May 16, 2021 - Politics & Policy

Biden’s danger: The great overreaction

President Biden looks at his notes as he speaks on his American Jobs Plan in Lake Charles, La., on May 6.
President Biden looks at his notes as he speaks on his American Jobs Plan in Lake Charles, La., on May 6. Photo: Jonathan Ernst/Reuters

Some Democrats and economists have begun to worry that President Biden, intent on FDR-like transformation of a wounded America, is doing too much, too fast.

Why it matters: Some economists fear that all this spending will crank up inflation, and put Biden’s economic legacy at risk.

  • You see this in complaints by employers— along with some early data, and loads of anecdotal evidence —that people aren't taking jobs because of the boost to unemployment payments.
  • You see this in the news that budget deficits in states weren't nearly as bad as expected. "Let the good times roll!" says an L.A. Times headline this weekend. "Gusher of stimulus funds a gift for governors like Gavin Newsom."
  • Yet Biden still wants to spend more.

Larry Summers — who was Treasury Secretary under President Bill Clinton, and started warning about inflation in February — told Axios he's more concerned than he was several months ago.

  • "Data are pointing more towards higher inflation than I expected, and sooner."

The other side: The White House contends that more Americans will join the labor force when the country is fully vaccinated and everyone feels safe going back to work.

  • The White House also is banking on schools reopening in the fall, allowing working parents to look for jobs instead of looking after their kids, Zooming away in virtual class.
  • As for inflation, White House officials insist that it'll be temporary. They don’t buy the view that enhanced unemployment insurance is encouraging workers to stay at home. But they hint that higher wages might be needed to convince some Americans to look for work.

Some Democrats have begun arguing behind the scenes that Biden needs to show Americans credible evidence that tax increases will be timed with the spending.

  • "If the spending is coming up front, and the taxes are coming down the road, then on net, that's going to add fuel to the fire," Summers said.
  • But Summers mostly blames the Fed for rising prices: "I think it is bizarre to be buying $40 billion a month of mortgage securities, when the housing market is on fire."
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