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11 March 2021updated 29 Jul 2021 2:35pm

What does Joe Biden’s $1.9trn stimulus mean for conservatives?

After years in the wilderness under Donald Trump, the deficit-hawk strand on the US right has yet to reassert itself.  

By Nick Burns

Asked about how business was faring, the owner of a Xinjiang Chinese noodle shop on Manhattan’s Lower East Side – who opened his restaurant to a glowing New York Times review several years ago – reported that lately he was struggling to make ends meet. Not only were few people coming in, but he was also working himself raw. He had wanted to bring back on at least one of his employees to help with running the restaurant, but with their unemployment benefits topped up by federal Covid rescue packages – an additional $600 a week for much of 2020 – none were interested.

In the enormous $1.9trn stimulus bill approved by the US Congress on 10 March, these benefits will be extended, at a lower rate of $300 per week, to September. Even as Covid cases fall across the US and the engines of economic recovery roar, many Americans still badly need the extra money. Restaurant owners, too, will find little reason to be chagrined at the extension, as the bill also comes with nearly $30bn in grants for their establishments.

Beyond unemployment top-ups and restaurant aid, the whopping new stimulus will send a round of $1,400 cheques to a majority of Americans. It also directs a variety of types of funds to state and local governments, aimed to assure they recover strongly from the pandemic without fiscal shortfalls or cuts to transport and other services. What’s more – in what is seen as a huge shift in social policy – it raises the amount of aid for families with children to as much as $3,600 per year and makes these funds more available to the poorest Americans.

Together, these and other provisions have been projected to push the American economy to an even stronger rate of growth than it was on track for before the pandemic. The social spending included in the bill is predicted to make the poorest 20 per cent of Americans 20 per cent richer, and to reduce the poverty rate in the country in 2021 by a third. The economist and historian Adam Tooze, of Columbia University, proclaimed the stimulus bill a “democratic triumph” in a recent article in Foreign Policy. If this proves true, the bill will go down as a major coup de main of liberal policymaking, making clever use of a closing window of opportunity before the Republican opposition could fully marshal its forces.

Inflation has become a dirty word of late in economic policy circles, and those who complain of it, such as the Harvard economist Larry Summers, are increasingly seen as austerity-mongering enemies of poverty reduction who have ignored the recent “modern monetary theory” revolution in thinking on debt. But the bill undoubtedly raises the spectre of inflation, as the stirred-up bond market indicates. It is agreed that the stimulus goes considerably past the amount of spending needed to bridge the virus-caused gap in output. This is indeed its purpose: it aims at full employment and an even more robust economy than pre-pandemic, at the risk of prodding prices upward.

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Biden’s package – at nearly 10 per cent of US annual GDP – is notably larger than the size of Rishi Sunak’s Budget. This added only £65bn in new fiscal support, equivalent to under 4 per cent of GDP, and foresaw tax hikes and cuts to public services. After discussion of the government’s emulation of a New Labour economic policy – a possible embrace by Conservatives of high debt and a permanently bigger role for the state – it seems the party may now be returning to its fiscal-disciplinary roots.

[See also: The quiet radical]

Is a similar phenomenon taking place in the Republican Party? The stimulus bill was passed with only Democratic Party support in Congress. Biden, it seems, has decided to avoid, when possible, dealing with Republican lawmakers, whose intransigence on stimulus legislation during the financial crisis took much of the wind out of the sails of the Obama administration.

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It is true that Republican leaders in Congress made statements complaining of a Democratic refusal to work together on the latest round of stimulus, which they called a “blue state bailout” and too big. But these statements were oddly pro forma, and a general reaction against the bill by the conservative movement never coalesced. As the bill took shape in Congress, conservatives were hardly paying attention, busy fighting on a new front of the culture war: a handful of books by the popular children’s author Dr Seuss will soon stop being published by the author’s estate due to depictions alleged to be racist.

A major question for the future of American conservatism, the Republican Party and, by extension, the future of the country, lies in whether the budget-hawk strand on the US right will reassert itself in opposition after recent years in the wilderness as Trump signed tax cuts and approved large virus rescue packages. So far there is little sign of this in the grass-roots, but – as in the UK – a few intellectual elements associated with a more “social-democratic” conservative policy have lately begun to waver.

Advocates of a “working-class conservatism”, such as Oren Cass of the new policy shop American Compass, have been thundering for years against the US right’s laissez-faire approach and its reluctance to use the state to aid working families. But Cass recently took a public stand against a proposed child benefit, arguing, in language that sounds much more typically conservative, that unconditional handouts were unjust because people did not “do their part” to earn them, and that because they did not encourage work, they did not present a real solution to poverty.

There has been much discussion lately about the potential for a political “realignment” in America to match the one seemingly under way in Britain in the wake of the fall of the Red Wall. Will poor and working-class voters gravitate towards Republicans, and rich Americans to the Democrats, as an across-the-board suburban shift to Biden in the 2020 election suggested? Republicans are increasingly convinced the Democrats’ association with issues such as “cancel culture” and movements to “defund the police” will lose them the support of more moderate Americans of all races.

But the passage of Biden’s stimulus bill – outflanking the new, heterodox GOP-associated policy wonks from the left – makes this risk look somewhat more remote. The Democrats have proved they remain the party that is more willing to spend on the poor, and, culture war notwithstanding, the votes may follow.

[See also: Why Labour must follow Joe Biden’s example]