WASHINGTON: It’s not surprising U.S. President Joe Biden’s $1.9 trillion coronavirus emergency plan touched off concerns that a gusher of federal spending on the possible eve of a vaccine-fueled economic take-off might lead to inflation.
What is surprising is who is doing the fretting: Not debt-hawk Republicans but former Treasury secretary, Democratic stalwart and Harvard University professor Lawrence Summers, who in a recent Washington Post essay said the Biden plan could “set off inflationary pressures of a kind we have not seen in a generation … Stimulus measures of the magnitude contemplated are steps into the unknown.”
Summers’ critique, however, represents perhaps only the most prominent breach in what had seemed a broad consensus among economists that in responding to the pandemic – an unforeseen shock that brought a healthy economy to a standstill – it was near impossible to do too much.
Turns out that thinking is SO last year.
As the details of the Biden plan work through Congress, the one-size-fits-all, spend-it-fast approach that fueled approval of the initial relief measures nearly a year ago has shifted to a more detailed argument over whether spending less might deliver a better result.
The debate has veered from economic wonkiness – what dataset best estimates household spending? how big is the “output gap” anyway? – to more recently resemble a family feud, replete with snarky tweets and, on Friday, a staged showdown between Summers and Nobel economics laureate and New York Times columnist Paul Krugman.
In the webcast debate, organized by Princeton University, Summers questioned adding another $1.9 trillion in stimulus to a “potentially booming economy.”
“There is no question there is tremendous suffering,” he said, but “this goes way beyond what is necessary.”
Krugman called Summers’ concerns exaggerated and, echoing comments by Federal Reserve Chair Jerome Powell earlier this week, likened rescuing the coronavirus-battered economy to fighting a war.
“When Pearl Harbor is attacked you don’t ask how big is the output gap,” he said.