Yellen Tells Congress to ‘Act Big’ to Rescue the Economy

By Yuval Rosenberg

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.

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