Joe Biden’s plan raises fears of a return to inflation


Beautiful economic policy debates are good. A sense of timing is better. By publishing his opinion piece on Joe Biden’s recovery plan in the Washington Post, on February 4, Larry Summers had no idea that two days later, the Labor Office would publish frankly mediocre figures: less than 50,000 net jobs created in January. At this rate, it would take … sixteen years to regain the jobs lost since the start of the pandemic. Nothing to do: the skeptics of the stimulus plan in the United States are not on the rise.

Barack Obama’s former economic adviser, however, had a few arguments. The rescue plan, the first major law of the Biden era, is no small matter: nearly 1.9 trillion dollars, which will be added to the 3.7 trillion already spent since the start of the pandemic. There is reason to wonder about the risk of inflationary overheating. Are we not doing too much, and too quickly? “There is a risk that a macroeconomic stimulus package at levels comparable to what happened during World War II, rather than those of a normal recession, will trigger inflationary pressures like we do not have known for a generation, with consequences on the price

dollar and financial stability, “Summers writes. He is supported in his warning by Olivier Blanchard, the former chief economist of the IMF.

Shadow of the 2009 recession

Lost time, for several reasons. The Biden administration does not see this plan as a “stimulus”, a classic stimulus plan, but an essential rescue plan to put the country back on its feet after a serious crisis. “It’s not just the macroeconomic impact on the economy and our ability to be internationally competitive that is at stake; it’s people’s lives, Biden insists. Real people are suffering in their lives. , and we can fix that. ” To use the expression of the Nobel laureate in economics Paul Krugman, one of the first to warn against the label of “stimulus”: “When you want to win a war, you spend what you need”.

Behind this “go big” (“let’s go free”) hides a bad memory, for Biden: that of the crisis of 2008. The administrations Bush and Obama had deployed more than 2,000 billion dollars to save the economy, before to start reducing the deficit just a few months after the official end of the recession in June 2009. The result: the most anemic recovery in American history, which spanned many years. In a recent report, the Brookings Institution evokes the risk of such a scenario, for lack of a sufficiently ambitious plan. The Biden plan, this report believes, would only set the record straight, accelerating growth to return after Q3 2021 to its pre-pandemic level, then accelerating it slightly (1%) by annual rate at the end of the year, before GDP returns to its pre-crisis annual rate of 1.5%.

Debate left on the federal minimum wage

And then, are the risks of inflation that real? In a recent memo, UBS economists say the inflationary effects “are likely to be small,” a view shared by their colleagues at Goldman Sachs. The monetary authorities and the Treasury, they do not seem worried. “I have spent many years studying inflation and worrying about it,” Janet Yellen, Secretary of the Treasury, explained in January. “And I can tell you that we have all the tools at our disposal to manage this risk. ‘it came to materialize. ” The world has changed, insists Jerome Powell, Chairman of the Federal Reserve: “Inflation has been much lower and more stable over the past three decades than before. In the 1970s, when the inflation soared, then it remained at a high level. “

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Americans share this serenity: According to a recent CBS News poll, 79% believe the plan is the right size or even too small. Even among Republican sympathizers, 61% agree. The debate is therefore not really played out between Democrats and Republicans, especially since the latter have lost all credibility in terms of fiscal virtue, after allowing the public debt to increase by 5,000 billion dollars during the Trump years.

It is on the left that the discussions are most heated, not only on the side of centrist economists, like Summers or Blanchard, but on the left of the left: one of the major points of friction may be the rise in wages. federal minimum, which would gradually drop from $ 7.25 an hour to $ 15 in 2025. Biden softly supports the measure, fearing that he would have trouble getting him past the Senate hurdle. Bernie Sanders and Elizabeth Warren, them, insist bitingly to be part of the plan. The debate, as we can see, is more political than macroeconomic.


Source: Challenges en temps réel : accueil by www.challenges.fr.

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