Thread by @joshbivens_DC

The rescue plan that passed the House and is currently being debated by the Senate is economically sound and politically popular. So naturally plenty of people are threatening to go going wobbly on it in the homestretch. 1/n

They need to stiffen their spines. The plan is at the right scale for the problem in front of us. Nothing is certain, but the plan’s overall size and its composition are quite well-suited for the next couple of years and it balances the risks in front of us really well. 2/n

If it somehow comes in “too big”, it won’t be by much and won’t be for so long to be damaging. But it’s admirably ambitious-enough that it largely rules out coming in radically too-small, like the Recovery Act following the Great Recession. This is the prudent path. 3/n

The composition works well too. There is a big one-time drop of checks and payments for vaccine distribution and suppression, a steady stream of enhanced UI that will taper quickly if there’s radical improvement in the labor market, and 4/n

Significant aid to state and local governments that will be disbursed more gradually. This long-release dispersal is good, not bad. It is the major part of the package that provides fiscal support later in 2021 and into 2022 – and we’ll need this. 5/n

There has been chatter about significantly reducing this state and local aid because revenue shortfalls for state governments are smaller than forecast back when the economy was in complete flames in mid-2020. This chatter should be ignored. 6/n
epi.org/blog/projected…

The thought that the ARP should have state aid levels dictated mechanically by revenue shortfalls makes sense only if you think the immediate pre-COVID economy was ideal and should be frozen in amber. 7/n

To be clear – parts of the pre-COVID economy were great – we’d all love to have 3.6% unemployment with higher LFPR. But, nobody serious really thinks that everything about that pre-COVID status quo was sacrosanct. 8/n

If you did, you’d be against both checks and enhanced UI, which direct income more progressively than it was being directed before the crisis. This enhanced progressivity is a good thing, both for economic stabilization but also for human welfare. 9/n

State and local spending – particularly public investments – were depressed for a full decade in the pre-COVID expansion. Why should we think that returning to pre-COVID levels in this sector is a pressing policy priority? 10/n

Many people – even some arguing for reducing state and local aid – have accepted the logic of “running the economy hot” to restore past periods when macro policy ran “too cool” and kept unemployment excessively high. 11/n

This logic makes sense! But running the economy hot means some specific sectors need to be run hot (ie, spend more than they normally do or did previously). Why does the sector that’s “run hot” need to be households? Why does that spending have to be consumption spending? 12/n

Looking at trends in the pre-COVID economy, who really thinks “hmm, we really needed a lot more consumption spending back then, but less state and local spending and less public investment”? 13/n

Cumulated deficit in S/L public investment from 2010-2020 (relative just to pre-2007 trend) is over $800 billion. Why not run this sector of the economy hot and claw back some of that investment? 14/n

So, again, given the inevitable compromises that go with policymaking on a big scale, the ARP is excellent (not perfect – what is?) in both size and composition. Last minute fiddling with either will make it worse. 15/n

Could I think of any improvement to make to it? Of course! But it wouldn't be a wholesale rethinking of size or rough composition. And Senators shouldn't be thinking in those terms either - they'll just make it worse. 16/n