By James Pethokoukis
When President Biden signs the nearly $2 trillion COVID-19 relief bill, he’ll be signing a pretty popular piece of legislation. A whopping 76 percent of Americans support the American Rescue Plan, according to a Morning Consult/Politico poll, including 60 percent of Republicans. Of course, what’s not to like? The consensus message coming from much of Washington, Wall Street, and the media is (a) more spending equals more growth and (b) if there’s a constraint or limit on US borrowing capacity, it’s so distant as to not merit concern. (It’s like, I dunno, orthogonal or something.)
Now it’s true that as the expected amount of relief/stimulus has expanded over the past few months — don’t forget the $900 billion package from last December — so have bank forecasts about economic growth this year and next. If the smartest folks in the room aren’t worried, why should anyone else be? Then again, sometimes the smarties get it wrong. Maybe it’ll turn out that Wall Street has been too blase about inflation — and the chances of an unexpected and unexpectedly forceful Fed response. This bill is hardly a risk-free endeavor by Biden and congressional Democrats.
So, one concern is that a perilous fiscal lesson is being taught to the American public, one that will only be unlearned through hard and expensive experience. My other worry is the lesson being taught about how an advanced economy generates economic growth. Forget all that stuff about high-skill immigration, pro-investment tax reform, deregulation, opening markets, worker training, blah, blah, blah. Doing all that stuff sounds kind of hard — at least compared to cutting checks.
But what happens after the boomlet? Sure, Goldman Sachs is looking for real GDP growth to average around 6 percent over the next two years, the best since the 1980s. But its 2023 forecast is for just 1.7 percent. A return to the new normalcy. At some point, policymakers have to attend to all that boring supply-side stuff that could help boost productivity growth. Some things in the next Biden spending plan might be helpful in that regard. Other bits maybe not. Let’s see what the next $2 trillion (or more) bill in about a year has to offer.
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