Quick News: Trump Calls for Fiscal Stimulus

 

Amidst languishing economic recovery, President Trump tweeted that Republicans should "go for much higher [stimulus] numbers". The recently failed Republican stimulus plan would have spent $800 billion-- far smaller than the May proposal by the house for $3 trillion in relief spending.

Trump is no doubt worried that an anemic response to the COVID crisis would damage his reelection campaign. He also likely knows that most Americans support new stimulus checks (among other government assistance) to help offset costs through the rest of the year.

Republican deficit hawks are no doubt uneasy about the $3 trillion deficit, which is twice the size of the previous record. The fear over settling national liabilities is palpable in the Senate and is the driving force of the stimulus disagreement.

It is worth remembering that the US faced a similar decision after the 2008 recession under the Obama administration. The Federal Reserve gave the US government ample fiscal space to bolster the economy by buying up corporate debt and keeping interest rates down. However, the administration---according to former Obama economics advisor Jared Bernstein---failed to capitalize on this by pivoting away from stimulus spending in 2011 for fear of crowding-out private investment. Bernstein later said this was a mistake and prevented a faster recovery and cost millions of potential jobs.

The United States is once again at this crossroads. The Fed is holding interest rates at historic lows to stimulate borrowing and growth. This is also done to offer the federal government maximum fiscal space to borrow money at an extremely low cost. Hence, the Fed is signaling its willingness to help the government stimulate the economy with well-targeted government spending.

To avoid a slow recovery with chronic unemployment, Republicans need to suspend their deficit obsession to meet the current moment. This means smart spending to relieve critical problems in the economy such as, lost wages, unemployment, and eviction. 

What makes all of this so strange is that Democrats are handing Donald Trump an electoral boon in their proposals-- stimulus money, expanded UI benefits, and rent assistance are all popular with Americans. No doubt Trump sees this and is frustrated with Republican obstinance.