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Biden’s Stimulus Trade-Offs

Former US Treasury Secretary Larry Summers has been making the case that Joe Biden's COVID-19 relief plan is so large that it will likely trigger inflation. But his argument has a few glaring flaws – beginning with its failure to appreciate just how badly Americans need support today.

NEW HAVEN – US President Joe Biden’s proposed $1.9 trillion pandemic recovery plan has been welcomed by many, especially on the left, who argue that such an ambitious, well-targeted strategy is precisely what this moment demands. Not surprisingly, many on the right oppose it, ostensibly over concerns about fiscal sustainability. But questions are also being raised by one high-profile Democratic stalwart: Lawrence H. Summers.

Summers is no stranger to stimulus. After the 2008 financial crisis, President Barack Obama appointed Summers – who had served as Treasury Secretary under President Bill Clinton – to head the National Economic Council to advise Obama on how to respond. Recognizing the importance of fiscal policy during crises, Summers was involved in crafting the American Recovery and Reinvestment Act (ARRA) of 2009.

Yes, that stimulus package ended up costing just $831 billion – less than half of what Biden is proposing. But, since then, a consensus has emerged among progressive economists that the economy would have been better off if the ARRA had been much bigger. Summers, who once cautioned the Obama administration against going too big, now says he agrees with that consensus.