Trump economist backs Biden’s $ 1.9 trillion bailout

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“They’ve given a lot of incentives for it,” Hassett told CNN Business on Thursday, “but I think we should be risk-averse.”

The former Trump administration official fears that without more help from Washington, the worsening pandemic will cause the US economy to experience a repeat of the first quarter of last year, when GDP contracted 5%.

“There are so many companies that are entering the water, barely holding on. Now they are hit by another shock,” said Hassett, who was Trump’s chief economic adviser from 2017 to 2019 before returning to a volunteer role in March last year. “You could end up in a negative spiral for the economy.”

“The disease is spreading at a remarkable and terrifying rate,” said Hassett, now a prominent visiting scholar at Stanford University’s Hoover Institution.

Biden’s $ 1.9 trillion plan

With his American rescue plan, Biden opts for a go-big or go-home approach. The package calls for $ 1,400 incentive vouchers for almost anyone earning less than $ 75,000, improved unemployment benefits, $ 350 billion in aid to state and local governments, and $ 400 billion to deal with the pandemic itself.
And this would be on top of the $ 900 billion aid package that Congress has just issued last month to prevent benefits from expiring millions of Americans. Some Republicans, deficit hawks and economists complain about the magnitude of the Biden plan so soon after the latter.

Lindsey Piegza, chief economist at Stifel, is concerned that the federal government is rushing too quickly to spend more money on the problem.

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“I would like to see a smaller, more focused approach as we see the economy evolve and adapt, rather than extra money for helicopters,” said Piezga.

For his part, Hassett said there may be elements of the Biden pack that he likes more than others, but by and large, he is “absolutely” in favor of the plan.

“We made it last year without a total, aggregate GDP collapse due to extremely aggressive stimulus measures,” said Hassett, who served as CNN commentator last year.
The former Trump economist is an outlier in his pessimistic view of the strength of the recovery. While Hassett warns that the US economy is likely to contract in the first quarter, the New York Fed Nowcast model expects solid growth of 6.2%. After Biden revealed his plan, Goldman Sachs raised its 2021 GDP outlook to 6.6%, although that forecast assumes Biden will get $ 1.1 trillion in fiscal stimulus.

How vaccines and the pandemic are affecting the economy

The pandemic is clearly causing real damage to the economy, especially in virus-prone industries such as restaurants, cinemas, hotels and cruise lines.

The United States lost jobs in December for the first time since the spring. Another 900,000 Americans applied for first-time unemployment benefits during the last full week of Trump’s presidency alone.

The slow rollout of the vaccine threatens to prolong not only the health crisis, but also the economic one.

Accelerating vaccine distribution has been complicated by logistical issues and the disastrous transition between the Biden and Trump governments.

Biden and his advisers are taking the lead without a national plan for the distribution of coronavirus vaccines in place by the Trump administration, sources told CNN.
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Somewhat counterintuitively, Hassett is concerned that the U.S. economy will take another hit as vaccine distribution accelerates. He explained that people on their turn for a vaccine, or who have already received a single dose, will be extremely careful to avoid getting infected.

“If you hide in your basement for three weeks, you know you’ll be fine,” Hassett said. “Risk aversion will increase enormously. We can expect the economy to be really, really slow – even if the government is not calling for more shutdowns.”

Hassett predicted Congress will approve another major stimulus package in the coming month after some haggling. He noted that Congress and the Trump administration were close to a nearly $ 2 trillion stimulus deal last fall.

“Now that the elections are over,” he said, “people can only focus on what’s good for the country.”

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