Economists are divided about how bad inflation is going to get. Here are the 14 loudest voices on both sides of the issue.

Larry Summers, former Treasury secretary
Former Treasury Secretary Larry Summers.

  • The debate over inflation is intensifying as Biden pushes to spend trillions on infrastructure.
  • It’s largely an intra-party spat as moderates say stimulus risks rampant inflation, while many Democrats favor big spending.
  • Here are the 14 biggest names arguing for and against spending plans and the path of inflation.
  • See more stories on Insider’s business page.

A new debate is emerging as the US economy nears reopening, and it’s not as cut and dried as the party-line stimulus arguments that preceded it.

In one corner, economists and politicians argue they have learned lessons from the slow growth that followed the Great Recession, and “going big” is better than “going small. They posit that years of below-target price growth show the economy can run hotter than previously thought and fears of runaway inflation are overblown.

The other side fears that inflation overshoots can quickly morph into rampant price growth and that the Federal Reserve might lose its grip on inflation, plunging the country into a 1970s-like downturn. The lessons of the Great Recession are not as relevant as the lessons of the Great Inflation, they claim.

The argument was mostly partisan – with one significant exception – while Democrats were pushing to pass President Joe Biden’s $1.9 trillion stimulus plan. Yet with that measure now law and Biden now aiming to spend another $4 trillion, more and more moderates are raising concerns.

Here are the 14 loudest voices on both sides of the issue, from dueling central bank chiefs to renowned economists.

Against: Larry Summers

Larry Summers
Former US Treasury secretary Larry Summers.

Long a leading voice of the Democratic economic establishment, Larry Summers led early, vocal opposition to Biden’s $1.9 trillion stimulus. 

Representing a small-but-influential side of the party that opposes additional spending, the former Treasury Secretary (under President Bill Clinton) and director of the National Economic Council (under President Barack Obama), Summers repeatedly railed against the party’s stimulus strategy, suggesting in a Washington Post column that the latest package could spark “inflationary pressures of a kind we have not seen in a generation.”

More recently, Summers appeared on Bloomberg TV to accuse Congress of backing the “least responsible” macroeconomic policy of the past four decades. 

“What is kindling is now igniting. I’m much more worried that we’ll have either inflation or a pretty dramatic fiscal-monetary collision,” he said, adding that he sees only a one-third chance the Treasury and the Fed will see the combination of inflation and growth they’re hoping for.

For: Paul Krugman

paul krugman

Nobel laureate Paul Krugman has served as Summers’ foil in recent weeks, taking the side that Democrats’ massive spending is fitting for the scope of the pandemic’s fallout. Biden’s $1.9 trillion package is more “disaster relief” than stimulus, Krugman said in a New York Times column published last month.

“When Pearl Harbor gets attacked, you don’t say, ‘how big is the output gap?'” he added in a February debate with Summers hosted by Princeton University.

Inflation concerns are also likely overblown, according to the famed economist. Krugman posited that much of the $1,400 direct payments included in the latest aid package will be saved instead of spent. He said this is a positive outcome for inflation fears, as such a trend would fuel less inflation than if the entire payment was swiftly used to purchase goods and services.

Against: Olivier Blanchard

Olivier Blanchard
Olivier Jean Blanchard, French economist and professor who is a Senior Fellow at the Peterson Institute for International Economics attend during Festival dell’ Economia in Trento on May 30, 2019.

French economist Olivier Blanchard echoed Summers’ critiques in a series of February tweets, then in a longer article for the Petersen Institute. While “too much is better than too little” when it comes to relief spending, he wrote, Democrats’ plans are too large and risks overfilling the hole in the US economy.

“We should spend what we need to save people from poverty and fund the needed response to the pandemic. I think we do not need to spend $1.9 trillion for that, and we should have a smaller program,” he added.

The economist has modified his tone, however. In a later thread, Blanchard said part of the stimulus package should be contingent on how the virus develops.

If the pandemic worsens and Americans need more aid, they would receive full-sized checks. But if people need less support, Congress should only send out reduced checks, if they send any payments at all, he said in a February 27 tweet.

Somewhat lightheartedly, Blanchard also likened Biden’s plan to the old proverb of the elephant swallowed by a snake, accompanied by a cartoon, on Twitter.

