varoufakis76_Robert AlexanderGetty Images_dollars Robert Alexander/Getty Images

The Goldilocks Stimulus Myth

Both supporters and critics of US President Joe Biden’s $1.9 trillion stimulus plan assume that there is a dollar amount that is just right. In fact, no such figure exists: every possible stimulus size is simultaneously too little and too big.

ATHENS – US President Joe Biden, facing the great challenge of stimulating his country’s economy for the post-pandemic era, and haunted by then-President Barack Obama’s tepid stimulus in the face of the Great Recession a decade ago, has decided to err on the side of overshooting. He wants to “go big” with a $1.9 trillion spending plan.

Prominent centrists like Larry Summers and Olivier Blanchard warn that Biden’s decision may prove his undoing. Their argument is that too much stimulus will trigger an inflationary surge, resulting in an interest-rate spike that will force his administration to slam on the austerity brakes just before the midterm elections in 2022, costing his Democratic Party control of Congress – just as too little stimulus cost Obama control of Congress in the 2010 midterms.

The problem with this debate is that both supporters and critics of Biden’s stimulus plan assume that there is a dollar amount that is big enough, but not too big. Where they disagree is on what that figure is. In fact, no such figure exists: every possible stimulus size is simultaneously too little and too big.

https://prosyn.org/sIyWux2