ROOSEVELT and BIDEN

By Ignacio Munyo

Published on March 16, 2021, on El País.

On Thursday 11, the US Congress approved a huge stimulus package to reboot the economy, which had multiple, global, and profound consequences.

President Joseph Biden has the opportunity to make “hope and history rhyme,” as he said at the Democratic National Convention last year, quoting the Irish poet Heaney. Biden was making reference to the 1930s, when President Franklin Delano Roosevelt, inspired by John Maynard Keynes, promised a New Deal to tackle recession and mass unemployment.

Roosevelt’s New Deal imposed a first fiscal stimulus package in 1933 of 6% of GDP and a second one in 1935 of 7% of GDP. Towards the end of the 1930s, he introduced incentives to improve competition and stimulate economic recovery. The US overcame the Great Depression, led the victory against Nazism, and consolidated its position as the world’s leading power.

Biden’s New New Deal involves an initial fiscal boost that reaches 9% of GDP, far exceeding those of the 1930s and almost double Obama’s in 2009 (5% of GDP), during the midst of the Great Recession.

Almost a quarter of the US$ 1.9 trillion will be delivered directly to individuals. As of Friday 12, everyone having an annual income lower than US$ 75 thousand will receive a payment of US$ 1,400—an amount similar to the minimum wage in Uruguay (UYU 18 thousand) for all those earning less than UYU 80 thousand per month.

The rest of the funds will be allocated to insurance, retirement and pensions, investment in education and health, and support for SMEs and local governments. A huge investment in infrastructure is expected to arrive in a new package.

Biden’s Treasury Secretary, Janet Yellen, defended the plan forcefully. She stated that “the stimulus plan will allow us to do what we intended to when we came into power: not simply putting out fires or solving crises, but rather to build a better country.”

There has been much debate about whether expansionary monetary policy was sufficient to restore growth after the Great Recession. Governments concerned over reducing fiscal deficits delegated to central banks in order to stimulate the economy through cheap money and buying financial assets. Last week, Biden and Yellen put an end to this regime, and its impact is global.

The OECD has already raised its 2021 growth projections for the US from 3.2% to 6.5%. It estimates that the global impact will result in a 1% boost to the world economic growth in 2021. So will the IMF when it updates its estimates in April. The yield on 10-year US Treasury bonds jumped from less than 1% to over 1.6%. The global value of the dollar rises after having been flat for almost a year.

Further, emerging economies are suffering from the rise in interest rates—especially the most indebted ones—and are being affected by the reduction of foreign investment flows, with intensities specific to each country.

It is impossible to know the end result of Biden’s stimulus package, either in the US or globally. The spirit of the New Deal was not ideological, but practical. Roosevelt called for support for a “bold and persistent experiment.” He used to say that “it is common sense to take a method and give it a try. If it fails, we admit it frankly. And then we try another one. But, most important, try something.” Today, towards the end of the pandemic, the world is going through a similar situation.