• Benjamin Holland

Bidenomics’ $1.9 Trillion Spending Spree

Updated: Jan 24


Last week, Joe Biden announced his American Rescue Plan and stimulus package to address the public health and economic emergencies in the US. So far, only the “rescue” has been announced, and its sequel, the “recovery” plan, is set be to announced next month. That being said, the rescue plan alone has called for substantial economic relief to the economy, targeting specific industries, and social programmes.


Biden’s Spending Spree:


Biden’s rescue does not come cheap, and he’s planning on taking the whole of American shopping with him, as US citizens are set to receive $1,400 each in an attempt to restore consumer spending. Biden also has his eye on investing in a national vaccination programme, increasing the federal minimum wage to $15, and extending unemployment benefits. Two credit expansions are also to be implemented for the earned income tax and the child care tax, with up to $4,000 being available per child in tax credits to offset the costs of childcare for families earning up to $125,000. Gig workers will see their benefits extended through to September, and an extra $100 per week to supplement their income. University students will also benefit from up to $10,000 loan forgiveness.


Biden has also placed orders for 100,000 new health workers, $150 in education investment, $30 billion in rental and utilities assistance, and $5 billion for housing. The whole bill adds up to a staggering $1.9 trillion.


Should’ve asked for the Receipt?


It’s clear that Biden has no problem with deficit spending, and he is not planning on implementing tax increases, or additional revenue raising measures anytime soon. Biden hopes that debt should not be of concern and claims that the proposed spending should pay for itself by stimulating economic activity, in true Keynesian fashion. Perhaps a more convincing argument is that, though the future generations may bear the hangover of today’s stimulus, the federal government is obliged to meet needs in an emergency, and it is the future generations that will benefit from the economic recovery.


Despite this, some believe that the stimulus is poorly targeted, and favours the middle class, rather than the working class families most affected by the lockdowns. Student debt relief, for instance, does not seem the biggest area of concern during a pandemic.


Moreover, the system of one-off stimulus checks being sent to individuals arguably has a short-term impact on economic recovery, and may fail to effectively address the supply-side of economic activity. In conjuntion with this is the age-old argument that increasing the minimum wage will create unemployment, making the poorest in society even worse-off, as well as putting additional cost pressures on struggling small businesses. The increase in the minimum wage is also substantial, as it currently lies at $7.25. More than doubling the rate is, at least, certain to have adverse effects on the employment of youth workers, who are often the worst affected by minimum wage increases historically.


The demand-side focus on Biden's economic strategy is under fire for failing to understand the nature of the pandemic. It is argued that a shortage of demand is not the problem, but rather present consumption is limited by the restrictions implemented by state authorities. Last summer demonstrated how even partial easing of restrictions propelled economic activity, suggesting that consumers are not lacking the incomes to spend, but rather the ability to do so. Indeed, the expected surge in demand that will occur with the completion of the vaccine programme could mean that the demand-side stimulus creates significant price distortions, inflation, and unpredictable consumer spending.


This being said, city leaders have responded optimistically to the plan, with the CEO of the National League of Cities, Clarence Anthony, believing that "it brings hope to the millions of Americans in our cities, towns and villages who have been devastated by the effects of the pandemic." The swift action of Biden, and the confidence of the new presidency has recently bought hope to markets, too.


Economists have also responded warmly to the proposed stimulus, with 91% of 56 major economists contacted in a Reuters poll confident that it will "help boost the economy significantly," and the most likely outcome being a return to pre-pandemic economic levels within a year.



The stimulus is not designed towards generating enough consumer spending to resuscitate the economy, but rather has a priority in boosting the vaccine rollout and more aggressively attacking the COVID-19 pandemic, such that a more natural economic recovery can take place sooner. Attitudes towards ballooning deficit spending have also been changing over time, following decades of historically low government borrowing costs. It's clear Biden thinks it's always better to spend too much than not enough.