Biden's first big win (and what comes next)

The relief bill changed how America does welfare. It's a start.

Well, folks, we have a relief bill. Biden said it was going to be $1.9 trillion, and by God, it is $1.9 trillion — not quite as big as the CARES Act, but plenty big nonetheless. A lot of people are going to pooh-pooh this bill, either because they were really hoping it would include a minimum wage increase, or because they have it in for Biden and the Democratic establishment, or simply because it’s been a really tough year and people are stuck in a rut of despair. But the fact is, Biden just scored a big win for the average American:

Here are some thoughts about this historic piece of legislation.


Cash is king

This bill is all about cash, cash, cash. Other than the spending on public health, pretty much every major item is some form of “mailing a check to somebody”. The only major provision that would actually change the way the economy functions — the federal $15 minimum wage — ended up being dropped from the bill.

Now, part of this is because of the reconciliation process — in order to get around the filibuster, this had to be a budget bill, and the official reason that the $15 minimum wage got dropped was that it wasn’t a budget measure. But I think it also reflects a growing intellectual shift toward the idea of direct cash benefits as the optimal form of government intervention in the economy.

I plan to write a Bloomberg post about this soon. But basically, I think there are several factors that motivated this shift:

  • The CARES Act demonstrated the value of cash benefits

  • A bunch of economic research supports the idea of cash transfers

  • Incentive-based programs haven’t had a lot of obvious benefits

  • Free-marketers have come around to the idea of cash as the government intervention they dislike least

What’s interesting is that unlike the CARES Act, Biden’s relief bill promises to make cash payments a permanent feature of our economy. The most important item, in my opinion, is not the $1400 checks or Pandemic UI or any of that stuff — it’s the child allowance. Under the new bill, families will get monthly checks for $300 for each child under the age of 6, and $250 for each child between the age of 6 and 17.If you have two kids, that’s between $6000 and $7200 a year! Officially this is a temporary program, but many people expect it to become permanent.

Essentially this is a pilot universal basic income program for families. It would be phased out at higher income levels, but that’s not really that much different than a tax-supported UBI. The key here is that there’s no work requirement or time limit — all you have to do is have kids.

The people who are saying Biden’s bill is not transformational, and would just be a temporary band-aid on the problems of poverty and inequality, need to think about the child allowance. Child poverty is still alarmingly common in America — about 14% before COVID struck — and some estimates predict that Biden’s child allowance will cut that number in half.

If you don’t think that’s a huge fucking deal, you need to reconsider both your priorities and your expectations.

Now, this is just Biden’s first big bill. We may also see shifts toward other types of government activism — stronger support for labor unions, a higher minimum wage, a more vigorous program of government investment, stricter regulation, and so on. James Medlock’s declaration may ultimately prove to be true:

But for now, what we’re seeing is a move toward one very specific type of big government, and it’s “just mail checks”.

Stimulus enough

As I wrote in an earlier post, COVID relief mostly isn’t fiscal stimulus. It’s disaster relief, which is really a kind of retroactive social insurance — the main purpose isn’t to pump up GDP, it’s to prevent a natural disaster from redistributing wealth and income in huge, arbitrary, unfair, and devastating ways. It’s to make sure that if you lose your job or your income or your business due to COVID, you don’t find yourself starving or out on the street or without a nest egg for retirement.

In fact, it’s good that COVID relief is mostly not fiscal stimulus! If it were, then Olivier Blanchard and Larry Summers would be right, and it would put our country at risk of accelerating inflation. But they are wrong. Because people will either save most of their relief checks or use them to pay debt-like obligations like back rent, the fiscal multiplier on this spending will be low, and we won’t be at risk of inflation.

But “mostly not fiscal stimulus” doesn’t mean “no fiscal stimulus at all”. And according to the good folks at the Hamilton Project, the modest stimulus the bill does provide will be enough to get us back to the pre-pandemic trend:

Note how different this is from Obama’s stimulus in 2009! By most estimates, the ARRA closed only a small portion of the output gap created by the Great Recession — probably less than a 1% drop in the unemployment rate. It didn’t even get us close to the pre-recession trend.

In contrast, Biden’s bill will probably get us all of the way back. Partly this is because the output gap is so much less — unlike a financial crisis, a pandemic is a short-term shock. But partly it’s because Biden went big; even after adjusting for inflation, his bill is about twice the size of Obama’s stimulus, and it follows on the heels of even bigger bills in 2020.

