The world economy – Joe Biden’s stimulus is a high-stakes gamble for America and

WHEN THE pandemic struck it was natural to fear that the world economy would stay in the doldrums for years. America is defying such pessimism. Having outrun gloomy growth forecasts from last summer, it is adding fiscal rocket fuel to an already fiery economic-policy mix. President Joe Biden’s $1.9trn stimulus bill, which he was poised to sign into law after The Economist went to press, takes to nearly $3trn (14% of pre-crisis GDP) the amount of pandemic-related spending passed since December, and to about $6trn the total paid out since the start of the crisis. On current plans the Federal Reserve and Treasury will also pour some $2.5trn into the banking system this year, and interest rates will stay near zero. For a decade after the global financial crisis of 2007-09 America’s economic policymakers were too timid. Today they are letting rip.

The probable result is a bounce-back that was unthinkable in the spring of 2020. In January America’s retail sales were already 7.4% higher than a year earlier, as most Americans received $600 cheques from the government, part of the previous round of stimulus. Stuck at home and unable to spend as much as they normally would in restaurants, bars and cinemas, consumers have accumulated $1.6trn in excess savings during the past year. Mr Biden’s stimulus gives most Americans another $1,400 each. Unusually for a rich country, a big chunk of the cash pile is held by poor households that are likely to spend it once the economy fully reopens. If vaccines continue to reach arms and America avoids a nasty encounter with new variants, the unemployment rate should fall comfortably below 5% by the end of the year.

The good news is not confined to America. Manufacturing surveys are healthy even in the euro zone, which is behind on vaccinations and battling new variants, and is applying less stimulus. Mr Biden’s spending will further boost global demand for goods. America’s trade deficit is already more than 50% greater than before the pandemic, as the economy sucks in imports. But the rest of the world will not match Uncle Sam’s breakneck pace. On March 9th the OECD, a club of rich countries, forecast that America’s economy will, uniquely among big economies, be larger at the end of 2022 than it had been predicting before the pandemic. From April to September America is likely to outgrow even China, which is tightening monetary policy and has suffered a 9% fall in its stockmarket since mid-February.

Surging out of a crisis that had at its worst moment cut the number of people in work by 15% will be a triumph for America, and will stand in contrast to the puny recovery after the financial crisis. Mr Biden’s spending will provide welcome relief to those whose lives have been upended—today America is still missing 9.5m jobs. Thanks to extra cash for most parents, the country’s persistent and widespread child poverty will fall dramatically.

Yet, though today’s policymakers have a guaranteed place in economic history, they may not come to be seen as heroes. That is because…