President Biden has presented his $1.9 trillion stimulus plan as the way to get the country out of the pandemic-induced recession. In fact, its provisions show he fundamentally misunderstands the nature of the trouble we’re in.
The plan seems to presume that the recession is being caused by insufficient purchasing power and consumer spending. That’s the only rationale for including his signature element, the additional $1,400 checks he proposes to send to most Americans. Two other provisions — increasing the minimum wage to $15 an hour and increasing the child tax credit to $3,000 a kid and making that amount fully available to all families regardless of how much they owe in federal income tax — would also only make sense if our recession were caused by insufficient consumer demand. None of these provisions are tied to loss of jobs or income as a result of the pandemic; they are simply ways to raise consumer demand and re-float the economy according to traditional Keynesian nostrums.
Such an approach is misguided. Consumer spending is down from pre-pandemic highs, but not because most people have too little money. Thanks to prior stimulus plans, personal income is higher now than it was pre-pandemic. Consumer spending is down by only a few percent from pre-pandemic levels; personal saving soared in 2020 because many people saved the stimulus money they received from the government. Sending those people more money will only increase savings again, not stimulate the economy.
Henry Olsen is a senior fellow at the Ethics and Public Policy Center.