So is the Biden plan too big? We need to be clear about what it's for. IT'S NOT STIMULUS. This isn't at all like the ARRA, which was all about boosting demand; this is disaster relief. Or maybe it will help if we think of it as being like fighting a war against Covid fallout 1/

When you're budgeting for a war, you don't decide how much to spend by estimating what it would take to fill the output gap; you estimate what it would take to win the war. 2/

Is everything in the Biden plan well-targeted on our needs? No. But the controversial part, checks to most of the population, is just a fraction of the plan 3/

Mostly the plan is about directly fighting the pandemic, reopening schools, avoiding cuts in vital services, and helping families in dire need. Ideally we might achieve these goals at somewhat less cost, but speed and simplicity are more important than perfection 4/

Now, wartime spending isn't about stimulus, but is nonetheless stimulative, and overheating can be a real concern. But the Fed can contain inflation; and in any case the less-essential parts of the plan probably have low multipliers 5/

In particular, most of those "stimulus checks" will probably be saved, and aside from the fact that state/local aid is largely a way to head off fiscal contraction, any excess will probably be banked. 6/

So if you're worried about overheating, you shouldn't focus on the notion that the plan is too big; your real concern is that, like fighting a war, doing what needs to be done may be inflationary. And the answer in that case is not to do less, but to limit the inflation 7/

We'll see if we really do overheat. But the idea that this is a gratuitously large plan confuses the goals of the policy with the macroeconomics of getting it done 8/