“The snake was too ambitious. The elephant will pass, but maybe with some damage,” he said.

For: President Joe Biden

joe biden
President Joe Biden participates in a conference phone call with governors affected by a snowstorm in the Midwest and southwest Tuesday, Feb. 16, 2021, in the Oval Office of the White House.

The president is unsurprisingly one of the biggest supporters of the stimulus bill. Biden repeatedly emphasized the need to “go big” with a new package, and said he wouldn’t back down from some elements he campaigned on while running for president.

“This historic legislation is about rebuilding the backbone of this country, giving people in this nation — working people, middle-class folks, people who built the country — a fighting chance,” Biden said after signing the measure into law on March 11.

The president’s desire to pass the full $1.9 trillion bill marks a stark reversal from President Obama’s plan in similar circumstances. When pushing for more fiscal relief in the wake of the financial crisis, the Obama administration haggled with Republicans over the measure’s price tag and passed one less than half as large.

Biden instead used budget reconciliation to win passage in the Senate, forgoing Republican support entirely, and his advisors are now proposing a $3 trillion initiative to follow it, one that may also pass via reconciliation.

Against: Committee for a Responsible Federal Budget

US Treasury Building

The nonpartisan organization thought the American Rescue Plan was just too big, although it focused more on its colossal price tag than inflation fears.

Congress “shouldn’t shy away from borrowing what’s needed” to bridge the health crisis, but it also “can’t afford to ignore the long term,” the Committee for a Responsible Federal Budget said in a February press release.

“Ignoring this long-term debt picture will harm economic growth, hold down incomes, and make it even more difficult for us to tackle income inequality, support for families, and a backlog of necessary infrastructure improvements,” the CRFA added.

The nonprofit cited projections from the Congressional Budget Office as support for its argument. The office sees the federal debt pile reaching 102% of GDP by the end of the year and nearly doubling to 202% by 2051. Those figures didn’t account for the latest stimulus measure, either.

For: Jerome Powell

FILE PHOTO: Federal Reserve Board Chairman Jerome Powell presents the Monetary Policy Report to Senate Banking Committee during a hearing on The Semiannual Monetary Policy Report to the Congress on Capitol Hill in Washington, U.S., February 12, 2020. REUTERS/Yuri Gripas/File Photo
FILE PHOTO: Federal Reserve Chairman Jerome Powell testifies on Capitol Hill

Though the Fed chair has largely refrained from supporting or criticizing fiscal policy, his recent comments make clear he sees the inflationary risks associated with ARPA as of little consequence, at least for now.

Inflation is likely to move higher as stimulus boosts spending and the economy reopens, Powell said while testifying to the House Financial Services Committee on Tuesday. Still, the Fed’s “best view” is that such effects on inflation will be “neither particularly large nor persistent,” he added.

The central bank’s latest projections call for inflation to reach 2.4% by the end of the year before falling to 2% in 2022 and then trending slightly above the 2% target. That outlook matches the Fed’s updated framework that seeks inflation above 2% for a period of time before falling back to the desired threshold.

Powell’s remarks at last week’s policy meeting signal the inflation overshoot is expected and possibly necessary to bring about a full recovery. Seeking maximum employment is just as important to the Fed as controlling inflation, per the central bank’s dual mandate, and the tradeoff once thought to exist between the two might no longer be relevant.

“There was a time when there was a tight connection between unemployment and inflation. That time is long gone,” Powell said in a March 17 press conference. He implicitly acknowledged former President Donald Trump’s influence in dispelling a conception long held on the right: “We had low unemployment in 2018 and 2019 and the beginning of ’20 without having troubling inflation at all.”

Against: Haruhiko Kuroda

bank of japan haruhiko kuroda
Bank of Japan Governor Haruhiko Kuroda smiles as he leaves the International Conference on the Future of Asia in Tokyo May 24, 2013.

Not all central bank leaders are as unperturbed as Powell. Yields for government bonds have risen in recent weeks as investors brace for higher inflation. The trend signals people are forecasting strong economic recoveries, yet higher yields can also slow rebounds by prematurely lifting borrowing costs.

