Friday Night Owls: Summers does it again, worrying about too much stimulus instead of not enough

Friday Night Owls: Summers does it again, worrying about too much stimulus instead of not enough

Night Owls is a themed open thread appearing at Daily Kos seven days a week.

Josh Bivens at the Economic Policy Institute writes—The Biden rescue plan is neither risky nor a distraction from structural issues:

Economist Larry Summers raised fears today that the Biden administration’s economic rescue plan might go too far, leading to economic overheating or squandering political and economic space for long-run reforms down the road. Neither of these fears are very compelling.

On the first–the danger of economic overheating–there’s not much more to add to what I and several others have already said on this: The U.S. economy has run far too-cool for decades, and this has stunted growth and deprived millions of potential job opportunities and tens of millions of potential opportunities for faster pay raises. Frequently, those worried about overheating cite current estimates from the Congressional Budget Office (CBO) of the “output gap”—the gap between income generated in today’s economy and what could be generated (or potential output) if there was no downward pressure on spending by households, businesses, and governments (aggregate demand). These current CBO estimates look relatively small compared to the Biden rescue plan’s fiscal support. But, these current estimates are almost certainly too-small. To provide just one piece of evidence—these estimates suggest that the economy was running above potential output in 2019 before COVID-19struck. But there was no evidence of overheating that year—price inflation was tame and wage growth actually decelerated.

If the vaccines take hold and there is a significant relaxation of social distancing measures in the coming year, the economic relief we’ve provided so far through this crisis and the Biden plan could combine to see the economy spring to life and generate a recovery far faster than what we’ve seen in the past few recessions. If this happens, and if the unemployment rate falls far beneath what it was in the pre-COVID period and stays below this for a few years, this will be an affirmatively good thing, not something to fear.

To be really clear about this—the unemployment can fall quite a ways beneath estimates of the so-called “natural rate” (or, the lowest rate of unemployment thought to be consistent with stable inflation in the long-run) for extended periods of time without disaster striking—look at the years before 1979 on this chart—we spent lots of time beneath the natural rate and had substantially faster growth (and more equal growth) than we’ve had since. […]

THREE OTHER ARTICLES WORTH READING

TOP COMMENTS • RESCUED DIARIES 

TWEET OF THE DAY

Timeline cleanser: You didn’t know you needed to watch penguins being weighed today – but you so did… pic.twitter.com/eGBykYZsWh

— Rex Chapman🏇🏼 (@RexChapman) February 5, 2021

QUOTATION

“When you want to know how things really work, study them when they’re coming apart.”
          ~~William Gibson
 

BLAST FROM THE PAST

On this date at Daily Kos in 2012—Posters, billboards and white privilege:

Though a lot of attention has been focused on the racism and privilege inherent in recent remarks made by Republican presidential candidates, designed to garner support from the party’s southern and tea party base, and the actions of elected officials like Republican Arizona Gov. Jan Brewer, too often, fingers are unfairly pointed at our warmer climes as being the sole site of racist activity and/or attitudes. Frankly, the history of racism in the U.S. has no regional boundaries; it was embedded in our roots from the moment indigenous occupants were attacked and removed. Hand in hand with systemic racism goes what those engaged in civil rights struggles and the academic study of racial disparity have dubbed “white privilege,” which is a cornerstone of  the academic discipline of Critical Race Theory.  

A northern case in point is Duluth, Minnesota, where there has been controversy over a recently launched campaign designed to confront racism and white privilege.

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