Joe Biden writes a check for America – and the rest of the world | Business

US President Joe Biden did the world a favor last Thursday by signing a bill granting $ 1.9 trillion (£ 1.4 billion) in bailout funds to state and federal agencies, to millions of students and workers and to the American immunization program.

The money will first appear in the form of checks landing on household doormats as early as this week, easing the blow of the pandemic for those who work and for those who remain without work and are under severe financial strain.

Over the remainder of the year, funds are expected to increase U.S. national income by 3% to 4% and put the economy back on the path it would have been in had the pandemic never occurred.

What’s more, the trade effect of rising U.S. imports and exports will propel the global economy by a further percentage point, adding nearly a quarter more to its 2021 growth rate, according to the latest reports. forecasts from the Organization for Economic Cooperation and Development. The Paris-based thinktank estimates that the global economy will grow 5.6% this year from its pandemic-induced low – an increase from its forecast of 4.2%, made last December.

With so much constituency on it, some Democrats were surprised the vote was tight in both houses of Congress. The victory follows a vote of 220-211 in the House of Representatives and a single vote, cast by Vice President Kamala Harris, to win in the Senate.

However, it was far from a close debate among the general public. A Pew Research Center poll last week found that 70% of Americans supported the stimulus package.

David Blanchflower, a renowned labor market economist at Ivy League College in Dartmouth, said Republicans would regret their snipers and efforts to derail the plan.

“This is exactly what the US economy needs right now,” he said. “At the start of the pandemic, the economy was weaker than they thought, with a significant number of people underemployed 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 2008 banking crash, said the US economy had more slack than was shown in official figures, which means that even a major stimulus the size of Biden could fail. to put the US economy on a permanent path to growth.

This month, the Bureau of Labor Statistics reported that in mid-February the economy was still 9.5 million jobs below what it was in February 2020. Elise Gould, economist at The Economic Policy Institute said this translated into an 11.9 million job shortage “using a reasonable counterfactual of job growth if the recession had not occurred.”

As a rescue measure, the Biden package is a deception, spraying money on a wide range of targets. It will provide $ 350 billion to state, local and tribal governments, avoiding a repeat of the 2008 crisis, when many of these organizations, which must balance their books, were forced to cut spending significantly.

There will be $ 30 billion for transportation authorities to cover lost passengers and $ 130 billion for elementary and secondary schools. Much like in the UK, there will be assistance for those who are unable to repay their mortgages, although tenants, who are excluded from assistance in the UK, are also part of the deal. .

Students will receive a loan tax rebate and federal unemployment benefits of $ 300 per week will be extended until September. Most importantly, it offers another round of direct payments to households, sending checks of up to $ 1,400 to people earning up to $ 80,000, lone parents earning $ 120,000 or less, and couples with household incomes. household does not exceed $ 160,000.

Barry Naisbitt, an expert on US economics at the UK’s National Institute for Economic and Social Research, said parts of the package might be insufficient: “There is a question mark over whether the $ 350 billion for states and regions face a large portion of the pandemic-related spending. ”

Economists at the Washington-based Brookings Institution said if $ 700 billion in out-of-pocket payments would increase consumer spending, the one-year binge could lead to a hangover. “While our estimates show a soft landing, with a temporary and shallow decline in GDP after the fourth quarter of 2021, the slowdown could be more abrupt and painful than our projections suggest,” said scholars Wendy Edelberg and Louise Sheiner.

Biden faced a double attack on the package. On the one hand, Republicans, despite raising $ 2.2 billion last year, have expressed concern that the latest version will raise the national debt to dangerous levels.

Within the Democratic camp, some economists – including Larry Summers, former advisor to Bill Clinton and president of Harvard – have said this is overkill, fearing that anything over $ 1 billion will overheat the economy and sets off spiraling inflation.

Inflation expectations in the United States show investors expect an increase from the annual reading of 1.7% in February, but only to 2.9% between April and June, before falling back to 2 , 5% over the rest of the year and 2.2% in 2022.

The head of the US Federal Reserve, Jerome Powell, said last week that a rise in inflation above the target level of 2% would be temporary and for this reason could be ignored. On the contrary, he added, the US economy needed some inflation after more than 10 years without any.

A modest price hike was an indication of economic health and is to be commended, he added, which is a way a central banker applauds the package and tells people not to panic about some of the spillover effects, such as rising interest rates, the corollary of the hike. inflation.

In the most constrained parts of the world, the prospect of overheating is a distant dream. European Union countries have struggled to step up their immunization programs and a € 740 billion (£ 635 billion) stimulus will take effect more slowly, likely over two years.

Even the UK, which matches the US for vaccination rates and expects a rapid recovery from June, has let fears of high debt and inflation dull its stimulus plans.

Fortunately, the Biden plan, like many of its policies, extends beyond U.S. borders and will lift all boats.