While Powell has shown little concern about the sell-off in Treasurys, Bank of Japan governor Haruhiko Kuroda recently fired back at rising yields on sovereign bonds. The central bank chief told parliament late last month that the Bank of Japan is ready to buy bonds in order to keep yields from rising too high.

“It’s important to keep the entire yield curve stably low as the economy suffers the damage from COVID-19,” he added.

Such policy, commonly known as yield curve control, can counter rising inflation expectations by keeping borrowing costs low. Fed policymakers have suggested they’re not yet considering such tools, but Kuroda’s comments signal other countries are willing to do more — and act now — to combat the effects of inflation.

For: Jason Furman

jason furman

Jason Furman, the former chair of President Obama’s Council of Economic Advisors, has taken a different path from his Harvard colleague Summers regarding the Biden administration’s efforts. The White House should err on the side of overfilling the hole in the economy and test the maximum growth estimates made by the CBO, he said.

“The idea you test potential by year after year throwing logs on the fire is incredibly compelling, but that’s not the same as spending over 10% of GDP in one year,” Furman told the Financial Times in February.

The benefits of the $1.9 trillion deal outweigh the risks “by a decent margin,” but spreading the relief out over a longer time horizon might dampen fears of a sudden inflationary surge, he added in a tweet.

Against: Ken Griffin

Ken Griffin

Citadel CEO and founder Ken Griffin entered the inflation debate on March 28 in an interview with the Financial Times, saying he expects the $1,400 payments included in Democrats’ stimulus plan to draw even more retail traders into the stock market.

He said he was concerned that a sudden surge in inflation could derail markets just as more everyday Americans are getting involved.

“Given the incredible amount of stimulus that has been unleashed, there is a possibility we see a real surge in inflation,” Griffin told the FT. “The question is whether it is transitory or becomes permanent and structural, and there is a much higher chance that it becomes entrenched than any other time over the past 12 years.”

Whether inflation rocks markets or not, retail traders are now a mainstay in the investing landscape, Citadel’s chief executive added.

For: Joseph Stiglitz

joseph stiglitz

The Nobel Prize-winning economist gave Axios his own take on Tuesday, saying he’s largely unafraid of inflation leaping out of the Fed’s control. While Summers’ concerns have basis in precedent, fearing inflation today is “totally unnecessary,” Stiglitz said.

“There’s an awful lot of scope to increase demand, both in terms of the American Reinvestment Act and the new infrastructure [plan] to bring us back into a more normal world where we don’t face that deficiency of aggregate demand,” he added.

Stiglitz also gave a more full-throated rebuttal to Summers’ thesis, noting Summers himself famously argued that secular stagnation — a period of low inflation and low growth — plagued the recovery from the financial crisis.

The observation is true, but the stagnation stems from a lack of spending, Stiglitz said.

“I think he didn’t really think through what he was saying because the irony was that we’ve been in a long period where we’ve been facing lack of aggregate demand at the national and global level,” he said.

Against: Greg Mankiw

Gregory Mankiw

While more hedged than most in the inflation debate, Greg Mankiw views Biden’s $1.9 trillion as possibly pushing growth “beyond the limit.” There’s still room for the government to lift demand and push the recovery forward, but overstimulating activity could stifle the expansion just as it picks up the pace, said the Harvard economics professor and former chairman of the Council of Economic Advisers under President George W. Bush.

“Fiscal policymakers may have already pushed on the accelerator hard enough to bring the economy close to its speed limit by year’s end, when widespread vaccination is likely to have released much of that pent-up demand,” Mankiw wrote in a New York Times column published in February.

Some elements of the bill, like spending on public health initiatives and aid for the hardest-hit Americans, are necessary, he added, but many receiving the direct payments aren’t in such dire need.

For: Claudia Sahm

Claudia Sahm

Strong inflation only becomes a major risk once it spirals out of control, Claudia Sahm, senior fellow at the Jain Family Institute and former Fed economist, told The New York Times in March.

Sahm has been outspoken in her support of the Fed’s positioning and previously criticized Summers for his opposition to new stimulus. 

“To me, overheating is inflation starts picking up, and it keeps going,” Sahm told the Times. “It could happen, but it would take a while and not only do we know how to disrupt a wage-price spiral — we know what it looks like.”

