President Biden and his allies are stepping up their defense of the massive $1.9 trillion coronavirus relief package that has begun working its way through Congress following criticism from Democratic economist Larry Summers.
Gene Sperling, who was the director of the National Economic Council under both Presidents Bill Clinton and Barack Obama, told the Biden administration to “go big while you can,” cautioning that the 2008 financial crisis should serve as a lesson in the need to buy recovery “insurance” with an outsize response.
Summers, another Obama NEC director, argued that Biden’s proposed $1.9 trillion relief package would unleash “inflationary pressures of a kind we have not seen in a generation” and limit the administration’s ability to address public investments in other priority areas, such as infrastructure and renewable energy.
Sperling disagreed, suggesting that determining the appropriate size of the aid package should look beyond the size of the economic hole.
“Rather than trying to tailor the response to one’s best guess of the precise size of today’s crisis, go big enough to buy insurance for economic recovery efforts with the recognition that things might go wrong and might already be worse than expected,” Sperling wrote in a Financial Times op-ed, citing unseen circumstances, the Arab Spring uprising, and the Fukushima nuclear meltdown, that exacerbated the weaknesses of the Obama-era recovery package.
“While widespread vaccine distribution could allow normal economic activity to return, problematic Covid-19 variants could also scramble the best-laid plans,” Sperling added.
Treasury Secretary Janet Yellen made the Sunday morning news rounds this week detailing her defense of the proposal, telling CBS’s Face the Nation that the country is “in a deep hole with respect to the job market and a long way to dig out.”
After January’s tepid jobs gains, just 49,000, more than 10 million people remain unemployed. And while weekly unemployment claims continue to tick down slowly, they still remain higher than the worst days of the 2008 financial crisis.
Yellen also told CNN’s State of the Union that Biden’s proposal would accelerate projections from the Congressional Budget Office that said it would take four years to return to pre-pandemic job levels.
“But this package is going to really speed recovery, and analysis by Moody’s and economists at the Brookings Institution show very clearly that we will get people back to work much sooner with this package, and that’s really critically important,” Yellen said. “There’s absolutely no reason why we should suffer through a long, slow recovery.”
And White House press secretary Jen Psaki began her Tuesday press conference with a defense of the proposal, saying that private sector leaders, business groups, and labor leaders “understand how important it is.”
“The president and members of his economic team feel that a package of this size is so essential at this moment because we are dealing with a pandemic — we are dealing with an economic downturn,” Psaki said. “People are suffering. The American people need assistance, and this emergency relief is something that the cost of doing nothing or the cost of doing too little is the greater risk in his view and the view of his economists, including the view of his secretary of Treasury.”
Psaki added that the plans have been supported by “top economic advisers to the last four presidents, both Democrat and Republican” and stressed that “the economic costs of inaction would be incredibly painful for the American people. Something we saw last month with the latest weak job numbers.”
Other economists have also expressed skepticism that Biden’s policy would lead to a new era of inflation. Lydia Boussour, lead U.S. economist at Oxford Economics, told the Washington Examiner that inflationary concerns were “premature.”
“What is clear from the prior economic expansion is that the economy can sustain a very low level of unemployment without stoking high inflation,” Boussour said. “Based on recent history, the benefits (broader and more inclusive employment) outweigh the risks (inflationary spiral). We think that given the extent of the damage to the labor market and the economy from the coronavirus crisis, inflation worries are premature.”
