Key ex-Obama adviser says Biden stimulus is too big
Larry Summers, the top economic adviser to former President Obama, warned in an op-ed on Friday that President Biden’s proposed COVID-19 relief package is too big and could overheat the economy.
Summers, the Treasury secretary under former President Clinton, wrote in The Washington Post that the proposed $1.9 trillion stimulus could ignite inflationary pressures “of a kind we have not seen in a generation.”
He said the risk of inflation could have “consequences for the dollar and financial stability.”
“Stimulus measures of the magnitude contemplated are steps into the unknown,” Summers wrote.
Summers’s remarks are notable because Biden has received almost no pushback from Democrats in pursuit of his legislation. Some progressives have griped about Biden not going big enough, but Democrats are largely united behind the bill.
Biden met with Republican senators this week pushing a scaled back $618 billion bill, but the administration and Senate Democrats have given every sign that they’re prepared to pass the $1.9 trillion stimulus without GOP support, if necessary.
The Summers op-ed is likely to be seized upon by conservatives who argue Biden and Democrats are preparing to spend too much.
A new jobs report on Friday, however, found the economy added 49,000 jobs in January, a low number likely to bolster calls for a large relief package.
Senate Democrats approved a budget resolution early Friday that would allow them to pass the relief bill on a 50-50 party line vote, with Vice President Harris acting as the tiebreaker. Republicans would not be able to block the measure with a filibuster under those budgetary rules.
In coming up with his analysis, Summers looked back at the Obama fiscal rescue package from 2009, which he said was far too small to address the magnitude of the Great Recession.
Summers calculated that in 2009, the gap between actual and estimated potential output was $80 billion a month and that the Obama stimulus covered about half of the shortfall.
At the moment, Summers estimates the gap to be at $50 billion a month and said the Biden stimulus would address three times that.
Furthermore, Summers noted that in 2009, unemployment was skyrocketing and projections of future consumer spending looked bleak.
In the current climate, unemployment is falling and economists believe consumers could be poised to start spending some of the $1.5 trillion in accumulated savings from the lockdown.
“While the arguments for providing relief to those hurt by the economic fallout of the pandemic, investing in controlling the virus and supporting consumer demand are compelling, much of the policy discussion has not fully reckoned with the magnitude of what is being debated,” Summers wrote.
Finally, Summers warned that Biden risks going so big on stimulus that it could suck up all of his political capital and prevent him from allocating resources to other public investments he hopes to make.
“If the stimulus proposal is enacted, Congress will have committed 15 percent of [gross domestic product] GDP with essentially no increase in public investment to address these challenges,” he said. “After resolving the coronavirus crisis, how will political and economic space be found for the public investments that should be the nation’s highest priority? Is the thinking that deficits can prudently be expanded longer and further? Or that new revenue will be raised? If so, will this be politically feasible?”
“The Biden plan is a vital step forward, but we must make sure that it is enacted in a way that neither threatens future inflation and financial stability nor our ability to build back better through public investment,” Summers wrote.