“Consumer sentiment rose in early March to its highest level in a year due to the growing number of vaccinations as well as the widely anticipated passage of Biden's relief measures,” said the University of Michigan sentiment survey. “The gains were widespread across all socioeconomic subgroups and all regions, although the largest monthly gains were concentrated among households in the bottom third of the income distribution as well as those aged 55 or older (dark blue and gray lines in graph).”
Sentiments are soaring because the just passed American Rescue Plan (AMR) will boost benefits of lower and middle income consumers, raising incomes for the poorest 20 percent of families by an average of 20 percent, according to the Tax Policy Center's analysis, while top earners would see their income rise less than 1 percent in an NPR interview.
America can pay for the $1.9 trillion tab because it does not substantially raise the cost of the public debt over the long term if we look at the average annual budget deficit to GDP ratio that hasn’t varied substantially since WWII—the major exceptions being the need to finance recoveries from the Great Recession, and now the coronavirus pandemic.
The cost of financing public debt has averaged little more than 3 percent, historically because economic growth that followed that spending brought the public debt back down to manageable levels, whatever interest rates prevailed at the time.
Financing the $5 trillion in debt that congress has passed since the onset of the coronavirus pandemic should follow the same trajectory. For example, the new $1.9 trillion from the American Rescue will create 7 million new jobs by December, according to the Congressional Budget Office.
“Between 1946 and 2019,” says the CBO, “the deficit as a share of GDP has been larger than that only twice. In CBO’s projections, annual deficits relative to the size of the economy generally continue to decline through 2027 before increasing again in the last few years of the projection period, reaching 5.3 percent of GDP in 2030. They exceed their 50-year average of 3.0 percent in each year through 2030.”
Predictions of real GDP growth are soaring since the AMR’s passage. The Organization for Economic Cooperation and Development projects the U.S. economy will grow by 6.5 percent this year, according to NPR. That's more than twice the growth rate it was projecting in December — thanks in large part to more robust federal aid.
And employment is already surging, thanks to the prior pandemic aid packages. The February employment report added 465,000 private payroll jobs, with 355,000 of those jobs in leisure and hospitality — restaurants, hotels, casinos, theaters—all in the service sector.
All signs point to a robust recovery, in other words, which is why I don’t see any problem with managing a ‘new’ New Deal spending bill when it benefits so many Americans at a time of greatest need, the need to recover from a pandemic that has cost more American lives than our combined wars.
Harlan Green © 2021
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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