Sahm has also argued that Biden should continue to push for massive spending packages until it’s clear the economy has recovered, and then some. The $4 trillion infrastructure plan the president is slated to unveil on Wednesday “will not get us to the finish line” and instead can build momentum for more aid packages, the former Fed economist told Insider.

“We cannot afford to have another jobless recovery. That’s why we see both fiscal and monetary policymakers committed to getting people back to work safely as soon as possible,” she added.

Against: Niall Ferguson

Niall Ferguson
Niall Ferguson, Senior Fellow of Stanford University’s Hoover Institution, speaks during the Milken Institute’s 22nd annual Global Conference in Beverly Hills, California, U.S., May 1, 2019.

Famed economic historian and Hoover Institution fellow Niall Ferguson warned Powell in a March Bloomberg column that policymakers should keep the inflationary pressures of the 1960s and 1970s in mind when pursuing above-2% price growth.

Investors’ behavior in recent weeks suggests they “fear a repeat” of past decades’ hyperinflationary environments, Ferguson said. Powell has countered such concerns, but the breakeven inflation rate and steepening yield curve signal that inflation will still exceed the central bank’s expectations.

“The conclusion is not that inflation is inevitable. The conclusion is that the current path of policy is unsustainable,” Ferguson said.

A sudden rise in inflation expectations could lift rates and, in turn, damage highly levered companies and the government itself, he added.

For: Wall Street banks

NYSE Wall Street coronavirus

Economists at UBS, Goldman Sachs, and Morgan Stanley, among others, lifted their estimates for US economic growth in 2021 soon after the passage of the latest relief package. The firms now expect US GDP to reach pre-pandemic levels in the first half of 2021 and exceed those highs soon after.

Yet inflation isn’t concerning them much. Morgan Stanley sees price growth surging to 2.6% in April and May before dropping to 2.3% at the end of the year. Those levels are in accordance with the Fed’s guidance, economists led by Ellen Zentner said.

Economists at UBS were even more pointed. The roughly 10 million jobs still lost to the pandemic mean there’s room for a period of strong inflation, the team led by Seth Carpenter said.

“We see sustained growth, well in excess of the long-run sustainable pace, but we also see a substantial amount of labor market slack,” UBS added.

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Biden is splitting with Obama on the economy and the proof is in their stimulus plans

obama biden
Former President Barack Obama and Democratic presidential nominee Joe Biden greet each other with a socially distant “air” elbow bump at the end of a drive-in campaign rally at Northwestern High School on October 31, 2020 in Flint, Michigan

  • Biden’s first economic package was bold in its size, breadth, and lack of bipartisanship.
  • It’s a sharp contrast to the smaller package of the Obama era – and that era’s slower recovery.
  • It shows Biden doesn’t want to repeat that decade, and has an economic endgame in mind.
  • See more stories on Insider’s business page.

President Barack Obama and President Joe Biden faced similar circumstances in their first months in office. Both entered the White House in the midst of crippling economic downturns. Both immediately pursued emergency stimulus plans to put the country on track for a recovery. And both spent unprecedented amounts to do so.

But Biden is going bigger, and it could be a very big deal for the future of economic policy.

Biden came out swinging with his $1.9 trillion stimulus package, passed less than two months into his presidency. Beyond its size, scope, and speed, the plan signaled a major deviation from Obama-era logic on spending and working across party lines. The result was a wide-reaching package passed through reconciliation, one that picked up zero Republican votes in both the House and the Senate.

It showed that Biden doesn’t plan to govern like Obama, where the aim was as much bipartisanship as possible and a mindfulness of the size of the federal debt. Biden’s big spending has already evoked comparisons to FDR and LBJ – two presidents Axios reported Biden is very interested in these daysand he may just be getting started. The big question is what comes next.

“The recovery from the Great Recession was long and painful. It exacerbated inequality and other forms of economic scarring,” Claudia Sahm, a former economist at the Federal Reserve, told Insider. “Those experiences are fresh in the minds of policymakers and the public.”

Neither Obama’s office nor the White House responded to requests for comment.

