What About a Stimulus Package?

By Mike Koetting October 29, 2020

I don’t want to jinx anything, but maybe we do need to start taking the possibility of a Biden victory seriously. I am not saying we shouldn’t continue worrying—like we could stop worrying even if we wanted to?—but the polling is solid and there are lots of signs of various Republicans trying to put some distance between themselves and Trump.

So, what should we do if we win?

The whole answer is long and has many facets. I smell grist for upcoming posts. But there is one thing that may require a more or less immediate direction, a stimulus package.

Having failed to come to any agreement about a stimulus package before the election (seems unlikely anything will fall out of the magic closet in the next couple days), there will be a lot of pressure to enact a stimulus bill even before the inauguration. I think Democrats need to think very carefully about signing on.

No one of sound mind doubts another stimulus package is needed. The questions are what size and what is in it. The answer to the first question is easy: BIG! Everyone from Paul Krugman to Federal Reserve Chairman Jerome Powell (who was appointed by Trump) agrees that we need a big stimulus package. About the only people who don’t agree are Republican Senators. Let’s spend a moment considering their motives.

Mitch McConnell, while he did fail in his stated attempt to make Obama a one-term president, did second best by hobbling Obama. He used the filibuster to make it impossible for Obama to pass a second stimulus package in 2009—then he blamed Obama for not doing more to recover from Bush’s recession. That, combined with Republican-led backlash to a Black man being president, led to a complete lock on Congress after 2010 that made it impossible for Obama to pass legislation, or fill judgeships for that matter, even after he won a second term. There is every reason in the world to believe McConnell has in mind a similar strategy for a Biden administration. Moreover, even Republican Senators who are starting to put a little distance between themselves and Trump will not want to vote for a big stimulus package. Among other things, it would be used against them in the next primary by “purer” Republicans. No matter how great the need, only a reckless dreamer could think McConnell would allow a big stimulus package unless Trump is re-elected.

In any event, right now he has his cake and gets to eat it anyway: he blames House Democrats’ intransigence for stopping any stimulus without actually putting anything on the table. The media has largely fallen for it when it keeps saying “Congress’s inability to pass a stimulus package” when in fact the issue is Senate Republicans. Trump’s utter incoherence on the issue helps give cover. It became almost comically jumbled when McConnell apparently got Trump to take the fall for ending stimulus talks—although that only lasted a day.

But flash forward in our imagination. Presume we heave a monumental sigh of relief as Trump is defeated and Democrats have won enough Senate seats to have a majority. But they wouldn’t have actual control until January. Should Democrats continue trying to work out a stimulus bill?

The needs are real. The below chart from J.P.Mogan Chase shows that as stimulus checks run out, spending by the unemployed tanks, which corresponds to real deprivations and will eventually drag the entire economy down. This chart is only through August. It surely looks worse by now and will keep getting worse.

There is no evidence that Republicans in fact care about those who are suffering the brunt of the economic damage, which is certainly not their richest supporters. I concede they would say it’s not that they “don’t care” but that they are confident that the longer, more sustainable road to recovery is to avoid….to avoid….well, it changes from time to time. To avoid eroding people’s motive to work, to avoid saddling future generations with taxes, to avoid putting obstacles in the way of the wealth creators, or to avoid inflation are all explanations periodically on offer. None of these explanations have much currency among economists and, regardless of long term effects, all put the immediate pain on those least able to bear it—while the economically better off in our society continue to prosper. So, functionally, they don’t care.

Consequently, it is safe to assume that any post-election deal that McConnell is willing to support is primarily about seizing tactical high ground rather than anything else. It is a sad state of affairs when our distrust of motives is so deep that by definition any possible compromise is suspicious. But that is a well-earned position at this point, so Democrats should be very suspicious of any compromise McConnell appears to agree with.

My best guess is that he doesn’t want to support anything on the grounds it would help Democrats in 2022. He has a variety of tools at his disposal—most powerfully just refusing to call the bill, as he has refused for several months. In which case, the Democrats don’t have to do anything but agree among themselves on what bill to pursue in January, by which time it will be even more urgent.

It is also possible that at some point the lobbying from the White House, assuming it is still interested in what happens in Congress, and his members will increase the pressure on McConnell to do something. It is a safe bet that a majority of his members would vote against any stimulus—and this apparently could be filibustered. But if it were something that all Democrats would vote for, there is some chance of getting enough Republican votes.

I think Democrats might fare better with the skinny bill that McConnell has at various times floated. This would get some immediate aid to the most needed spots—increasing unemployment benefits, small business support and school reopening–but would leave more room for Democrats to move their own bill in January. The danger of the larger bill that Pelosi and Mnuchin are currently negotiating is that at $2T it might create the impression that this is enough and/or we can’t afford another large stimulus.

This also gets back to the question of what should be in a stimulus bill. The negotiations that Pelosi and Mnuchin are pursing would also add direct payments for eligible individuals, funds for testing and tracing, and state and local support. In any longer term these are absolutely necessary to getting the economy back on track. But there are other things that could be in a bill that would further the economic plan that Biden has outlined. This could include more housing assistance, enough funds for states and localities, and expanded public projects, including laying the foundations for a Green initiative.

In theory these could be in a later bill even with the larger amount stimulus. But the example of the Obama stimulus bill is instructive. The architects of that bill assumed there would be a follow-up bill. But it never happened. I think it might make more sense now to wait until there is a Democratic majority and no need to be restrained by negotiations with Mnuchin. Remember, it is unlikely that even under the best of circumstances Democrats would win enough Senate seats to overcome a filibuster. A larger stimulus following a skinny one would present a much more compelling reason for a few Republicans to jump the fence—or for Democrats to blow-up the filibuster if that is necessary.

Either way, getting a very large stimulus bill is absolutely necessary and $2T isn’t enough. Democratic strategy should be structured around getting the largest possible stimulus, even if that means settling for a skinnier one now.