Does Joe Biden's US$1.9 trillion rescue package go far enough?
"This is perhaps the boldest economic proposal since the New Deal."
That's how Harvard economist and former director of the US National Economic Council Larry Summers described president-elect Joe Biden's US$1.9 trillion stimulus proposal.
It sure makes for a good soundbite, but whether it's enough to pull America back from the economic precipice, much less put Biden on equal footing to New Deal architect President Franklin D. Roosevelt, remains to be seen.
It's a lot of stimulus, by any measure. For context, it's more than double the US$831 billion Recovery and Reinvestment Act the Obama Administration passed during the global financial crisis (GFC).
Yet as big as this proposal is, it's only one part of a broader collection of packages to rescue and recover the American economy.
Last year, Congress passed the US$2.2 trillion CARES Act in March before following up with a US$900 billion coronavirus relief bill in December.
Next will come the recovery piece, which you can reasonably assume would include the key policy platforms Biden ran on during the election campaign such as clean energy, infrastructure and healthcare reform.
At the same time, Biden's fellow Democrats in both the House and Senate are hoping to capitalise on the moment by airing wish lists ranging from 'baby bonds', which would see every child in America receive a federally funded savings account, to student loan forgiveness.
About two-thirds of the proposed stimulus would go to individuals, including a $1400 stimulus cheque to eligible recipients, enhanced unemployment aid, extended unemployment insurance, childcare subsidies, and housing assistance.
"The Rescue Plan looks to regain lost economic ground from a largely flailing public health response to the pandemic and the harsh economic consequences of it," Pradeep Philip, head of Deloitte Access Economics, tells Money.
"The stimulus checks are bigger, there is increased unemployment support, measures to assist those facing eviction and hunger, and increased support for local governments and small business."
But possibly the most consequential component is the $20 billion slated for a national vaccine rollout.
"With the pandemic running amuck in the USA, the key to economic recovery is dealing effectively with the health crisis," says Philip.
"The devastation of the pandemic is acute in the US and the stimulus package seeks to address both the rollout of the vaccine(s) as well as deal with the fallout from the pandemic on peoples' lives."
Biden's proposed stimulus is reminiscent of the "go hard, go households" strategy Prime Minister Kevin Rudd adopted during the GFC.
"The question facing the Administration will be whether this will be enough to tie people over until the economy recovers properly," says Philip.
"The goal will be for them to combine the government spending packages with growth-friendly central bank policies to not only recreate a fast rebound in terms of growth, but doing so in a way that rapidly fixes the labour market."
It's classic Keynesian economics - give the money or tax breaks to people who have a higher propensity to spend.
However, Mark Crosby, an economist at Monash Business School, warns that an exclusively bottom-up approach may fall short of a full fix.
"To the extent people need the money and spent it, that will support businesses, but it's not a very direct way of raising business incomes, and that's ultimately what supports jobs."
Crosby points to Australia as an example of government support on both the demand and supply sides.
"In Australia we had JobKeeper and JobSeeker, one type of support for individuals and one for businesses."
Of course, the proposal will have to pass Congress first.
"Already there are concerns that the package may not pass; this must be weighed against the consequences of it not passing," says Philip.
Crosby is more optimistic about its passage through Congress.
"There will be resistance from some Republicans, and that may mean Biden waters down a few things, but even trump has said the cheques need to be bigger," says Crosby.
Should it pass through Congress, the economic reverberations will likely be felt globally, including here in Australia.
"Any stimulus package which underpins growth in the US economy is good for the world economy and good for Australia," says Philip.
"China and the U.S. drive the global economy, and if those two countries are firing then Australia does well, which bodes well for our dollar and commodity markets," agrees Crosby.
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