Yellen Tells Congress to ‘Act Big’ to Rescue the Economy
Incoming Treasury Secretary Janet Yellen on Tuesday urged Congress to “act big” and deliver more relief to the pandemic-ravaged economy. As she sought to build support for the $1.9 trillion rescue plan unveiled last week by President-elect Joe Biden, the 74-year-old former Federal Reserve chair argued that the risks of inaction far exceed the costs.
“Economists don’t always agree, but I think there is a consensus now: Without further action, we risk a longer, more painful recession now – and long-term scarring of the economy later,” Yellen, 74, told the Senate Finance Committee at her confirmation hearing. “Neither the President-elect, nor I, propose this relief package without an appreciation for the country’s debt burden. But right now, with interest rates at historic lows, the smartest thing we can do is act big.”
Yellen told the Senate panel that she sees spending on vaccinations, aid for small business and help for the unemployed as delivering the “biggest bang for the buck.”
Republican resistance to Biden’s plan: Yellen was met with GOP criticism of Biden’s proposal. Sen. Chuck Grassley (R-IA), the Finance Committee chairman, said the plan was not well-targeted. “With the trillions already in the pipeline, and close to $1 trillion of relief enacted just a few short weeks ago, it is important to focus efforts on pandemic relief,” he said. “Now is not the time to enact a laundry list of liberal structural economic reforms.”
Sen. Pat Toomey (R-PA) said that, while he looks forward to working with Yellen, “the contours of the stimulus bill as proposed by the Biden administration are going to make that difficult.” And Sen. Tim Scott (R-SC) said that Biden’s proposal to raise the minimum wage to $15 an hour would cost jobs.
The fiscally responsible thing to do: Yellen pushed back on GOP criticisms, arguing, for example, that raising the minimum wage would help struggling workers and that economic research indicates that job loss resulting from the higher wage would be minimal.
In response to a question from Sen. John Thune (R-SD), Yellen said she agreed that the long-term fiscal outlook “is a cause for concern,” but she argued that the country would be worse off if it does not act now to address the economic fallout of the pandemic:
“It’s essential that we put the federal budget on a path that’s sustainable and that we’re responsible and make sure that what we do with respect to deficits and debt leave future generations better off, but the most important thing in my view that we can do today to put us on a path of fiscal sustainability is to defeat the pandemic, to provide relief to American people and then to make long-term investments that will help the economy grow and benefit future generations. To avoid doing what we need to do now to address the pandemic and the economic damage that it’s causing would likely leave us in a worse place fiscally and with respect to our debt situation.”
She added that, given low interest rates, the cost of debt service payments as a share of gross domestic product is lower now than it was before the financial crisis in 2008, even as debt has surged dramatically since then. She also said that, while there is a risk that interest rates will rise higher than expected, she believes that low rates will stay in place “for a long time.”
A new consensus on the debt: Debt and deficit questions are bound to hang over Yellen and the incoming Biden administration as it considers spending programs meant to speed economic recovery and restructuring. As The Wall Street Journal’s Kate Davidson and Jon Hilsenrath reported Sunday: “The Biden administration will now contend with progressives who want even more spending, and conservatives who say the government is tempting fate by adding to its swollen balance sheet. Ms. Yellen’s challenge, if confirmed, will be to keep Democrats together and persuade some Republicans to come along.”
But as Davidson and Hilsenrath write, the economic consensus on the debt has flipped in recent years:
“After years of low inflation and interest rates near zero, more economists say the government should be borrowing to keep the economy going because the private sector isn’t. With borrowing costs expected to remain low and the pandemic-stricken economy still weak, temporary increases in deficits aren’t only tolerable but desirable if they help strengthen the recovery, the thinking goes. …
“Unaddressed are the twin questions of whether there is a ceiling on the U.S.’s debt load and how the country will pay it back, concerns heard mostly on the right. ‘At some point we’ll start paying a price for this,’ said Michael Boskin, a Stanford University economist. He served as chairman of the Council of Economic Advisers under President George H.W. Bush in the early 1990s, the last time a Republican administration cut deficits.”
50-year bonds? Asked Tuesday about the idea of the Treasury issuing longer-term debt, including 50-year bonds, Yellen said: “There is an advantage to funding the debt, especially when interest rates are very low, by issuing long-term debt, and I would be very pleased to look at this issue and examine what the market would be like for bonds of this maturity.” The longest-maturity debt issued by the Treasury is now 30 years, and while the government has examined issuing longer-term bonds, the idea was rejected by the Trump administration amid doubts that there would be enough investor demand.
What’s next: Yellen’s nomination could be approved by the Senate as soon as Thursday. Yellen, the first woman to chair the Federal Reserve, would become the first female Treasury secretary and the first person to have led the central bank, Treasury and White House Council of Economic Advisers. But Tuesday’s hearing shows that she and the Biden administration will have a difficult path ahead as they make their sales pitch for another large coronavirus relief package.
Quotes of the Day
“The mob was fed lies. They were provoked by the president and other powerful people.”
