The Biden administration is fighting hard for a historically ambitious fiscal package in the name of lowering unemployment, disregarding warnings from Democratic-aligned economists that their plans would risk runaway inflation.
President Biden is seeking a $1.9 trillion coronavirus relief package to add to the $900 billion measure enacted in December.
If Biden’s full proposal were passed, the aid would double the shortfall in economic output due to the pandemic, as estimated by the Congressional Budget Office, for the next three years.
Treasury Secretary Janet Yellen has defended the size of the measure on the grounds that it is needed for unemployment to return to pre-pandemic levels quickly. She has set the goal of getting the United States to “full employment” by next year.
The task is a daunting one. Employment is roughly 10 million lower than it was on the eve of the pandemic. Federal Reserve Chairman Jerome Powell said Tuesday that the unemployment rate, currently at 6.3%, would be 10% if all the people forced out of jobs by the pandemic were counted.
Still, the scale of Biden’s American Rescue Plan has led outside economists, most notably former Obama adviser and Clinton Treasury Secretary Larry Summers, to warn that it could result in too much federal spending, thereby overheating the economy and generating inflation.