Economists Call For “Sweeping, Bold” Covid-19 Rescue Package

After the initial good feelings around Joe Biden’s inauguration, economic reality is catching up.  On Wednesday, Chairman Jerome Powell gave a sobering assessment of how far the economy still has to go, helping to spook the stock market.  That’s why Invest in America, a new group advocating “robust public investment” is calling on Congress to quickly pass a “sweeping, bold” spending package like the one the President has proposed.

The deep pandemic recession hasn’t gone away.  Chairman Powell noted some economic gains, but pointed to falling employment in December the fact that “millions of Americans remain out of work” especially “lower-wage workers” and “African-Americans and Hispanics.”  Reflecting the weak economy, Powell said the Fed would keep the federal funds rate between zero and one-quarter percent as there are no signs of inflation and several of economic weakness.

This economic weakness can’t be solved by low interest rates.  If people are out of work and out of income, then there’s insufficient private demand to lift the economy.  Businesses won’t borrow and invest if they don’t see adequate demand for goods and services on the horizon. The solution is fiscal policy—government deficit spending.

Polls show the American people understand both the problem and the solution.  Earlier this week, Invest in America released a new poll showing 77% of Americans support “another major stimulus package” with 68% saying it should be larger than last December’s $900 billion.  Support is widespread.  A new spending package is supported by 64% of Republicans, 61% of Trump voters, and 58% of self-described conservatives.

They’re right.  America has multiple needs that must be addressed now.  The problem and solution are outlined in a letter released today by Invest in America, signed by over 120 economists (disclosure:  I’m one of them).  In the letter, we call for a new package with household stimulus checks, additional unemployment insurance, aid to state and local governments, and assistance in getting vaccines and public health ramped up.

But wasn’t there just a $900 billion package in December?  Why don’t we just wait and see what impact that has?  That’s the position taken by some moderate Republican Senators, including Susan Collins (R-ME) who argues a new package is “premature” and Mitt Romney (R-UT) who said “”I’m not looking for a new program in the immediate future.”

These Senators and other Washington policy makers haven’t learned the lesson from 2008’s Great Recession, where our spending was too little and too slow.  Incoming Treasury Secretary Janet Yellen, a top economist who understands the issues, has called on Congress to “act big.”  She said in her confirmation hearing that “Economists don’t always agree, but I think there is a consensus now: without further action, we risk a longer, more painful recession now and longer-term scarring of the economy later.”

That’s exactly the point Invest in America’s letter makes, along with a moral one.  The letter notes the “catastrophic impact” the Covid-19 recession is having on “America’s economy, family, and businesses.”  They are suffering through no fault of their own.  So “going big” isn’t just good economics, it’s the right thing to do.  Congress should listen to Secretary Yellen, and to the economists’ letter.  Do the right thing—“go big”—now.