Lessons from ’09 for Biden’s stimulus plans
Congress taps some of the same strategies for a pathway to recovery
In 2009, President Barack Obama named Vice President Joe Biden as his “sheriff,” who behind the scenes would lead the administration’s economic recovery effort after the financial crisis, including supervising the distribution of $787 billion.
Now Biden — assuming the presidency part way through a pandemic that has caused devastating economic hardship — is putting on the badge again, overseeing stimulus on an even bigger scale. Congress has already passed $4 trillion of coronavirus relief through multiple bills, and Biden is pushing for $1.9 trillion more, plus an infrastructure package that he says is part of his recovery plan.
The two crises have different origins and need different stimulus responses, but Congress has tapped some of the 2009 strategies to combat the pandemic’s effects — and Biden’s plans do as well. Only the government’s intervention with the pandemic
— a health and economic calamity — is proving much, much larger.
“We’ve done way more additional spending and tax cuts already than we ever did after the financial crisis,” said Stan Veuger, an economics resident scholar at the American Enterprise Institute. “The (2009 American Recovery and Reinvestment Act) was less than $1 trillion, so it was smaller even than the December (coronavirus) bill.”
When the market crashed in 2008 and the nation slumped into a deep housing crisis, people lost their homes and life savings, banks failed and unemployment climbed to 10 percent in October 2009 — its highest level since 1983.
The federal government responded with multiple relief bills, creating a program to buy financial assets from banks, offering tax cuts, giving states direct aid, bolstering money for food stamps and unemployment, and funding a wave of infrastructure projects across the country. Without the intervention, more than 17 million jobs would have been lost — about twice the actual number — wrote Alan Blinder, former Federal Reserve Vice Chairman, and Mark Zandi, chief economist of Moody’s Analytics, in 2015.
Whereas in 2009, a good amount of relief was aimed at incentivizing work and career switching, now during the pandemic, many businesses have closed or cut back for public health reasons, unable to reopen until the pandemic is controlled, Veuger explained. Unemployment spiked to about 15 percent in April, according to the Bureau of Labor Statistics, and in December hovered at 6.7 percent.
During the pandemic, Congress has invested the most money — $960 billion — in supporting small business owners, according to the Committee for a Responsible Federal Budget, followed by $585 billion to fund unemployment benefits, more generous than in the Great Recession. Like in 2009, the pandemic stimulus has bolstered hungerfighting programs, sent money to states with revenue-strapped budgets and funded health care.
The pandemic stimulus measures to date have been “relatively well targeted” at the needs of the reeling country, said Maya Macguineas, president of CRFB.
“We should not resort to near-term austerity measures and must continue to borrow to fight the pandemic and support the economy as needed and appropriate,” Macguineas said.
Although the last stimulus bill was signed less than one month ago, Congress is now debating another $1.9 trillion stimulus measure proposed by Biden, which includes $1,400 stimulus checks, more funding to support vaccine distribution and testing, money for schools and direct state government aid, as well as more business relief.
The new president is struggling to win bipartisan support for another large relief package, a first big test for his leadership. That, too, is reminiscent of the headwinds in 2009: Democrats’ Recovery Act received only 3 Republican votes, while some lawmakers on the left complained it was too weak.
Next month, Biden plans to propose another recovery bill, this one focused on his goals of improving transportation and investing in green energy and research and development. The price tag on that bill is not yet known.
In 2009, road work projects funded by the Recovery Act were some of the most visible signs of the stimulus, although they comprised only about 15 percent of the funds spent, according to CRFB. Shovel-ready infrastructure projects funded by the federal government spurred construction jobs immediately, while major tunnel and airport projects took time and planning to get off the ground.
“What we learned from the Recovery Act, which is important for understanding the tools of how public investment works in stimulus, is the dollars accomplish different results depending on when you want them to hit the economy,” said Shoshana Lew, a former U.S. Department of Transportation and Office of Management and Budget official, who now leads the Colorado Department of Transportation. “Simpler projects are often the most immediate for job creation and economic benefit but those longer-term, more complex projects can really be instrumental to the health of a longterm recovery.”
Veuger said he believes Biden’s infrastructure bill is more about accomplishing long-held Democratic priorities than an economic rationale that they will speed up the pandemic recovery.
The 2009 stimulus efforts show the measures
Congress passes in the future — not just in the present heart of the crisis — will be critical to how the economy recovers, Macguineas said.
“During the 2008-09 recovery, lawmakers failed to reach an agreement to continue supporting the economy in the near term and only phase in deficit reduction measures gradually and when the economy had recovered,” Macguineas said. “As a result, we went over the ‘fiscal cliff ’ and saw abrupt, across-the-board cuts from the sequester, the expiration of numerous tax cuts, the end of several stimulus measures, and other changes.”
Once the economy has recovered, then Congress should address the “unsustainable trajectory” of the national debt with gradual phased-in measures, she added.