Recover first, pay the bill later

Congress’ recession-recovery playbook has traditionally been fairly simple: offer support where needed, then pull back on aid and turn to austerity once the rebound is on track. Past downturns have seen calls for fiscal support quickly give way to deficit concerns among Republicans and Democrats.

But the record of recoveries from past downturns is informing Biden’s approach. The Federal Reserve’s decision to dampen inflation and start lifting interest rates in 2015 sparked years of weak growth and low inflation. Many economists have since looked back at the rate hikes and the Obama administration’s stimulus package as allowing for a plodding economic rebound.

Biden aims to avoid the same pitfalls. The president has repeatedly expressed his desire to “go big” with relief spending, and, judging by his $1.9 trillion stimulus plan’s popularity, Americans are on board. His strategy leans more on overfilling the hole in the economy than on prematurely closing the taps.

The very nature of the current slump changed the thinking around fiscal stimulus and paved the way for a new era of government support, said Jason Furman, professor of economics at Harvard University and chair of Obama’s Council of Economic Advisors.

“When there is a big disaster like Katrina or the Gulf oil spill or superstorm Sandy, we’ll spend $100 billion. This was like one of those disasters, but happening everywhere at the same time,” Furman said. “People don’t completely believe in fiscal stimulus. They do believe in disaster relief.”

Joe Biden Stimulus
President Joe Biden speaks before signing the American Rescue Plan Act.

Congressional Democrats and Federal Reserve officials have been lining up alongside Biden. The rush to austerity in 2009 was a “big mistake” that left the country in recession for five years, Senate Majority Leader Chuck Schumer said in a March interview on CNN.

More recently, Federal Reserve Chair Jerome Powell told NPR that the economic recovery still takes priority over the national debt. While the country’s spending path is currently unsustainable, low rates ensure it can pay off its debt until the economic activity fully rebounds.

The government will eventually have to put the federal debt on a sustainable path, “but that time is not now,” the Fed chair added.

The central bank is still projecting its first rate hike won’t arrive until after 2023, and officials have hinted they aren’t even considering pulling back on the Fed’s emergency asset purchases. Rising Treasury yields suggest investors have different expectations, but policymakers have so far been steadfast in their patience.

“If my 2010 self could see just how different we’re handling this recovery than we handled that one – when we were just pulling our hair out, because Congress was turning towards austerity when the unemployment rate was literally over 9% – it was just an outrageous approach to the recovery at that time,” Heidi Shierholz, director of policy at the left-leaning Economic Policy Institute and former chief economist to Obama’s secretary of Labor, told Insider. “And so this is just incredibly different.”

A lack of state and local spending hindered Obama’s recovery, but Biden is pouring in billions

Economists began to sound the alarm before the second stimulus, emphasizing the urgent need for state and local funding. As Insider’s Ben Winck and Joseph Zeballos-Roig reported at the time, the CARES Act’s $150 billion for local governments ran out on December 30 – and the lack of similar funds in the Great Recession likely slowed the subsequent recovery. That funding was also scrapped in former President Donald Trump’s second stimulus package; as CNN reported.

joe biden kamala harris oval office
President Joe Biden and Vice President Kamala Harris meet with Governors and Mayors in the Oval Office of the White House Friday, Feb. 12, 2021, to discuss the American Rescue Plan.

But Biden’s $350 billion in state and local aid will prove hugely consequential for cities like New York, which was uniquely pummeled by the pandemic. It was a measure supported and championed by every elected Democratic state treasurer.

It’s also the largest ever investment from the government in Native communities.

Biden’s next major package looks like it will be even bigger. Coming in two parts, the first focusing on physical infrastructure, like roads and bridges, and the second on human infrastructure, like education and childcare, it is expected to cost around $3 trillion.

Biden is embracing his new role as FDR-adjacent

When it comes to his legacy, Biden is reportedly excited about what’s forming. Axios reported that he recently met with presidential historians to discuss the size and speed of potentially huge changes, with comparisons abounding to Presidents Franklin Delano Roosevelt and Lyndon Baines Johnson, who both spearheaded huge expansions of the social safety net.

“The historians’ views were very much in sync with his own: It is time to go even bigger and faster than anyone expected. If that means chucking the filibuster and bipartisanship, so be it,” Axios’ Mike Allen and Jim VandeHei wrote. In fact, they report, Biden loves the narrative that he’s thinking bigger and bolder than Obama.