So at least we’re not repeating the mistakes of the past.

The welfare DDOS

How did Biden manage to pass a very large and transformative welfare program without being forced to pare it down?

Well, my friend Chris has a theory:

Remember when everyone was talking about how Trump basically DDOSed the media? He would say (and do) one outrageous thing after another, and the media would barely be able to start getting outraged over each one before the next one arrived. As a result, it all sort of blended together into this mishmash of opposition that could never really focus on one thing.

Well, maybe Biden is doing the same thing with actual policy! Conservative critics of the relief bill didn’t know whether to focus on going after the $1400 checks, the Pandemic UI, the $15 minimum wage, the child allowance, or the overall size of the bill. So they went after all of the above, and as a result they mostly failed. The $15 minimum wage was killed (or at least, delayed to another day), but the rest survived.

A few people on the right did catch on to the fact that the child allowance is a big and important expansion of the welfare state. Scott Winship, a right-wing think-tank guy, mounted a one-man charge against the child allowance, and Oren Cass wrote an article about “welfare extremism”. Their arguments are bad, sure, but more importantly nobody paid any attention and the child allowance sailed through.

So the blitz approach works! Keep it coming. Bring back the $15 minimum wage in a new bill. Do a huge green investment push. Roll out voting rights and electoral reform. Statehood for D.C. Lower the Medicare age to 0. Some of these things will get shot down, but if the relief bill is any indication, some will make it through.

Where’s that “working class GOP”?

One sort of darkly amusing sideshow to the relief bill was watching Republicans rally against the minimum wage. Every single Republican voted no on the measure — even Josh Hawley, who had flirted with support for the Fight for $15.

Remember just a couple months ago, when top Republicans were declaring that they were now a “working-class” party? Was that actually supposed to mean anything other than stirring cultural resentment of college-educated people among the non-college class? It’s starting to look like it did not.

In fact, even with the minimum wage provision stripped out, every single Senate Republican voted no on the relief bill! This is in spite of the fact that a hefty chunk of Republican voters — probably a majority — actually liked the bill, as reported by Meera Jagannathan of MarketWatch:

Some 62% of likely voters polled by Vox and Data for Progress, a left-leaning think tank, said the notion of passing a $1.9 trillion relief bill ASAP to fund vaccinations, $1,400 direct payments to most Americans, expanded unemployment benefits and a higher minimum wage aligned most closely with their view. They included 80% of Democrats, 56% of independents and 47% of Republicans…

The results came on the heels of a separate Morning Consult poll that found 77% of voters — including 59% of Republicans — said they would support the $1.9 trillion package when it wasn’t described as a Democrat-led plan. When the question wording linked the package to Democrats, the share in favor fell slightly to 71% overall, and 53% among Republicans. 

So even though Republicans’ own voters want them to be a working-class party in terms of actual economic policy instead of just cultural resentment, they keep not doing it. As David Shor says, Democrats and the media should spend a lot of time pointing out this fact.

Next up, investment

So what’s next for the Biden administration? Well, lots of people will be clamoring for the $15 minimum wage that was dropped from the relief bill, and I expect to see that debate later this year. My prediction, based on the fact that a number of centrist Dems voted against $15, is that there will ultimately be some kind of compromise where the minimum wage gets raised to $11 or $12, and everyone on both sides walks away kind of mad. I also expect some kind of push on voting rights and electoral reform this year, though I can’t predict how that will turn out.

But the real action will come in the next filibuster-proof budget reconciliation bill next fiscal year. By that time, COVID will be pretty much crushed and our economy will be bouncing back quite naturally. So it won’t be a relief bill. Instead, it will be an infrastructure bill. This will include the typical “repair the roads” type of once-a-decade infrastructure push, which unfortunately is how America handles routine maintenance. But it’s also going to include big climate initiatives, especially green energy and electrification. If this COVID relief bill was the quiet return of the welfare state, the “Build Back Better” bill will be the quiet reality of the Green New Deal. The Chamber of Commerce is behind the idea, so I’m optimistic that a big bill will get passed.

Remember that government investment has been on the decline (as a percent of GDP) since the late 60s. This could be the start of a turnaround.

If Biden does manage to both tackle climate change and bring back the era of government investment, in addition to a basic-income-like expansion of the welfare state, that will be more than enough to make his presidency go down in the history books as a transformative one.