E-Paper
An expansive fiscal programme in the US
The package is extraordinary for its scale, and is in line with a central Keynesian principle — enhanced public spending will spur demand and have a multiplier effect. And it is the kind of scheme that other countries should consider.
In the United States (US), the Congress has passed a $1.9-trillion stimulus package, shepherded by the Joe Biden administration, to aid citizens, especially among low-income and poorer segments, in times of the economic distress caused by Covid-19. The pandemic has dealt a devastating blow to lives and livelihoods, and was among the key reasons why Donald Trump lost the presidential election. The package — which was a key electoral plank of Mr Biden — includes direct income assistance; extension of unemployment benefits; financial support for expedited vaccination; relief for schools; support for infrastructure; and tax credits for children, among other steps.
The package is extraordinary for its scale, and is in line with a central Keynesian principle — enhanced public spending will spur demand and have a multiplier effect. And it is the kind of scheme that other countries — if they had the resources available to the US and a more inclusive economic imagination — should consider. It is also correct in identifying vaccination as the key vehicle, which can lead to economic recovery.
At the same time, the package will possibly have inflationary consequences, not just for the US but globally in terms of commodity prices as the US economy bounces back. If there is domestic inflation, expect the Federal Reserve to hike interest rates, which, in turn, as a piece in this newspaper warned on March 1, can result in capital from advanced countries returning home. This is, to be sure, a medium-term, rather than an immediate, concern. But Indian policymakers would do well to keep a close eye on the impact of the package on the US economy.
