During the pandemic, the world has been dazzled by the huge sums that governments have been willing to spend propping up their economies. Britain has spent £407bn in support measures, more than 40% of normal government spending in an entire non-Covid year. The European Union has launched an emergency new €750bn (£645bn) coronavirus recovery fund to help its 27 member states. Now the United States has topped them all, passing the $1.9tn (£1.4tn) stimulus package that President Biden signed this week. This takes pandemic-related spending by the US to around $6tn (£4.3tn) – more than it spent fighting the second world war.
The Biden package is massive. It puts up to $1,400 into the pockets of low-paid workers and members of their families. It extends a wide range of welfare payments into the autumn, boosts parental tax credits, and maintains special unemployment reliefs and health care subsidies. Much of the support is unconditional. The poorest fifth of US households will see their incomes rise by 20%. Child poverty may be cut in half. Payments began to arrive over the weekend.
The economic impact will also be massive. In particular, it lays the ground for a US economic bounce-back that would have seemed unthinkable last year, but which will now be felt around the planet. Personal spending of accumulated savings is likely to accelerate quickly too. According to the intergovernmental Organisation for Economic Co-operation and Development, America is set to be the only one of its member states whose economy will be larger at the end of 2022 than the OECD was predicting before the pandemic. For a time this year, the US is expected to grow faster even than China, which has not happened for years. This involves some economic risk – though slack in the US economy ought to restrain inflation.
In American domestic politics, the relief package may prove a turning point. As the US economics commentator Paul Krugman said this week: “The era of ‘the era of big government is over’ is over.” Instead, the Biden package puts government support for citizens and businesses front and centre. The policy is overwhelmingly supported by voters. According to the Pew Research Center, 70% of Americans are in favour, with 28% against. Yet, in spite of the fact that 41% of Republican voters backed it, the bill failed to win the support of a single Republican member of Congress. All of the party’s legislators described it as bloated and unaffordable. This is the selfsame language that Republicans – and some Democrats – have been using about government spending for the past 40 years. This tells us that America is experiencing a policy realignment without a partisan realignment to go with it.
If so, this is a very big moment. Mr Biden seems to have decided that he must move beyond the aspirational rhetoric of bipartisan unity that marked his inauguration in January. The Republican party’s refusal to censure Donald Trump in his second impeachment trial, and now its inability to break with Reagan-era hostility to government, have made that impossible. Instead, Mr Biden appears to be concluding that he must – and can – start to put a new paradigm of American political economy in place, in which government steps in during hard times to redistribute wealth in the name of social decency. Events have meant Mr Biden must now lead America – at least until the 2022 midterms – as a president not of continuity, but of change. Just as ups and downs in the American economy always affect the rest of the world, these new political directions will surely ripple around the planet too.