Name: Leading Liberal Economist Sounds Alarm Over Biden's $1.9 Trillion Covid Bill
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Leading Liberal Economist Sounds Alarm Over Biden's $1.9 Trillion Covid Bill

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One of the world’s leading liberal economists dealt Joe Biden a blow in recent days, warning that the president’s $1.9 trillion covid relief legislation could ignite an inflationary conflagration.Olivier Blanchard, the former chief economist of the International Monetary Fund and perhaps the most cited economist in the world, spelled out his case against the Biden bill in a series of tweets on Saturday.Blanchard’s argument is that the size of the stimulus injected into the economy would be too large, especially when added to the measures taken last year. The additional spending power created by the additional $1.9 trillion budget deficit would drive up prices and force the Federal Reserve to hike interest rates.Let’s look at the numbers. Size does matter and can be assessed. If the economy had continued on its pre-covid trend, it would be about 900 billion dollars larger. This suggests an output gap of less than 900 billion as some sectors will not operate at full speed for some time.— Olivier Blanchard (@ojblanchard1)If this increase in demand could be accommodated, it would lead to a level of output at 14% above potential. It would take the unemployment rate very close to zero.This would not be overheating; it would be starting a fire.— Olivier Blanchard (@ojblanchard1)Why go there? Why force the Fed to in effect cancel some of the Biden package?Could I be wrong and too pessimistic? Sure. Multipliers could turn out to be very small, maybe 0.25. I see no strong reason for it.— Olivier Blanchard (@ojblanchard1)A careful economist, Blanchard follows up his tweets with warnings that some of the estimations he uses could be wrong. Perhaps the stimulus will have a smaller multiplier effect, he says, so it would not hit the economy with as much force as expected. Or the economy’s ability to expand production to meet the additional command could be greater. Nonetheless, the $1.9 trillion would be too large under any reasonable assumptions, he argues.Like many economists grounded in the work of John Maynard Keynes, Blanchard thinks that deficit spending can be helpful to help an economy overcome a shortfall. But too much of it can result in unwanted inflation. In another tweet, he posted an interview in which he approved of deficit spending to deal directly with pandemic related health care costs and longer-term investments but warned about financing consumption through debt.By coincidence, the episode of econofactorg covers my views about the current US package.— Olivier Blanchard (@ojblanchard1)Blanchard’s objections to the Biden plan make him the second leading liberal economist to raise the alarm about the size of the proposal. Last week, Larry Summers—who was Treasury Secretary in the Clinton administration and chief White House economist in the Obama administration— the Biden plan was risky because it was so much larger than the hole the pandemic punched in the U.S. economy.The warnings coming from stalwart liberal economists could be a problem for the Biden administration because the Democrats’ hold on the House is slim and the Senate is evenly divided. Moderate Democrat defections could bring down a bill and the threat of such defections would likely force the White House to pare back the ambitious spending package.&nbsp;.Please if you're having issues with commenting.

One of the world’s leading liberal economists dealt Joe Biden a blow in recent days, warning that the president’s $1.9 trillion covid relief legislation could ignite an inflationary conflagration.Olivier Blanchard, the former chief economist of the International Monetary Fund and perhaps the most cited economist in the world, spelled out his case against the Biden bill in a series of tweets on Saturday.Blanchard’s argument is that the size of the stimulus injected into the economy would be too large, especially when added to the measures taken last year. The additional spending power...

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Leading Liberal Economist Sounds Alarm Over Biden's $1.9 Trillion Covid Bill

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