Biden economic recovery faces tradeoff between speed and oversight

Image: Joe Biden
Joe Biden speaks on the effects of Recovery Act investments in innovation, science and technology at the White House, on Aug. 24, 2010.Pablo Martinez Monsivais / AP file

When Joe Biden takes office it will be a return to familiar times, in more ways than one.

He will again be overseeing the implementation of an American relief and reinvestment plan after a severe economic downturn. But how well he took the lessons of being “sheriff” of that effort may determine how quickly the country recovers now.

When President Obama signed the American Recovery and Reinvestment Act on February 17th, 2009, he appointed Biden to oversee the implementation and operation of the $787 billion effort to rescue the American economy, and to make sure that there was no fraud or waste in the allocated funds.

“Around the White House we call him the Sheriff, because if you're misusing taxpayer dollars, you'll have to answer to him,” President Obama said at the time.

But experts say the overriding focus on making sure dollars were spent correctly traded one mistake for a far greater one. By not spending quickly enough the recession dragged on for longer, causing economic pain and opening the political door to austerity measures that further extended the length of the recovery.

Amid reports that pandemic relief initiatives like the Payroll Protection Program has enriched some fraudsters with taxpayer dollars, officials like Fed Chair Jerome Powell defended the Trump administration’s rapid action, arguing that the scope of the economic crisis was so great that disseminating funds as soon as possible had to be the top priority, even if it meant that a few bad actors slipped through the cracks.

A 2009 Moody’s Analytics study found that growing the food stamps and unemployment insurance programs generated the highest return on the government’s investment, since most of those dollars were spent immediately and funneled back into the economy.

Philip Harvey, a professor of law and economics at Rutgers University School of Law, said that focusing on providing income support directly to individuals and households would sidestep some of these bottlenecks as well as the worry that companies were misappropriating funds.

Recovery Act money, Harvey said, “was not distributed directly to the people. It was all trickle-through and that’s what slowed it down. If the focus is on services to the unemployed and marginalized communities, that would get the money out very quickly."

Economists say the toughest task Biden will have to tackle when he takes office will be to thread the needle on future stimulus if the Senate remains in Republican hands, as many anticipate. Obama was faulted for overpromising on the Recovery Act, when many economists say that the reality is that it wasn’t big enough to get the job done.

Voter discontent over the slow pace of the recovery manifested in the 2010 midterm elections, which swept in a wave of Tea Party conservatives and threw much of the stimulus momentum into reverse, Zandi said — an about-face that had long-term economic ramifications.

“I think the broadest lesson is we went from stimulus to austerity very quickly — too quickly,” he said. “By 2011, it was all-out austerity… that really slowed the economy and was one key reason why that recovery was painfully slow.”

There is evidence that Biden is turning to some of the same advisors: Jared Bernstein, Biden’s top economist from 2009 to 2011, is one of the names that has been raised as a potential Cabinet pick, an indication that Biden could be returning to at least parts of the same playbook.

Experts say there are a few specific topics on which Biden and his team can draw on models developed and lessons learned in the last recovery.

Tom Guevara, director of the Indiana University Public Policy Institute, said Biden’s pledge to rebuild American manufacturing infrastructure and onshore more production capacity could follow the same kind of strategy that led to the creation of the 2012 public-private consortium dedicated to expanded advanced manufacturing known later as "Manufacturing USA."

“I do think the similarities really go to capacity building,” he said. “They gave particularly small and medium sized manufacturers the capability and know-how.”

A key concern for economists is the dire straits of state and local government finances — which also was a factor many say led to the slow and uneven trajectory of the Great Recession recovery.

Providing aid to states and municipalities has been a key sticking point in Covid-19 relief negotiations, as the President and Congressional Republicans have blamed states like New York and California — Democratic strongholds hit early on by Covid-19 — for mismanaging their budgets.

Since those early months, the coronavirus has torn through wide swaths of the country, including much of the red-state heartland. Zandi suggests the immediacy and scope of the public health crisis could prompt a reckoning among lawmakers.

“The reality is the pandemic has not diminished,” Zandi said. “Particularly now that the pandemic is across the country, and red states are suffering a lot more than blue states, maybe that changes the dynamic.”