YOUS President Joe Biden did the world a favor last Thursday when he signed a bill that would save $ 1.9 billion (£ 1.4 tons) in rescue funds to state and federal agencies, millions of students and workers and the US vaccination program.
The money will only appear this week as checks that end up on household doormats, mitigating the pandemic’s blow to those who work and to the many who remain out of work and are under severe financial pressure.
For the rest of the year, the funds are expected to increase U.S. revenue by between 3% and 4%, putting the economy back on track as the pandemic would never occur.
More than that, the effect on trade due to the rising US imports and exports will increase the world economy by an extra percentage point, and it will contribute almost another quarter to its 2021 growth rate, according to the latest forecast from the Organization for Economic Co-operation and Development. According to the Paris-thin tank, the world economy will expand by 5.6% this year due to the lows caused by pandemics – an increase compared to the forecast of 4.2% made in December last year.
As so much has been said about this, some Democrats were surprised that the vote in both houses of Congress is near. Victory follows a 220-211 vote in the House of Representatives, and a single vote, cast by Vice President Kamala Harris, to run the day in the Senate.
However, this was by no means a close debate among the public. A poll by the Pew Research Center last week found that 70% of Americans favor the stimulus package.
David Blanchflower, a well-known labor market economist at Ivy League College Dartmouth, said Republicans will regret their snip and their efforts to derail the plan.
“This is exactly what the US economy currently needs,” he said. ‘In the pandemic, the economy was weaker than they understood, with a large number of people having jobs or not participating in the labor market. The situation is so much worse now that millions of people need help. ”
Blanchflower, who spent three years on the Bank of England’s Monetary Policy Committee before and after the bank crash in 2008, said the US economy had failed more than official figures showed, meaning even a major stimulus of the size of Biden may fail to put the U.S. economy on a permanent path to growth.
The Bureau of Labor Statistics reported this month that as of February 2020, the economy was still 9.5 million jobs lower than in February 2020. Elise Gould, an economist at the Economic Policy Institute, said it translated into a $ 11.9 million deficit at work “when a reasonable counterweight of job growth is used if the recession has not occurred”.
As a lifeline, the Biden package is a blunderbuss, spraying money across a wide range of targets. It will provide $ 350 billion to state, local and tribal governments, preventing the recurrence of the 2008 crisis, when many of these organizations, which have to balance their books, were forced to make serious spending cuts.
There will be $ 30 billion for transportation authorities to cover the loss of passengers and $ 130 billion for elementary and high schools. As in the UK, there will be assistance for those who are unable to repay mortgage loans, although tenants, who are excluded from assistance in the UK, are also part of the agreement.
Students will be forgiven tax payments on loans and federal unemployment payments of $ 300 per week will be extended until September. Most importantly, it offers another round of direct payments to households, with checks of up to $ 1400 to individuals earning up to $ 80,000, single parents earning $ 120,000 or less, and couples with household incomes of no more than $ 160,000.
Barry Naisbitt, an expert on the US economy at the UK’s National Institute for Economic and Social Research, said parts of the package could fall short: ‘There is a question mark over whether the $ 350 billion for states and local areas will be enough if they have so much of the pandemic spending to do. ”
Economists at the Brookings Institution in Washington said that while direct payments of $ 700 billion would increase consumer spending, the one-year rush could lead to a hangover. “Although our estimates show a soft landing, with a temporary and shallow decline in GDP after the fourth quarter of 2021, the slowdown may be sudden and more painful than our forecasts suggest,” said senior colleagues Wendy Edelberg and Louise Sheiner. .
Biden had a dual attack on the package. On the one hand, there were Republicans who, despite pushing a $ 2.2 tonne boost last year, said they feared the latest version would increase national debt to dangerous levels.
Within the Democratic camp, some economists – especially Larry Summers, the former Bill Clinton adviser and president of Harvard – said it was too excessive, fearing that anything above $ 1 ton would overheat the economy and trigger inflation.
US inflation expectations show that investors expect a rise from the annual reading of 1.7% in February, but as high as 2.9% between April and June, before dropping to 2.5% over the rest of the year and up to 2.2% in 2022.
U.S. Federal Reserve Chairman Jerome Powell said last week that a rise in inflation above the target level of 2% would be temporary and therefore could be ignored. If anything, he added, the U.S. economy needed it after more than ten years without any inflation.
Modest rising prices were an indication of economic health and to welcome it, he added, which is a central banker’s way of applauding the package, saying people should not panic about some of the spillover effects not, like rising interest rates, the result of rising interest rates inflation.
In more limited parts of the world, the prospect of overheating is a distant dream. The countries of the European Union have struggled to boost their vaccination programs and a € 740 billion (£ 635 billion) stimulus will take effect more slowly, probably over two years.
Even the UK, which is in line with the US for vaccination rates and is expected to have a quick recovery from June, has dampened fears of high debt and inflation to stimulus plans.
Fortunately, the Biden plan, like many of its policies, extends beyond U.S. borders and will lift all boats.