For weeks, policy veterans have been fretting among themselves over the scale of President Biden’s proposal for more pandemic aid, in private emails and text chains, Neil Irwin reports for The New York Times.
Larry Summers, the former Treasury secretary, made those concerns public with an op-ed article in The Washington Post last week. The article received some support on Twitter from another economist from the Obama administration and from a former chief economist at the International Monetary Fund.
The core question is whether the administration’s $1.9 trillion plan is too big. Is action on that scale needed to contain the economic damage from the pandemic? Or is it far too big relative to the hole the economy’s in, thus setting the stage for a burst of inflation followed by a potential recession?
Mr. Summers argues that the plan’s total size reaches a scale that risks major future problems. That implies that much of that spending will just slosh around the economy, causing prices to rise.
Treasury Secretary Janet Yellen and other top officials argue that their proposal is prudent and appropriately scaled and that the United States is in a do-whatever-it-takes moment. They do not dismiss the possibility that there will be higher inflation down the road — but say it is a manageable risk.
The economy is in uncharted territory. There is a lot of money poised to be spent, and some things may reduce the supply of goods and services. Lots of money chasing finite supply is an Economics 101 recipe for surging prices.
But for the medium term, the more important question is whether any inflation surge would be a temporary not-so-harmful phenomenon or the start of something more lasting.
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