A massive stimulus now can save money later

By Catherine Rampell,

There are two main arguments for Congress to provide generous, immediate fiscal relief. One is based on humanitarian concerns; the other, economic growth. President-elect Joe Biden should use both in his continuing efforts to sway penny-pinching lawmakers.

On Friday, in response to a particularly “grim” jobs report, Biden made a plea for Congress to extend a lifeline to Americans now and not wait until a new administration arrives next month. Empathy is Biden’s superpower, and understandably, he emphasized the bleeding-heart case for relieving economic hardship. It goes something like this: Tens of millions of Americans are still unemployed or underemployed. Many are heading into the holidays woefully behind on rent and other bills; they may soon face eviction or foreclosure once emergency federal programs expire on New Year’s Eve.

Hunger and other forms of deprivation have also skyrocketed. It’s unconscionable that, here in the richest country on Earth, nearly 1 in 6 households with children report they either sometimes or often didn’t have enough to eat in the previous week.

People are “in trouble through no fault of their own,” Biden said. They desperately need government to “understand” and to help.

But then — briefly — Biden pivoted to a second argument that seemed designed to ply Republican deficit hawks away from their roosts. If they’re not persuaded by the moral or humanitarian case for coronavirus relief, Biden suggested, there’s a cold, calculating economic growth case to be made as well: As large as the upfront price tag of another fiscal relief package might seem, that bill will be worth it in the long run if it helps the economy — and ultimately tax revenue — get back onto its pre-covid track faster.

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“It’s essential we provide immediate relief for working families and businesses now, not just to help them get to the other side of this painful crisis, but to avoid a much broader economic cost due to long-term unemployment and businesses failing,” he said. “By acting now, even with deficit financing, we can add to growth in the near future.”

In other words, Biden is urging Republicans not to be penny-wise and pound-foolish. Even if conservatives claim to prioritize economic growth above all else — as when they argued for unfunded tax cuts, for instance — this priority is best met through generous, immediate, well-crafted fiscal relief. Not premature belt-tightening.

Why would that be the case? Right now we’re closer than ever to widespread distribution of a vaccine — perhaps mere months away! At first blush, this might suggest less urgency for Congress to swoop in with additional rescue funds. But in the several months while we wait, the country’s productive capacity could suffer a lot of permanent damage.

Businesses that not long ago were viable and competitive are failing, first because it’s (temporarily) not safe for them to operate and also because they’ve burned through their cash reserves. They need money to tide them over for a few months so they’ll be ready to reopen and rehire whenever public health conditions allow.

Workers once expected to endure only a brief hiatus from their jobs are increasingly converting to permanent and long-term unemployment. Their skills and networks are deteriorating, and based on the experience of the Great Recession, the stigma of a protracted jobless spell will make it harder for them to get jobs even when there are jobs to be had. Already millions have given up and dropped out of the labor force altogether.

Meanwhile, children — disproportionately those of color and in lower-income households — are falling further behind, thanks to the shortcomings of remote learning. Even if you set aside all the moral motivations for wanting every child to meet their full potential, there’s a hard-nosed economic case for this objective, too: If we want these kids to become productive workers, we must make sure they can, at the very least, read and write. Ensuring they have adequate nutrition has shown to increase self-sufficiency in adulthood, too.

Moreover, it’s unusually cheap right now for the federal government to make these investments in businesses and workers. Interest rates are close to zero. As treasury secretary-nominee Janet L. Yellen noted earlier this year, under such conditions, taxpayers are likely to recoup most or all of the cost of stimulus measures that prevent lasting damage to the labor market. Even some conservative economists who usually bristle at the premise that government spending ever “pays for itself” have argued that some components of federal fiscal relief may do so. (The American Enterprise Institute’s Michael Strain, for instance, recently told me this might be true of the Paycheck Protection Program, if it preserved a lot of the economy’s productive capacity.)

Yes, another massive spending bill would be expensive. But in terms of long-term economic costs, it’s still cheaper than the alternative.

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Read more: Catherine Rampell: The November jobs report has no silver lining. Americans need help — now. Mark R. Warner and Susan Collins: We’ve worked hard to achieve a covid-19 compromise package. We can’t afford inaction. Catherine Rampell: October’s jobs report shows exactly why more fiscal stimulus is needed, ASAP Helaine Olen: Joe Biden’s ‘Groundhog Day’ moment Jennifer Rubin: Joe Biden’s economic team: What a difference an election makes