Thomas Mills: Will Biden’s more robust stimulus produce faster recovery?
By Thomas Mills
We’re about to learn a lot about economic recoveries.
Back in 2009, then-President Barack Obama, with a hefty Democratic majority in Congress, tried to pull us out of the Great Recession with a tepid relief program designed to attract Republican support. It led to a slow recovery, and when the GOP took control of the Congress and many state legislatures after the 2010 Republican wave, they instituted austerity policies to counteract Obama’s spending. Climbing out of that recession took almost all decade.
As we emerge from the recession caused by a pandemic, President Joe Biden, with a remarkably slim Democratic majority, has instituted a much more robust economic stimulus. Instead of relying heavily on tax cuts like the Obama stimulus, he’s put money in everybody’s pocket and protected people from losing homes and businesses due to loss of income. The economy seems poised to roar back to life.
According the Anderson Economic Forecast at UCLA, the country’s GDP will grow by more than 7% this year and about 5% in 2022. In addition, “the rising wages associated with a labor shortage will be matched by rising labor productivity, meaning that unit costs will remain fairly constant during the next two years.” In other words, they are predicting that the economy is going to boom, wages will increase, and prices will hold steady.
If Democrats hope to hold onto power after redistricting, they will need these predictions to come true and hope that no more pandemics hit or major wars breakout. Republicans control redistricting in key states and they will do all they can to give control of Congress to the GOP. If Democrats can manage to maintain congressional majorities, they will buck powerful trends that give advantage in midterms to the party out of the White House.
Republicans and conservatives, for their part, are screaming about inflation. They believe the flood of recovery money will result in prices skyrocketing, making all that cash far less meaningful. They point to the rising cost of gas and lumber as evidence that spending power is about to tank. In their view, we’re about to all work harder for money that can purchase a lot less.
Most economists believe those fears are overblown. The Anderson Forecast believes inflation will be slightly higher than in the past, but that it is transitory. They believe the rising prices are problems in the supply chains that were disrupted by the pandemic and, once they are ironed out, prices will stabilize.
Evidence is beginning show the economists, not conservatives, are right. Lumber prices dropped substantially last week and are down 40% from their peak of a few weeks ago. Gas prices are up, but they aren’t outrageous as we head into summer months when they always climb in response to demand. Maybe inflation will take off, but the trends right now aren’t indicating we’re heading back into a 1970s-style stagflation economy.
The difference in the two recoveries will be illuminating. Obama tried to get Republican support for his economic package back in 2009 and put almost half of the recovery into tax cuts. Republicans believe that putting money into the pockets of businesses and the wealthy will spur economic growth that will flow down to everyone. Biden watched the slow recovery a decade ago and has sided with progressives who believe in a more Keynesian approach. Put money in everybody’s wallet and the prosperity will flow up. Right now, it looks like Biden is getting it right, kickstarting an economic boom that’s benefitting everyone without driving up the inflation that so scares conservatives.
Thomas Mills is the founder and publisher of PoliticsNC.com, where this column first appeared. Before beginning PoliticsNC, Thomas spent 20 years as a political and public affairs consultant.
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