it further won’t do much for the economy, because consumers are prohibited from spending by mandatory business closures or are afraid to venture into stores, restaurants, theaters, airplanes, hotels, and other places where they normally spend billions per month. Adding significant new stimulus would, however, put the U.S. into “completely uncharted territory,” Summers has argued, with “the possibility of some overheating,” a.k.a. inflation.
Only $70 billion of Biden’s stimulus proposal would fund accelerated vaccinations and COVID-19 testing. For getting the U.S. economy back on track, that expenditure might be the most effective element in the whole package.