$1.9T stimulus package 'sets the tone for strong recovery’: political economist

The Senate passed a $1.9 trillion COVID-19 relief package, including $1,400 stimulus checks. Stephanie Kelly, Political Economist at Aberdeen joins Yahoo Finance Live to break down how rolling out a $1.9 trillion relief bill can help the U.S. economy recover quickly and discuss advocating for more women to return to the workforce.

Video Transcript

ZACK GUZMAN: And a lot of different pieces of that stimulus bill to note here, not just that $1,400 stimulus check that will be going out to qualifying Americans, though that level of qualification in terms of income has dropped relative to where it was in the House bill. Also importantly boosting funding for Obamacare also expanding child tax credits here from $2,000 per child to $3,600 per child as well as something that wasn't talked about as much, an $86 billion bailout for failing pension programs as well in this bill.

Of course, no Republicans signed on. There were, of course, criticisms there from the right about some of this being a Democratic wish list. But for more on how big of an impact this will have on Americans, want to bring on our first guest in the 12:00 PM hour. Stephanie Kelly is a Political Economist at Aberdeen. She joins us now. Stephanie, thanks for taking the time here to chat. I mean, when you look at this bill and kind of tease out the biggest pieces here, what's your take on maybe whether it is possibly too big, not big enough, where do you fall on that argument right now?

STEPHANIE KELLY: I think it's kind of amazing the kind of investor thrashing about, is it too much or too little. I think, you know, you take a step back, the fact that the Democratic Party and the administration have been able to pass this bill relatively quickly, relatively effectively, plugging some pretty important gaps I think, particularly as the COVID crisis has not ended. I realize, of course, there are some states that are starting to open up, but the reality is that as much as we talk about this, you know, as fiscal stimulus, in reality, a lot of it is bridging support, right? It's not the true sense of what we might think of as fiscal stimulus. And I think what it does is especially if you compare to the post financial crisis era under the Obama administration, it really sets the tone for a government that, at least for the next year and a half, two years until the next midterms, are going to try and get their policy agenda done and provide that fiscal policy support that central bankers have been saying is missing for years.

AKIKO FUJITA: Stephanie, you mentioned that you think this is going to close a lot of gaps. How are we likely to see this reflected in the economic data to come at a time when the critics have pointed out that this is simply going to overheat the economy?

STEPHANIE KELLY: So I think the reality is that it will provide a really significant boost to economic growth [INAUDIBLE] that's mechanical in a way, because it goes into the government spending, and then that passes through. But I think what's important is that the support here is being provided in particular to households that need it, and I think that's important.

It's not to say that there are no risks associated with any kind of fiscal package. It's more to say that I guess it's kind of, to a degree, you know, turning good news into bad in a sense of fears of overheating when the reality is that, you know, if you at things like the unemployment rate in the United States, that's actually probably flattering the true unemployment rate, because so many people have just left the labor force. I mean, women in particular, have left the labor force through this crisis.

And so when you look at kind of what's the output gap, I think actually it's being underestimated, and that helps us feel a little bit less concerned that it's going to massively overheat the economy, because you're actually dealing with a bigger output gap than it looks like, because of all those people who have just left the labor force so they're not in the unemployment rate anymore.

ZACK GUZMAN: Yeah, I mean, since you mentioned kind of that labor force participation rate for women, that is something that is pretty striking when you look across gender lines who have been hit the hardest in the pandemic. Whether or not that stems from child care responsibilities and the way that that's shared in households, we did see a pretty significant drop among female workers.

When you look at maybe the Democratic agenda for some policy items they might look to now to maybe solve that or try and play their part in that role, paternity leave is one of those points that you raised here as being pretty significant in trying to address this issue. I mean, what should be learned or I guess emphasized when it comes to that debate around how you do help equality in the household when it comes to that specific piece of getting women back in the workforce?

STEPHANIE KELLY: Yeah, for sure. I mean, I think the reality is that COVID is just exacerbating amplifying issues that already existed, and particularly the fact that women face a different care work trade than men do. That's just the reality across most developed markets, and that's in spite of the fact that actually, on average, women are better educated. So even though most of the conversations that happen around kind of gender equality are around the ethics, there's actually a really strong economic argument to say if you can solve your gender equality issues, you can deal with issues like aging populations and inefficient use of your labor supply.

You know, we always talk as investors about productivity weakness, the world of low numbers, the world of low potential growth, but actually, if you've got over half of your population who are essentially under kind of performing and not involved in the labor force, then there's a real opportunity there. And as you mentioned, we found that in particular, for governments, especially in the United States where paternity leave is not a kind of widely mandated piece of legislation and certainly not one that's widely encouraged, that's a key policy when we kind of modeled for what are the policies that work?

Paternity leave works. It really, if you look at countries that have more paternity leave, they have higher rates of labor force participation, and our models show that there's a causal relationship there, that one begets the other. And I think that's the crucial thing for the United States is get working on paternity leave legislation so that the gaps in people's careers aren't because one is female and one is male.

AKIKO FUJITA: Yeah, Stephanie, certainly a lot of people can agree that that is moving things in the right direction in the long term. In the immediate term though, what do you see as the fix to getting more women back in the workforce? We're starting to see a lot of schools reopen, seems like that would ease some of the pressures as well. I mean, how quickly are we likely to see the turn if we're talking a specific demographic and getting them back into the workforce.

STEPHANIE KELLY: Yeah, for sure. If you look at some of the countries that have found that the labor force participation rates adjusted a little bit more quickly as in kind of most countries saw this dip in participation of women, but some countries have seen a pull back a little bit. I think Australia might be a good example of that. It is basically is childcare available? You know, is there support for childcare in the form of government subsidies or tax breaks or, you know, government support for childcare for preschool?

And indeed, as you mentioned, kids being back in school will allow women who have predominantly been the ones who have had to take a step back to care for those kids to go back to work. But you know, in another crisis, if we were to have particularly another pandemic in which there is that caring responsibility, we'll just have the same problems again, which is why those kind of structural fixes need to come alongside getting kids back to school, providing childcare support for families in order for both parents to be able to work. And then longer term, addressing those gender norms so that it isn't just assumed that it's the woman who gets stepped back.