Just as generals tend to fight the last war, so too do politicians. The Democrats are remembering the lesson of 2009 where the fiscal package approved by President Obama and the Congress was woefully lacking amidst the Great Financial Crisis. At the time both housing and stocks were in the toilet and the banking system plumbing was clogged up with bad loans.
Although the situation is far different today the President Joe Biden and his Democrats are moving forward with a $1.9 trillion relief/stimulus package on top of the $900 billion approved in December. This at a time when the Congressional Budget Office estimates the output gap at $420 billion. Estimating the output gap is tricky so let's assume it is about $1 trillion half the current proposal. Further too much of the money is going to people who don't really need it and state and local governments are far more flush than what was estimated only a few months ago. As former treasury secretary Larry Summers recently argued, the money would be far better spent on long term projects that will improve the productivity and the health of the economy and the citizenry.
Remember today's economy, despite the pandemic, is in far better shape than in 2009. Both the housing and stock markets are booming and most Americans are flush with cash. To be sure the bottom 20% of the economy and the businesses associated with it are in a world of hurt and that is where the aid ought to be focused.
My guess is that by the summer, the economy will be much stronger with higher inflation than what most economists now expect and as a consequence the willingness of the electorate to spend on long term investments will wane. Therefore it would be far better to take out $900 billion from the Administration's package and reserve it for long term investments. Further tying a minimum wage increase to the package will only make it worse for the hard hit restaurant industry thereby delaying its recovery.
