While President Biden has said repeatedly that he sees more risk in going too small with a Covid relief package than in going too big — citing a lesson he says he learned when he was Vice President in the Obama administration — former Treasury Secretary Larry Summers warned in a Washington Post op-ed Thursday that going too big carries plenty of risks as well.
Summers is a divisive figure in Democratic circles and a frequent target of criticism from the left. As director of the National Economic Council, Summers was one of the architects of the Obama administration’s 2009 rescue plan, which he now admits was too small.
But the current situation is different, Summers argues in his widely discussed op-ed, citing the size of the proposed spending package relative to the output gap, a measure of just how far the economy is falling short. While the Obama stimulus fell well short of the output gap at the time, the Biden proposal exceeds the Congressional Budget Office’s estimate of the shortfall by a substantial margin. “The proposed stimulus will total in the neighborhood of $150 billion a month, even before consideration of any follow-on measures,” Summers wrote. “That is at least three times the size of the output shortfall.”
In addition to potentially overheating the economy and kicking off a burst of inflation that could be difficult to respond to, Summers argues that the sheer size of the package may make it harder to pass another round of public investment, which he says the country needs. “Is the thinking that deficits can prudently be expanded longer and further? Or that new revenue will be raised? If so, will this be politically feasible?”
White House not interested: Although Politico reported that Summers’ op-ed had hit a nerve by expressing what “many liberal wonks have been whispering about for weeks,” Biden’s advisers rejected Summers’s analysis in no uncertain terms. “I think [Summers is] wrong. I think he is wrong in a pretty profound way,” Council of Economic Advisers member Jared Bernstein said on CNN. “I very much disagree with the thrust of the argument,” he added, saying “we have to go big and we have to go bold here to finally put this crisis, to finally put this virus behind us and to finally and reliably launch a robust, inclusive and racially equitable recovery.”
Democratic Sen. Brian Schatz of Hawaii was more dismissive. “Why would we listen to the economist who admits he went too small last time if he’s warning us to go small again?” Schatz tweeted. “I swear this town is nuts. It’s like people can only remember thirty names and so they just keep going back to the same people.”
House Speaker Nancy Pelosi (D-CA) was even more blunt, laughing off a question about whether she had discussed the op-ed at a White House meeting with Biden: “We didn’t talk about Larry Summers,” she told CNN.