President Joe Biden is trying to push through a $1.9 trillion stimulus program that many congressional Republicans don't want and the economy may not need.
As it stands, the package includes direct checks to millions of Americans, enhanced unemployment benefits, a more than doubling of the minimum wage, aid to state and local governments and money for Covid vaccines and testing, among other things.
Republicans object to the plan for its hefty price tag and, in particular, the $350 billion earmarked for what is perceived as a bailout for poorly run localities.
But the issues run even deeper than that.
If approved in full, the Biden plan would exacerbate a hole already blown through the federal budget, and pose dangers not far down the road like high inflation that could end up hurting the people most in need now of help.
Virtually no one disputes the need for something. Millions of leisure and hospitality workers remain out of jobs as government-imposed restrictions continue to hammer the industry.
But the need for something as ambitious as Biden's proposal seems to be diminishing by the day.
Economic data continues to defy expectations at a rate that would have been close to a record high before the pandemic came along and changed everything. The Atlanta Fed's GDPNow tracker is indicating growth at a 7.5% pace in the fourth quarter, hardly indicative of an economy in need of a massive cash infusion.
The housing market is thriving at historic levels, consumers are spending like crazy and outside of the millions impacted by restrictions on bars, restaurants and the like, the jobs picture actually doesn't look that bad.
The unemployment rate is 6.7%, the same it was in March 2014, well into the recovery that began in mid-2009. A broader measure of joblessness that includes discouraged workers and the underemployed is 11.7%, exactly where it sat in September 2014.
December saw an end to seven straight months of strong job gains. But the 140,000 decline in the month would have been a 358,000 gain excluding the hospitality layoffs. Fed Governor Lael Brainard recently noted that the unemployment rate for the bottom rung of the economic ladder is probably above 20% —meaning the rate for everyone else is less than 5%.
So why the push for more stimulus? And what could go wrong?
For one, it's just the politically popular thing to do. Congressional Democrats have been joined in demands for more stimulus by authorities as weighty as Fed Chairman Jerome Powell and Janet Yellen, who appears on the verge of being confirmed as Treasury secretary.
During her confirmation hearing, Yellen stressed the need for another package "that I think we need to get through these dark times." Sen. Ron Wyden, D-Ore., said Friday that his support for Yellen is based in part on her support for more stimulus.
After the economy crashed in the first quarter due to the pandemic wreckage, it's been taken as gospel that continued stimulus is needed to get the U.S. back on its feet.
The images of still-needy Americans, most of them at the lower end of the spectrum, are outweighing any concerns about excesses nor questions, posed primarily by Republicans, over whether government largesse is being pumped to people who haven't missed a paycheck during the pandemic, who are in growth industries that actually have thrived, and who in fact simply don't need more transfer payments.
Yet it is just those people in the neediest classes who may end up suffering long-term from pumping too much, according to Jim Paulsen, the Leuthold Group chief investment strategist.
Paulsen is known for his mostly positive views on the economy and financial markets. But he worries that the continuous desire to keep feeding the economy will have a longer-term negative burden that again will fall on those least able to bear it.
The fear is that U.S. overdoes it with stimulus, resulting in a need to pull back the reins quickly if inflation runs out of control. Of course, those have been concerns ever since the massive policy response to the financial crisis in 2008, and inflation has stayed quiescent.
But with "the overuse and abuse of economic policy" present now might finally change that dynamic and cause severe problems down the road, Paulsen said.
"There's a number of bad things that could result from that, not today but down the road. Certainly, if it brings overheating and inflation, that may necessitate an incredibly speedy and aggressive tightening," he said.
The result could be "a loss of confidence in government finances in this country" as the national debt swells nearly $28 trillion, the public portion of which now exceeds total GDP, Paulsen added. That in turn could provoke a snapback in the market that brings about economic havoc.
"Any or all of those could result in a very severe recession again quite quickly, not this year but in 2022 or 2023, and if it does it's going to end up hurting the same groups that everyone is trying to help today the most," he said. "They all need to have a view of what that means down the road. I just don't think anyone has that view and I think that's irresponsible."
The demands to keep pumping come as most economic metrics are strongly positive.
Last week saw robust numbers for housing starts, building permits and existing home sales.
Manufacturing and services gauges released Friday showed expansion well above what Wall Street had expected. Business activity measures from various regional Federal Reserve outposts also have indicated mostly better-than-expected activity, and even jobless claims last week were lower than forecast, albeit still at unacceptably high levels
Still, the economy can't come full circle until the most vulnerable are taken care of.
Spending needs to be targeted at those most impacted. In December, nearly half a million hospitality workers lost their jobs, and nearly 16 million continue to collect some form of unemployment benefits, though the number that continues to fall. They will continue to need plenty of help.
However, the rest of the economy is in nowhere near those dire straits.
In aggregate, U.S. households have seen their finances greatly strengthened by two rounds of fiscal stimulus worth more than $3 trillion. That has come with unprecedented levels of monetary goosing from the Federal Reserve in the form of rock-bottom interest rates, trillions of dollars in bond buying and an extraordinary array of – now discontinued – lending programs aimed at getting the economy back to pre-Covid levels. The Fed is currently buying bonds at a pace of close to $1.5 trillion a year.
In aggregate and following the slathering of stimulus that already has been thrown at the economy, the economic health of Americans is strong.
A few numbers to demonstrate:
"U.S. households have never had as much cash as they have now. They're really extraordinarily cash-rich," Ian Shepherdson, chief economist at Pantheon Macroeconomics, said a few days ago during a webinar. "This effectively is a war chest that they have available to spend once they can spend and assuming they want to spend once the Covid fear has gone."
Shepherdson said he thinks inflation could accelerate before the year is out and cause the Fed to rethink its ultra-accommodative policies and have to start tightening sooner than the market expects.
Of course, the virus is the key to everything.
Biden made much over his push for 100 million vaccines in 100 days — but that's just slightly ahead of the current pace. The point at which the U.S. reaches herd immunity likely will coincide with a full recovery, but in the meantime there will be trillions coursing through the system to get the nation through, even if it isn't needed.
In a note to clients last week, Paulsen said what the economy needs most now is not more stimulus but rather a "shot in the arm," in the most literal sense. Getting people vaccinated, he insists, is far more important than continuing to force more money into an already saturated economy.
"This may end up hurting the exact people we're trying to help more than anyone else," Paulsen said. "This started in 2009 [during the financial crisis] when we adopted a new playbook like Cash for Clunkers and TARP and all these other things. I don't think we ever put this stuff back in the bottle, and it just keeps getting worse."