How Biden’s ’ 09 recession battle echoes in pandemic
WASHINGTON — In 2009, President Barack Obama named Vice President Joe Biden his “sheriff” who behind the scenes would lead the administration’s economic recovery effort after the financial crisis and supervise the distribution of $ 787 billion.
Now Biden assumes the presidency amid another recession causing devastating hardship. This time he’s the mayor of Dodge with Treasury Secretary- designee Janet Yellen wearing the sheriff’s badge — and they’re overseeing a stimulus on a far bigger scale.
Congress has already passed $ 4 trillion of coronavirus relief through multiple bills, most recently in December, 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 causes and need different stimulus responses. But Congress has tapped some 2009 strategies to combat the pandemic’s effects. Biden’s plans will as well, only the government’s intervention with the pandemic — a public 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,” 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 bill.”
While the 2008- 09 recession hit banks and markets hard, during the pandemic stock markets have remained ebullient after an initial declinbe — even while individual workers are losing their jobs, going hungry and dying.
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 9.5 percent at the end of the recession in June 2009 and then 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, extending unemployment and funding a wave of infrastructure projects across the country.
Without all 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.
The Federal Reserve established massive credit facilities — “printing” vast amounts of money, in other words — to stabilize lending and markets. States have also spent millions on unemployment and responding to the virus, many including Connecticut tapping their reserves completely to do so.
Like in 2009, the pandemic stimulus has bolstered hunger- fighting programs, sent money to states with revenuestrapped 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, the budget watchdog committee.
“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 the $ 1.9 trillion stimulus measure proposed by Biden, which includes another round of $ 1,400 stimulus checks to most people, more funding to support vaccine distribution and testing, money for schools and direct state government aid, as well as even more business relief.
The new president is struggling to win bipartisan support for this 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 infrastructure 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 long- term 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- theboard 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.