Democrats Struggling with Legacy of Mixed Covid-19 Stimulus on Anniversary

WASHINGTON — As Democrats crafted a $1.9 trillion Covid-19 relief package last year, they repeatedly argued that the risk of doing too little to help the economy outweighed the risk of doing too much. .

On the anniversary of the American Rescue Plan becoming law, they were forced to face that risk assessment again. While Democrats say the strength of the economy’s recovery from deep within the Covid-19 recession shows their approach is right, they face criticism today. increasing that inflation shows that this plan has heated up the economy. Even some Democratic lawmakers say they may have scaled back some elements of it.

Now, the Biden administration is stepping up efforts to document the plan for the nation’s low unemployment and the strength of the economy, while preventing soaring inflation and Americans’ sour view of the economy. economy in general.

President Biden recently said of the Rescue Plan for Americans, “Few legislation has done more in this pivotal moment in our history to get us out of this crisis.”


Photo:

Joshua Roberts / Bloomberg News

That effort has become all the more urgent for Democrats as much of their domestic agenda has stalled. Instead, a plan that Democrats intended as a rebate for a broader economic overhaul has become one of the party’s main legislative achievements ahead of the midterm elections. period.

“I have yet to meet any part of the law that I consider perfect. Again, you have to recall that this was done in a hurry,” said Senator Angus King, an independent from Maine who has been caucusing with Democrats. “Given the time and the state of the economy and the state of emergency, it’s better to stay away from overspending, if you want, in some areas, than to accept not doing enough.”

Last year, the economy grew at its best annual rate since 1984, and the economy added 6.7 million jobs, more than any other year on record. President Biden, Treasury Secretary Janet Yellen and other administration officials are crisscrossing the country this week to draw attention to the role the Rescue Plan America played in that operation.

The IRS sent about 90 million stimulus checks to Americans in March. WSJ chief economic commentator Greg Ip explains why stimulus alone is unlikely to spur inflation. Photo illustrator: Carlos Waters

“Few legislation has done more in a pivotal moment in our history to get us out of this crisis,” Biden said in a State of the Union address last week.

Their efforts to promote and protect the rescue plan come as US inflation has reached a 40-year high. The Labor Department reported on Thursday that the consumer price index – a measure of what Americans are paying for everyday items – rose 7.9% in February from the previous year, the fastest pace since January 1982.

American confidence in the economy has fallen to its lowest level since April 2020, at the height of the pandemic, according to a recent Gallup poll. Republicans, who are seen as likely to take control of the House of Representatives later this year, were quick to blame the legislation for the rise in inflation. The criticism has frustrated Democrats, who passed the rescue law without any support from the GOP and many in the party hoping to use the bill as a major asset. as they try to maintain control of Congress in the midterm elections.

“Politically, the jury is out, and we can help shape how that happens,” said Rep. John Yarmuth (D., Ky.), the 74-year-old Chairman of the Commission House Budget Committee, said. will retire after this term.

Independent economists, including at Moody’s Analytics and the Federal Reserve Bank of San Francisco, say the bailout’s impact on inflation is actually quite small. Administration officials have argued that lions’ higher inflation rates are due to supply chain disruptions and altered consumption patterns during the pandemic.

The rescue plan is the last of the massive Covid-19 relief packages. Unlike previous rounds of aid, Democrats take control of Washington – and are eager to put it to use. The party quickly turned to blueprints previously opposed by Republicans, including a $2.2 trillion plan pursued by House Democrats in the fall of 2020.

One of the largest pieces of the bill was a $1,400 stimulus check sent to many Americans, accounting for about $400 billion in costs. In late 2020, then-President Donald Trump urged Congress to increase the size of the check from $600 in a separate aid plan. Democrats then undertook a new round of checks, a central component of their meeting in the Georgia Senate pass that ultimately gave the party control of the boardroom.

Sen. Mark Warner (D., Va.) said: “The most potentially inflationary part of the ARP is the $1,400 check, which I’ve always been a little hesitant about from day one. “But I understand why they’re loved.”

A small group of outside analysts and economists warned that the package was too large and could cause inflation amid the economic recovery at the time and previous rounds of aid. “It’s the right package, just not the right size,” said Olivier Blanchard, an economist and senior fellow at the Peterson Institute for International Economics.

Jared Bernstein, a member of the White House Council of Economic Advisers, said the administration looked at real-time and projected economic shortfalls for groups like families and state governments when identifying Defines the package structure.

“Those types of estimates always have confidence intervals around them,” says Bernstein. “I would argue that confidence intervals could be wider in periods of great uncertainty, but that is the essence of policymaking.”

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Political and public concerns about inflation mean Mr. Biden has so far been unable to win final congressional approval for the next $2 trillion package of education programs, climate change and health care, as well as tax increases. That package, called Build Back Better, has stalled in large part because of objections from Senator Joe Manchin (D., W.Va.). Manchin said in a West Virginia radio interview in February that the coronavirus relief aid Congress injected into the economy had overheated, arguing against federal spending. state on a larger scale.

Austan Goolsbee, who served as chairman of the White House Council of Economic Advisers during the Obama administration, argues that the main obstacle to passing Build Better is not the Plan’s supposed inflationary impact. Rescue America, but it’s tough to pass the third major bill on both the rescue plan and the bipartisan infrastructure law. “When it’s been a year and you’ve done two things, I think that jeopardizes the third,” Mr. Goolsbee said.

Write letter for Andrew Duehren at andrew.duehren@wsj.com and Amara Omeokwe at amara.omeokwe@wsj.com

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