Biden’s grand plan, China’s grand plan, the regulators’ grand plans, and more.
If we are looking at the economy as it is now, the most significant (despite some comfort from industrial production data) recent economic news was almost certainly the latest unemployment claims data.
The New York Times (from yesterday):
Ten months after the coronavirus crisis decimated the labor market, the resurgent pandemic keeps sending shock waves through the American economy.
Though more than half of the 22 million jobs lost last spring have been regained, a new surge of infections has prompted shutdowns and layoffs that have hit the leisure and hospitality industries especially hard, dealing a setback to the recovery.
The latest evidence came on Thursday when the Labor Department reported that initial claims for state unemployment benefits rose sharply last week, exceeding one million for the first time since July.
Just days earlier, the government announced that employers had shed 140,000 jobs in December, the first net decline in employment since last spring, with restaurants, bars and hotels recording steep losses.
And the retail sales number didn’t provide much relief either.
U.S. consumers cut back on retail spending at the height of the holiday season as the country confronted a surge in coronavirus infections.
Retail sales, a measure of purchases at stores, restaurants and online, declined a seasonally adjusted 0.7% in December from the prior month, the Commerce Department said Friday. That marked the third consecutive month of declines, and November’s retail sales were revised lower to a 1.4% drop, after a stretch of growth last spring and summer.
Stephen Stanley, chief economist at Amherst Pierpont Securities LLC, said December retail sales were “an absolute disaster.” Still, he said that “no matter how far we fall in the short run, the assumption in financial markets is that we’ll recover once the pandemic ends.”
In time, doubtless, that’s true, but how long will it take?
Understandably though, attention is turning to Joe Biden’s stimulus (and lots of other stuff) plan.
Mr Biden’s $1.9tn plan, which will be entirely financed by new borrowing, includes a new payment of $1,400 to most Americans, supplementing the $600 cheques recently received by individuals earning less than $75,000 per year. That would bring the total value of recent direct payments to $2,000, the level backed by both Mr Trump and Mr Biden in recent months.
It includes a $400 per week extension of emergency unemployment benefits until September, preventing a cliff-edge in support for the jobless that would have happened in March.
There will also be a $350bn cash infusion for budget-strapped state and local governments to prevent lay-offs of public sector workers, a priority for Democrats that has been long-resisted by Republicans.
A further $50bn will be set aside for grants and loans to struggling small businesses, on top of the Paycheck Protection Program established during the pandemic to prevent small business failures, which was recently replenished by Congress.
A big component of Mr Biden’s rescue plan is $400bn of new spending to tackle coronavirus, including $160bn for testing and tracing, as well as a national vaccination programme that could help the administration meet its goal of inoculating 100m people within its first hundred days.
Also in the mix is $130bn to accelerate school reopenings across the country.
The US Chamber of Commerce, America’s largest business lobby group, was broadly supportive. “We applaud the president-elect’s focus on vaccinations and on economic sectors and families that continue to suffer as the pandemic rages on,” it said, adding: “We look forward to working with the new administration and Congress on the details and in ensuring that any additional economic assistance is timely, targeted, and temporary.”
Mr Biden is also expected to call for Congress to increase the federal minimum wage to $15 per hour, a Democratic priority for many years that is backed by labour unions.
And he will push for an expansion of the child tax credit, an extension of a federal moratorium on evictions and foreclosures until September, while providing $30bn in assistance for Americans struggling with rental and utility payments.
Some of what Biden is proposing is reasonable, and when I say some, that refers not only to the areas in which spending is being proposed, but also the amounts. A key problem is that the president-elect’s proposals are rather less targeted than the U.S. Chamber of Commerce would have us believe.
Robert VerBruggen writing on this site:
Some elements of the plan — particularly those that fight the virus directly — are at least worth debating. The vaccine rollout has not been as fast as anyone would hope, for example, and Biden would like to pump some money and manpower into improving it. But according to Biden’s own outline, only $160 billion in spending is targeted “to mount a national vaccination program, expand testing, mobilize a public health jobs program, and take other necessary steps to build capacity to fight the virus.”
More federal money being spent on the rollout of the vaccine makes sense to me. It may well be that this is a solution that will pay for itself, but it will only do so if (and it is a very big if) government can bring itself to both provide necessary funds and avoid micromanaging the process. Time and time again during this pandemic, government has gotten in the way of a speedier resolution. Is that now going to change?
Remember the whole kerfuffle about $2,000 checks to most Americans, regardless of whether they’ve been financially harmed by COVID-19? Well, that’s back. Biden wants to send another $1,400 out to complement the previous bill’s $600 checks.
It would have been infinitely better to target that money (or some of it) much more selectively.
Then there’s unemployment. The previous bill, quite justifiably, added $300 per week to the normal unemployment payouts until mid-March. As I argued at the time, this will pay some people more than they made while working, but it’s reasonable under the circumstances, and it should help the economy as it’s spent. Biden, however, wants to bring those bonuses up to $400 and continue them through September, adding that he’ll “work with Congress on ways to automatically adjust the length and amount of relief depending on health and economic conditions so future legislative delay doesn’t undermine the recovery and families’ access to benefits they need.”
Robert questions extending these benefits to September:
By September, the vaccines should have been widely available for months, and the economy should be in far better shape. Why pass such a long-lasting measure now, rather than waiting to see how things go?
I worry less about that, in that (if I had to guess) the economy will still be in a tatty shape for, at least, most of the first part of the year. The expectation of security until a somewhat later date has psychological (and by extension) economic value in the confidence that such a measure brings with it.
The same goes for the extended moratorium on evictions, but it’s good that something, if this plan passes, will also be going to small landlords. Not all landlords are large corporations or, for that matter, the grasping villains of ancient (or not so ancient) socialist propaganda.
According to a 2017 study:
The US rental market is comprised of two different kinds of owners: the large institutional owner and the independent owner. Of the 44 million rental units in the US, independent landlords own the majority with a total of 24 million units. There are 8 million independent landlords across the country.
By one estimate, after 10 months of record job losses and business shutdowns, rental arrears in the U.S. may be closer to $70 billion.
The plight in which small business has found itself, thanks to the pandemic and the shutdowns, is hardly a secret, and it has rightly been getting some help. It seems reasonable to recognize that independent landlords also fall into a similar category. According to that same (Avail) survey:
The majority of . . . [the landlords who responded] are between 30-59 years old. They have full-time jobs and manage their rental on the side. They tend to own one unit with the goal of buying more properties. Their ideal portfolio size is 2-5 units.
How many of them are still in full-time jobs is, I imagine, unknown.
Speaking of small businesses, it is not clear to me how they will be helped by the proposed increase in the national minimum wage. As Robert observes:
Not all the provisions even have an obvious connection to the COVID-19 crisis. For good measure, Biden also tosses in a $15 minimum wage, which is above the median wage in some parts of the country, especially poor rural areas. In fact, $15 was the median wage, to the cent, for the state of Mississippi as a whole in 2019.
And, as Ramesh Ponnuru noted here, increasing the minimum wage isn’t going to be great news for the unemployed either.
In conclusion, it’s all too easy to come to the conclusion that Biden has taken the worthy aim of extending the bridge necessary to get us to the other side of this pandemic, and then taken it to places where it shouldn’t go by adding billions of dollars of additional expenditure on items that have little or nothing to do with COVID-19 and everything to do with a broader agenda that ought, more properly, to be the subject of a separate debate. This is a…