The Left and the Left Out: Policy analysis removed from political motivation is critical

The Senate-revised version of President Joe Biden’s pandemic stimulus bill has returned to the House floor. Democrats have the votes to get the bill passed, and Republicans know this. But this is Washington, so of course this is not the end of the story. 

Democrats are on a tight deadline as certain unemployment benefits are set to expire on March 14. Republicans have taken advantage of this, launching attacks against “politically motivated” portions of the bill. Some of their attacks have been successful, including removing infrastructure projects in New York and California from the bill. The time constraints, as well as a ruling by the nonpartisan Senate parliamentarian have also led Democrats to back off a proposed $15 federal minimum wage.

During the bill’s Senate debate, Republicans also introduced targeted amendments to divide Democratic ranks over polemic votes. All 50 Democrats stood united in voting for the bill, but for some, the price was steep. Republicans now have footage of many Democrats’ uncomfortable votes on tape; priceless footage for campaign ads when election season rolls around. 

What gets lost in the hyper-politicized environment of Washington is the constructive debate and policymaking that ultimately seeks the best interests of the people. Both parties are responsible for the emergence and exacerbation of such an environment, although it must be recognized that people on both sides of the aisle have also tried to mend it. 

A good example is Biden’s recent discussion with moderate Republicans at the White House. While the meeting could be criticized as a “political show” without tangible results, its spirit should nonetheless be commended.

Now, we will attempt to have the frank policy discussion that so often escapes our politicians. So without further ado, what are the benefits and consequences of Biden’s stimulus bill?

$1.9 trillion is a lot of money to inject into the economy. After all, we are talking about the second-largest stimulus bill in the history of the United States. An obvious positive of such a stimulus is more growth. However, growth can come at a price. 

Unchecked growth can lead to overheating — Republicans’ top concern. Overheating occurs when supply in an economy surpasses demand, and it can lead to all sorts of inefficiencies that make long-term growth unsustainable. 

Growth can also lead to inflation, which, in a country as reliant on imports as the U.S., can mean higher prices. This has a negative impact on households, especially when wages do not keep up with inflation (which becomes more pertinent now that the minimum wage increase has been scrapped from the bill). It also has a negative impact on retirement savings.

Depending on whether demand for the USD keeps up with inflation and how this relates to the demand for foreign currencies, inflation can also mean a hit to the USD’s purchasing power. This harms the U.S. financial sector, as well as all industries that rely on foreign supply chains. Most consequentially, it could potentially lead to capital flight, although this is highly unlikely for an economy as well-positioned, diversified, and robust as the U.S.’s.

However, a weaker currency also has positive impacts on domestic manufacturing, agriculture and other exports, which become more competitive. The U.S. has an enormous trade deficit, so such an event would be a healthy step toward rebalancing trade relations. It would reduce the U.S.’ dependence on imports, and provide new opportunities for growth in tradable sectors. 

Speculative markets have already taken note of Biden’s stimulus. The volatility in the stock and bond markets in recent weeks directly results from its anticipation. Treasury bond yields are on the rise, even after Federal Reserve Chairman Jerome Powell stated that the Fed does not plan to raise interest rates or engage in other inflation-curbing austerity measures anytime soon. 

The rise of Treasury bond yields has prompted investors to take out their money from the stock market, and invest it in bonds instead. Growth stocks, such as the majority of the tech sector, are especially susceptible to outflows caused by the rise in bond yields. 

The rise of Treasury bond yields has also increased mortgage rates, which now top 3% for the first time since July. Higher mortgage rates negatively affect people’s ability to buy homes or refinance their mortgages.

The nature of the pandemic crisis has had uneven impacts across the economy, hitting certain sectors and affecting Black, Indigenous and communities of color more severely. This necessitates a more targeted stimulus bill, or else risks of overheating are exacerbated. The question is: how targeted should it be? According to Republicans, the stimulus should be as targeted as possible. According to Biden, the consequences of a relief package that is too small are greater and more pressing than the risks of a package that is too large.  

I ultimately agree with Biden’s judgment. 46% of American households report serious financial problems caused by the pandemic, suggesting a widespread problem that might touch on more economic sectors than many might expect. That inflation will stem from reopening once Biden’s vaccination campaign is successful might be inevitable, but the Fed believes this inflation will be passerby, not here to stay. 

Only hindsight will tell us if the stimulus’s size was appropriate. What is undeniable however, is that the nature of the pandemic crisis is unprecedented, and that too many people are facing tangible pain. Throwing away political motivations without turning a blind eye to what the future might bring, the best thing we can do today is match the moment. 

Javier Calleja Erdmann is a junior writing about politics. His column, “The Left and the Left Out,” runs every other Wednesday.