Will Biden’s Plan Help Your Finances or Make Things Worse?

Many Americans are going through incredibly tough times because of COVID-19. Around 18 million Americans are living on unemployment insurance and over 10 million still don’t have enough money to pay rent. Biden's plan sounds good on paper, but does it really help?

The Bottom Line for the Economy in 2021

Here are some facts about the economy in 2021:

• Unemployment is worse than during the recession of 2008
• There is still low demand for many goods and services
• The labor market is recovering more slowly than expected
• The GDP may increase by 10% for Q1 2021

What does this mean? The overall economy is doing better than many economists expected. Manufacturers are increasing production and real estate is on fire. However, this growth is lopsided, with many service businesses going through incredibly hard times. People who live paycheck to paycheck are struggling.

A Politics-Free Point of View

I prefer to stay away from politics in economic topics because I think it confuses the issue. Lawmakers on both sides praise huge packages from their own party and then cry about the federal deficit when the other party is running the ball. I like to look at investment strategies from a purely economic point of view. So what are economists saying?

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The Pros of Biden’s Stimulus Package

There are many areas of the stimulus package that are sorely needed by Americans and businesses:

• Assistance for lower- and middle-income families
• Supplemental unemployment insurance
• Small business relief
• Money earmarked for restaurants and retail businesses
• Housing assistance
• Funding for states and local governments
• Financing for schools and universities

These are good things. To actually restart the economy, small businesses need help. Everyday people need their jobs back. They need money for rent, daycare services and essentials.

The Cons of Biden’s Plan

Throwing money at the economy’s problems can work, but some economists think Biden’s stimulus package is just too broad:

• Too many targets: It’s small businesses and certain sectors that are hard hit right now, such as hospitality, retail and travel businesses. Manufacturers are doing just fine. Why should companies having a great year benefit from tons of stimulus, too?
• Inflation and higher interest rates: As demand for certain goods rises, this may trigger inflation. The Fed has said it won’t raise interest rates until they hit 2%, but some economists worry about 3.5% or even higher inflation during 2021, potentially raising the price of goods and interest at the same time.
• Other spending priorities: The spending bill includes things that aren’t part of emergency relief, such as city infrastructure projects.

The good news is that some complaints were taken into account, like forgetting about a $15 minimum wage while small businesses are still trying to get back on their feet. Also, more money was set aside for low- and middle-income families.

My Opinion of Biden’s Relief Plan

Personally, I’m not too worried about inflation. The U.S. has been way underneath the  target of 2% per year. Interest rates were dropping even before COVID-19 because the Fed wants more Americans to spend and invest money rather than sitting on it.

I also think it’s going to take longer than people think for the day-to-day spending to get back to normal. The pandemic has forced people to think about their priorities, and families who have seen their savings account wiped out may not be in a hurry to buy luxury cars or go on vacation, especially if most other countries are still in COVID mode.