Biden's stimulus plan will bring relief, but there's one flaw

President Joe Biden took the oath of office on Wednesday in the center of a city fortified against some of his own countrymen, and in the midst of a pandemic that is killing several thousand Americans every day and that has pushed millions more into poverty. He faces a momentous and urgent set of challenges: leading the nation up from the pandemic, reviving the economy, repairing America's tarnished reputation on the global stage.

Biden's first step, a fiscal plan that he introduced last week to address the pandemic and its economic consequences, shows that the incoming president and his advisers have taken some valuable lessons from recent history.

The federal government's response to the 2008 financial crisis was too small and ended too soon, in part because policymakers worried too much about the long-term consequences of borrowing and not enough about the immediate needs of suffering Americans.

Biden, by contrast, is proposing to deliver a whopping $1.9 trillion in borrowed money, much of it aimed at the areas of greatest need, including the public health response to the coronavirus, workers who have lost their jobs and public schools that need help to reopen.

The economy is faltering, and although vaccinations have begun, the nation is likely to remain in the grip of the coronavirus for some time. Federal aid is a necessary palliative.

But there is one lesson that apparently still needs to be learned. Biden is proposing to repeat a mistake made by the last two administrations by setting an arbitrary end date for economic aid programs rather than tying the benefits to the duration of need.

Under the Biden plan, some aid programs would run through September. That might be more help than is needed. It might be just the right amount. Or it might be not enough.

This is no way to fight a fire. Emergency aid should last as long as the emergency.

Unemployment benefits are, by nature, tied to economic conditions. The number of people getting benefits rises as economic growth declines. Unfortunately, unemployment benefits are calibrated for good times: The government intentionally limits payments to encourage people to look for work. That doesn't make much sense during an economic downturn, let alone during a pandemic when many people are being asked to stay home. Sen. Ron Wyden of Oregon, the incoming chairman of the Senate Finance Committee, proposed in December to let economic conditions determine the duration of the supplemental federal benefits. Under his plan, payments would have continued nationwide until the jobless rate fell below 5.5%, measured as a moving three-month average. The government then would have continued making the payments in states with high unemployment rates.

Biden's economic team has said it's open to tying benefits to conditions. The exact details are less important than the concept, but Wyden's plan is a good starting point.

Much of Biden's plan is aimed carefully at the pandemic and its economic effects. Getting vaccines into arms is the single most important step to revive the economy. Providing money to schools is necessary both to get kids back into classrooms and to get parents back to work.

But the Biden plan also includes a pair of big spending proposals that are not aimed specifically at those suffering economically because of the pandemic. The first, with a price tag of roughly $464 billion, would send $1,400 to most Americans, on top of the $600 federal payments approved in December. The idea is politically popular, and Democrats have tied their own hands by campaigning on the issue in the Senate runoff elections in Georgia. The broad reach of the program would help some people who do not qualify for targeted aid programs, like people who have not lost their jobs but are working fewer hours. Still, it's not the best use of money. The economic damage caused by the pandemic is intense but quite concentrated. Most workers are still getting paid. Some of the stimulus money could be better used to increase the proposed weekly supplemental unemployment benefits in Biden's plan from $400 a week back to $600 a week, as in the early months of the pandemic.

Congress, in sum, can and should improve on the details of the new president's plan. What ought not to be causing hesitation is fearmongering about federal borrowing.

The federal debt swelled under President Donald Trump, even before the pandemic necessitated deficit spending to limit the economic damage. Those concerned about additional borrowing tend to emphasize that the debt is now about the same size as the nation's annual economic output. Biden's fiscal plan would further increase that measure to a level last seen in the 1940s, in the aftermath of the huge federal borrowing that funded World War II.

But the burden of the debt is best measured by the cost of the government's annual interest payments to its lenders. The global decline in interest rates in recent decades has allowed the United States to borrow money at very low cost. Despite the increase in the size of the federal debt, the amount of the government's annual interest payments has barely budged.

Future economic growth could further reduce the burden of those interest payments.