Risk...

 

 

On Feb. 4, as President JOE BIDEN’s nearly $2 trillion stimulus bill was making its way through Congress, LARRY SUMMERS took to the Washington Post with a warning:

“[W]hile there are enormous uncertainties, there is a chance that macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will set off inflationary pressures of a kind we have not seen in a generation, with consequences for the value of the dollar and financial stability. 

This will be manageable if monetary and fiscal policy can be rapidly adjusted to address the problem. But given the commitments the Fed has made, administration officials’ dismissal of even the possibility of inflation, and the difficulties in mobilizing congressional support for tax increases or spending cuts, there is the risk of inflation expectations rising sharply. Stimulus measures of the magnitude contemplated are steps into the unknown.”

The reaction from the White House was fierce. Top advisers repeated the Biden mantra: “the risks of doing too little are far greater than the risks of going big.”