When U.S. President Joe Biden and Congressional Democrats move forward with plans to pass $ 1.9 trillion fiscal stimulus This week they faced a sudden, unwelcome obstacle from within their own political sphere.
Lawrence Summers, Treasury Secretary of Bill Clinton and Chief Economic Advisor of Barack Obama, said Biden’s plans were overkill, “causing an unprecedented kind of inflationary pressure and affecting the value of the dollar. I may give it. ” And financial stability. ”
Summer skepticism, reported in the Washington Post on Thursday, clashed with near-universal support among left-wing economists. Biden’s discussion The United States said it needed to “grow” with the massive support of the government to tackle the still-increasing pandemic.
The message from Summers became nervous. By Friday morning, a fierce backlash against his comments had been built within the White House, between both Democrats and progressive activists at Capitol Hill-inside the party at a critical stage of intervention. It reflects the fear of opening cracks.
Some of the anger directed at Summers reflects Biden’s desire not to repeat the mistakes of the 2008-09 financial crisis, which had limited US financial response. Summers was then heading Obama’s National Economic Council.
“It’s extremely stupid to worry about’overheating’when the job market recovery is stagnant,” a Biden administration official told the . “Of course, there are risks associated with getting bigger, but as we’ve always said, those risks are less than the risks of getting smaller. Summers themselves should remember.”
Summers spoke to FT on Friday afternoon to defend his stance. “I’m all in favor of fiscal stimulus. I believe the risk of overdoing is greater than the risk of overdoing,” he said.
“This is not an argument to justify any level of fiscal stimulus. For the reasons explicitly stated in my article, $ 1.9 trillion in addition to the $ 900 billion program passed in December. The program raises concerns about inflationary pressures and space restrictions for the very important public. Investment, “he added.
In a briefing with reporters on Friday, Jarid Bernstein, a member of Biden’s White House Economic Advisory Board, said it was important for the government to “strongly counterattack” and “strongly counterattack” with financial support. Believe and “consensus within the team on complete package calibration and size”.
He also said Summers was “wrong” by suggesting that the administration underestimated the risk of inflation. “Janet Yellen is our Treasury Secretary, isn’t it?” He said, referring to the former Fed Chairman. “She knew a little about inflation risk and has been tracking its economic problems forever.”
However, Summers replied: “There is no historical case of a gradual rise in interest rates that curbed inflation without causing a recession. Given the type of forward guidance and debt size of the Federal Reserve Board, the soft landing design has been so far. Will be more difficult than. “
Summers’ position was endorsed by Olivier Blanchard, a former IMF Chief Economist, as the debate over his comments intensified. “I’m known as a pigeon. I think the absolute priority is to protect the people and businesses affected by Covid. Still, I agree with Summers,” Blanchard told Twitter. wrote. “The 1.9tn program can overheat the economy badly and be counterproductive. It can provide protection at a lower cost.”
IMF Managing Director Cristalina Georgieva said she needed to “pay attention” to the dangers posed by Summers, but financial stability, she told reporters Friday morning.
She was also widely supportive of Biden’s plans. “Given the exceptional uncertainty, and most importantly, the fact that US households and businesses still suffer a lot, we find it appropriate to use this financial space. I believe, “Georgieva added.
The Biden administration says that such a large bailout package needs to be implemented now in order for the U.S. economy to survive the recent labor market slowdown and maintain a recovery until September, when vaccination becomes more widespread. Insisted.
In addition, US officials want to prevent long-term scars from the pandemics that have hit the hardest of low-wage workers and minorities.
Summers’ debate was not only about the economic risks of large-scale stimulus measures, but also about the political risks. He is worried that it could overuse the bandwidth of the new administration and Congress, limiting Biden’s other goals.
The White House rejected the Republican offer for a smaller $ 600 billion stimulus and decided it was inadequate, dramatically reducing widespread bipartisan support in Congress.
“If the stimulus is enacted, Congress will 15% of GDP There is essentially no increase in public investment to meet these challenges.After resolving Coronavirus How can we find political and economic space for the crisis, the country’s top priority for public investment, “Summers wrote in an editorial.
However, criticism of Summers by many Democrats on Friday has diminished. “Why do you listen to an economist who admits he was too small last time, even though he warns us to make it smaller again? I swear this town is nuts. People have 30 names. It’s like going back to the same people because I only remember, “said Brian Schatz, a Democratic Senator in Hawaii.
Democrats counterattack Summers after criticizing the stimulus bill
Source link Democrats counterattack Summers after criticizing the stimulus bill