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Larry Summers has put out a bad faith argument in WaPo. Democrats should NOT take him seriously. The primary concern is providing too little stimulus and a prolonged and deeply painful recovery. The potential costs of going too big are negligible. 1/ https://www.washingtonpost.com/opinions/2021/02/04/larry-summers-biden-covid-stimulus/
First, let's talk about the output gap. Summers takes a top down vs a bottom up approach to the output gap.
When considering full employment/ an economy operating at capacity, we can either 1) calculate a top-down measure via GDP output gap (as Summers and CBO do) 2/
When considering full employment/ an economy operating at capacity, we can either 1) calculate a top-down measure via GDP output gap (as Summers and CBO do) 2/
Or 2) take a bottom up approach that puts people
at the center of the economy by focusing on employment.
Right now continuing UI claims for all programs are nearly 16 million above pre-pandemic levels according to @hshierholz 3/ https://twitter.com/hshierholz/status/1357326835030257665
at the center of the economy by focusing on employment.
Right now continuing UI claims for all programs are nearly 16 million above pre-pandemic levels according to @hshierholz 3/ https://twitter.com/hshierholz/status/1357326835030257665
Summers essentially takes CBO at their word regarding the output gap. This is wrong. CBO has narrowed the output gap by revising it down (as they did following the great recession). They're saying the economy can never return to the pre-recession growth path. I reject that. 4/
Summers and CBO are assuming the U rate never drops below 4% and LFPR remains depressed. In essence, they
want to keep running a cold economy. U was at 3.5% for a sustained period of time and inflation was still stubbornly low! 5/
want to keep running a cold economy. U was at 3.5% for a sustained period of time and inflation was still stubbornly low! 5/
To boot, wage growth was modest at best (and labor share of income has not come close to recovering). IDK about you, but I think workers deserve a bigger share of the economic pie.
This means full employment is significantly below 3.5%. 6/
This means full employment is significantly below 3.5%. 6/
Of course U-rate is a bad measure right now, so we want
to look at LFPR too (2000 or 2007 should be a decent baseline as @adamshersh and I argue in this @Groundwork paper. Using 2007 as a baseline true U is about 13% right now) 7/ https://groundworkcollaborative.org/resource/how-much-emergency-relief-will-it-take-to-revive-the-us-economy/
to look at LFPR too (2000 or 2007 should be a decent baseline as @adamshersh and I argue in this @Groundwork paper. Using 2007 as a baseline true U is about 13% right now) 7/ https://groundworkcollaborative.org/resource/how-much-emergency-relief-will-it-take-to-revive-the-us-economy/
Taking a bottom-up approach that focuses on workers, the proposed $1.9T in stim by Biden gets us in the right
ballpark. But even there we're $200B shy of the HEROES Act. 8/
ballpark. But even there we're $200B shy of the HEROES Act. 8/
We have the tools to rapidly bring the economy back
pre-pandemic U levels; yet Summers and CBO are arguing for a slow prolonged recovery, and one that never brings us to true full employment. The human + political costs of this approach are hard to overstate. 9/
pre-pandemic U levels; yet Summers and CBO are arguing for a slow prolonged recovery, and one that never brings us to true full employment. The human + political costs of this approach are hard to overstate. 9/
On the flip side, the costs of overshooting full employment (whatever that means) are likely modest, at best. In fact, if we think of it as a target, we should be pushing for an overshoot for a while to make up lost ground! /fin
