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'Economy doesn't need' $1.9T stimulus plan: Douglas Holtz-Eakin

Yahoo Finance’s Brian Sozzi, Julie Hyman, and Myles Udland discuss discuss U.S. economic recovery with Douglas Holtz-Eakin, American Action Forum President.

Video Transcript

MYLES UDLAND: Well, let's talk a bit before we turn fully to the goings on in Washington about the outline of the economy that we heard from the President-elect in that speech last week. For more on this conversation, let's bring in Douglas Holtz-Eakin. He is the president of the American Action Forum.

Doug, always great to speak with you. Let's start with your thoughts on that outline that we heard from the President-elect last week. And sort of the good and the bad that you heard in there. And what you think at this stage in the recovery the economy most simply needs. And it sounds like from your notes it's not $1.9 trillion. It's something a little more targeted and a bit smaller.

DOUGLAS HOLTZ-EAKIN: I think it's a very aggressive proposal. Particularly for a proposal that they intend to pass through Congress using regular order, which would require Republican support in the Senate to get the 60 votes for passage. So I don't see all of this going through in regular order. And I don't think the economy needs it.

If you look at what the Atlanta Fed and the New York Fed are calling for fourth quarter GDP growth, it's still between 2 and 7% at an annual rate. And you know, New York has pegged the tracking forecast for the first quarter of 2021 at over 6% still. And that's prior to the passage of $900 billion in stimulus in December. And so it's hard for me to reconcile that underlying strength in the economy with the need for nearly $2 trillion in relief.

So I think others will think that way and this package will shrink down. There are also some pieces of it that have nothing to do with COVID-19 recovery, things like raising the minimum wage to $15. I think it's a non-starter given the real damage to the small business sector of the US economy and that'll fallout.

So bottom line, I think the lesson learned by the Obama alums was to be big and aggressive early. But I don't think they're going to get all that in a Congress that's as tightly divided as this one.

JULIE HYMAN: Hey, Doug. It's Julie here. So talk to me about what you're seeing in the underlying economy because some of the more recent economic signals have been a little bit more concerning. Particularly on the job front, whether you look at the weekly jobless claims or the December jobs numbers. So does that raise any concerns for you about how robust or not the underlying economy is?

DOUGLAS HOLTZ-EAKIN: Sure. You know the December jobs report featured a headline loss of 140,000 jobs. But we lost half a million jobs in leisure and hospitality. So the other sectors actually grew fairly substantially. I think that losses traced directly to the surging COVID-19 cases, that also I think explains the decline in retail sales we saw in December, also a little bit in November.

We should be concerned about those things. But we know the way to fix it is to address the coronavirus. We've got a vaccine. The president is promising an aggressive vaccine distribution and inoculation program. Spending $400 billion on the vaccination effort should relieve you of the need to spend another $1.5 trillion in supporting the economy.

So I think that's the right way to go. And outside of the weakness in the virus exposed sectors, the economy is doing pretty well. If you happen to work in that sector of the economy, the economy's terrible.

I mean, so this really is a world where if you're a low skilled front line worker in leisure and hospitality, you may have been unemployed since March. We need to take care of those people. And that's what December was about. And there may be more needs there. But broadly speaking, the economy is cranking along pretty well underneath the virus.

BRIAN SOZZI: Doug, can you, would you get behind an infrastructure package that would be separate of the stimulus? Do you think the country needs that?

DOUGLAS HOLTZ-EAKIN: I think that makes sense. If you look at most of the forecasts, what you see is the virus gets eradicated in some form. You get a fairly quick recovery for most people and most jobs. But then you have sort of a slow recovery back to full employment. And the support for the economy a year and a half, two years out is perfect for an infrastructure program.

You don't want to rush something. You want to do something that you need anyway. And we do have infrastructure needs. And which will come online at a point when the economy would benefit from that additional demand.

So I think if they were to think of this problem as, let's pass a bipartisan Service Transportation Act in regular order, they'd get exactly the right kinds of things out of it. They don't want to rush through and pretend it's a Recovery Act where you have to spend it all real quickly and have shovel ready projects. That's not the recipe here.

MYLES UDLAND: All right. Douglas Holtz-Eakin is the president of the American Action Forum. Doug, it's always great to get your thoughts. Really appreciate you taking some time this morning to speak with us. I know we'll be in touch soon.

DOUGLAS HOLTZ-EAKIN: Great. Great to talk to you.