He’s even gotten praise from another longtime politician and Senate veteran: Progressive figurehead Bernie Sanders. In an interview with The New York Times’ Ezra Klein, Sanders praised Biden for moving past his more “moderate” past and “acting boldly” with the American Rescue Plan.

joe biden bernie sanders
Joe Biden greets Sen. Bernie Sanders before the Democratic presidential primary debate at Drake University on January 14, 2020 in Des Moines, Iowa.

Sanders expressed optimism to Klein, but noted many progressive initiatives remain unfulfilled, such as student debt forgiveness and an increase to the federal minimum wage.

Leonard Burman, the Paul Volcker Chair of Behavioral Economics at Syracuse University’s Maxwell School, told Insider that the Great Depression actually lasted as long as it did because Roosevelt and other leaders feared deficits too much.

FDR actually spent less than would have been “appropriate,” Burman said, and recovery really only came with the influx of spending that accompanied World War Two.

“People think of the New Deal as this really, really aggressive response to the Great Depression,” said Burman, who is also cofounder of the Urban Institute’s Tax Policy Center, and he said it limited pain by creating jobs for some people that needed them and providing other assistance, “but it was way too small. So we literally have now – as far as I know – we’ve never done this.”

“We have lots of experience with spending too little to try to get out of a recession. We don’t have any experience with spending too much,” Burman said. “So it’ll be interesting to see what happens.”

Rampant inflation is the new debt scare

Concerns around a surging government debt pile held back Obama’s stimulus in 2009. Today, the argument looming over Biden and his spending plans has to do with inflation. Specifically, whether all the money Biden is pushing into the economic recovery will fuel a big comeback or instead spark stifling hyperinflation.

The Fed is behind the push for stronger-than-usual price growth. The central bank updated its policy framework in August to target inflation that averages 2% over time, as opposed to the prior goal of simply pursuing 2% inflation.

Officials have since confirmed that, at least for a period after the pandemic, the Fed aims to let inflation trend above 2% to counter years of weak price growth, underscoring just how different the approach is this time around.

GettyImages 1229890667
Fed Chair Jerome Powell is due to speak on Thursday.

The Obama administration “had a hard time” getting some Democratic senators to lift the debt limit and spend roughly $831 billion on the American Recovery and Reinvestment Act, Furman told Insider.

The Biden administration, on the other hand, has had a far easier time uniting Democrats around trillions of dollars worth of relief spending.

“The inflation debate is largely taking place among economists. It’s not a concern that I’ve heard very much from members of Congress,” Furman said. “Biden benefits from people having much more tolerance for larger numbers than they used to.”

Biden and the Fed both want an equitable labor market

Going hand in hand with the Fed’s new inflation target is a goal to pursue “maximum” employment instead of its previous mandate of “full” employment. The updated strategy leans more on using a range of indicators to judge the labor market’s health than focusing on the headline unemployment rate.

Though the central bank acts independently of the White House, the new framework opens the door to economic policy that more aggressively targets a tighter and more equitable labor market.

“There was a time when there was a tight connection between unemployment and inflation. That time is long gone,” Fed Chair Powell said during a March 17 press conference. “We had low unemployment in 2018 and 2019 and the beginning of ’20 without having troubling inflation at all.”

Job gains seen at the end of the last economic expansion largely benefited racial minorities and lower-income Americans, two groups that underperformed the broader unemployment rate for years. Biden’s latest stimulus plan stands to lift demand and pull forward such gains. The millions of jobs still lost to the pandemic indicate there’s plenty of slack in the economy and, therefore, reason to supercharge growth with fiscal support, UBS economists said in a March 9 note.

That slack also supports calls for additional large-scale spending packages. The $3 trillion in new spending is still not enough to get the US economy to the finish line, Sahm told Insider.

“Both the 2001 and 2008 recession were jobless recoveries, in that GDP got back on track much sooner than employment,” she said. “A year into the pandemic, we are still missing 9.5 million jobs relative to pre-pandemic. We cannot afford to have another jobless recovery.”

It’s becoming clear just two months into his presidency that Biden has an endgame in sight: lots of government spending to create a more equitable economy.

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