– Senate Majority Leader Mitch McConnell (R-KY), in a speech Tuesday on the Senate floor, his first since the January 6 insurrection at the Capitol. McConnell has not yet said whether he will vote to convict Trump after his impeachment last week by the House for "willful incitement of insurrection." Political analysts say that if McConnell votes to convict Trump — and to divorce the GOP from Trumpism — there’s a chance that enough Republicans would follow suit for a conviction.
“There has probably not been a better time to be wealthy in America than today. So much of what policy makers did was to enable those that were wealthiest to rebound fastest from the pandemic.”
– Peter Atwater, a financial analyst who popularized the idea of a “K-shaped” recovery during the Covid-19 crisis to describe the pronounced divide in outcomes for those at the top and bottom of the economic ladder. The Bloomberg piece that includes the Atwater quote notes that unemployment is still at Depression-like levels for those with the lowest incomes: “Employment for the bottom quartile of American earners -- those making less than $27,000 a year -- remains more than 20% below January 2020 levels.”
Numbers of the Day: 400,000 and 34%
The U.S. has now recorded more than 400,000 deaths from Covid-19, according to data gathered by Johns Hopkins University. “That's more than the number of Americans who died in World War I, Vietnam War and the Korean War combined, and nearly as many Americans who died in World War II,” CNN said. “It's far higher than any other country's Covid-19 death toll.”
In a not unrelated development, President Trump is leaving office with an approval rating of 34%, Gallup announced Monday. “Trump is departing office having averaged 41% job approval during his four years in office, lower than any other president in Gallup polling history by four points,” the pollsters said, referring to data that goes back to 1938. “Though many presidents left office with weak job approval ratings, Trump is the second, along with Richard Nixon, to register his personal low rating in the final measurement of his presidency.”
Biden Could Drive Millions More Into Obamacare Exchanges
President-elect Biden’s proposed $1.9 trillion stimulus package includes a provision that could result in millions more people signing up for health insurance through the Obamacare marketplaces, according to Sarah Kliff of The New York Times.
The Biden proposal would increase subsidies for consumers on the federal exchanges, providing more substantial help for low-income participants, while allowing more middle-income households to get subsidies, too.
Under current rules, which were crafted in part to keep the cost of the Affordable Care Act below $1 trillion, subsidies phase out for those earning more than 400% of the poverty level, which in 2021 translates to $51,520 for individuals and $106,000 for families of four. As a result, anyone earning above that level faces sharply higher costs for health insurance. The Biden proposal would eliminate the income-based cutoff and use an income-based cap instead, limiting premium costs to 8.5% of income for mid-level plans.
That rule change is expected to provide considerable economic relief to households with incomes just above the cutoffs, though it’s not expected to boost enrollment significantly. However, the other part of Biden’s proposal — larger subsidies via tax credits for low-income households — could boost overall participation in the exchanges.
“Numerous academic studies show that premium subsidies are the strongest driver of health law enrollment,” Kliff wrote. “Experts say this type of large increase, directed toward low-income Americans, could drive millions more to sign up.”
Poll of the Day: About Those $600 Checks
Most Americans say the coronavirus stimulus money currently being disbursed by the U.S. Treasury won’t last more than a few weeks, according to a new survey from the personal finance website Bankrate.com.
“Highlighting the pandemic’s ongoing financial toll almost a year into the crisis, the majority of participants (53 percent) say the $600 check they’re expecting to receive for every adult and dependent child in their household will sustain their financial well-being for less than a month,” Bankrate said. “That total includes 18 percent who do not think the money is enough to make any impact on their finances.”
At the same time, most respondents said the money would indeed help, with 71% saying that the cash infusion “will be very important or somewhat important to their near-term financial situation.”
The most commonly cited use for the money is paying bills and for daily expenses, Bankrate said, although there is a difference between those with low (less than $30,000) and high (over $80,000) incomes. The latter group was far more likely to say they would save the money rather than spend it.
- One Year, 400,000 Coronavirus Deaths: How the U.S. Guaranteed Its Own Failure – Sarah Mervosh et al, New York Times
- The Next President Actually Has a Covid Plan – New York Times Editorial Board
- Biden Inauguration Amid Trump COVID Failure Could End Republican Era of Bashing Government – Seth Cotlar, USA Today
- The Biden Recovery Plan and the Disarray of Economic Theory – Robert Kuttner, American Prospect
- Who’s Radical Now? The Case of Minimum Wages – Paul Krugman, New York Times
- Trump's Assault on the Federal Government Isn't Over – Hilary Silver, The Hill
- When Biden Becomes … Rooseveltian! – Nicholas Kristof, New York Times
- How Full Employment Became Washington’s Creed – Jeanna Smialek, New York Times
Speed Up Vaccinations and Reduce the Red Tape – Zeynep Tufekci, New York Times
- The Next New Deal Must Be for Black Americans, Too – Willow Lung-Amam, Bloomberg
- Trump's Economic Nationalism Has Been a Bust – Kenneth A. Reinert, The Hill