Warnings blow from one of the world’s leading liberal economists. President Biden’s $1.9 trillion covid relief legislation could ignite an inflationary conflagration.
The former chief economist of the International Monetary fund and the most cited economist in the world, Oliver Blanchard, in a series of tweets Saturday stated his case against the Biden bill.
The size of the stimulus put into the economy would be too large. The spending power by the additional $1.9 trillion budget deficit will increase prices and would force the Federal Reserve to hike the interest rates.
Blanchard follows up his tweets with warnings that some estimations he uses could be incorrect. Regardless, the $1.9 trillion would be too large under reasonable assumptions, he says. Blanchard believes deficit spending can be helpful to overcome shortfalls. Too much can result in unwanted inflation. In another tweet, he posted an interview in which he approved of deficit spending to deal directly with pandemic-related health care costs and longer-term investments but warned about financing consumption through debt.
Blanchard’s objections make him the second leading liberal economist to question the size of the Biden proposal. Last week, Larry Summers, who served in both Obama and Clinton’s administration, said the Biden plan was risky. It is much larger than the hole the pandemic punched in the U.S. economy.
Warnings coming from loyal liberal economists could be a problem for Biden’s administration. Moderate defections with Democrats could bring the bill down, and the threat of such defections would likely force the White House to pare down the vast spending package.