A group of ten Republican senators has made a $600 billion counteroffer to President Biden’s $1.9 trillion economic-rescue plan. The media has treated this negotiation as a mere formality, the prelude Biden will briefly entertain before getting down to the business of passing a real bill through budget reconciliation.
That may be so. But there is a chance the two sides can actually make a deal. And the best way to do that is to enhance its flexibility so that the Democratic fear of spending too little and the Republican fear of spending too much can both be resolved.
Democrats are haunted by the experience of 2009 and are determined not to repeat its errors. Congressional leadership bound itself to a 60-vote threshold that required getting support from at least two Republican senators, who in turn bargained down the size of the bill out of an arbitrary belief that a trillion dollars was too much to spend. The economic contraction wound up considerably deeper than economists realized at the time, and the administration had trouble getting votes for more stimulus later, and the slow growth that resulted punished Democratic members of Congress.
The lesson many Democrats have drawn is that they have to ensure that Biden doesn’t get saddled with a stimulus that’s underpowered. “The only thing we cannot accept” is a bill that is “too small or too narrow,” says Senate Majority Leader Chuck Schumer, who cites the lessons of 2009. “Democrats can’t assume we will have bite after bite at the apple, particularly with Republican state legislatures working overtime to entrench minority rule through redistricting,” Oregon senator Ron Wyden tells Greg Sargent. “The only surefire way to prevent economic sabotage is to pass the bold economic relief that’s needed now.”
But a slightly different way to put it is that they erred by failing to plan for contingencies. An economic-relief plan that automatically continued sending out new fiscal support until the economy had recovered would have accomplished the same goal.
Former Obama economic adviser Jason Furman recently argued for adding automatic stabilizers into the next economic-relief bill. Stepped-up unemployment insurance, aid to state and local budgets, and checks for households could be tied to official government economic statistics so that Congress doesn’t need to pass new relief bills if the recovery lags.
In theory, a bill designed like this could meet conservative objections. Republicans say they’re worried that the bill spends too much. While Democrats are right that the risk of doing too little is more serious than the risk of doing too much, the fear of excess stimulus isn’t completely crazy. It is at least possible that the economy could rebound quickly after springtime vaccinations allow pent-up savings to be spent, and locking in more fiscal support now could fuel inflation levels that cause the Federal Reserve to begin raising interest rates.
Mark Zandi estimates that a package of around $1.2 trillion — roughly halfway between Biden’s number and the Senate Republicans’ number — would be enough. He might be wrong. The point is that the possibility of undershooting the needed fiscal support could be accounted for with automatic stabilizers, not spending the biggest sum right away. And that would alleviate any Republican concern about overheating the economy. If the economy recovers quickly, fiscal support will phase out. If it lags, support will continue. Both sides can have their concerns answered.
You might wonder what’s the point of negotiating with Republicans at all if Democrats already have 50 votes. The answer is that getting 50 votes isn’t necessarily easy. Some Democratic senators, especially moderate ones, like having bipartisan cover for their votes. It’s far from clear that Joe Manchin would vote for a full $1.9 trillion bill. But getting all 50 Democratic senators becomes very easy if there are ten Republicans supporting the deal.
The ten Republican Senate votes might turn out not to be real. Maybe they’re just engaging in a messaging ploy to make Biden look like he’s rejecting bipartisanship. On the other hand, it might be a good-faith offer. And if it is, the way to strike a deal is to build in the flexibility that meets the concerns on both sides.
