The Biden Recession is Coming
Larry Summers served as Secretary of the Treasury, Director of the National Economic Council, and president of Harvard University. He is not a dumb man. He is a liberal Democrat with a Democrat’s understanding of economic policy.
On February 4, 2021, writing in the Washington Post, Summers wrote of Biden’s proposed economic stimulus plan, “[W]hile there are enormous uncertainties, there is a chance that macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will set off inflationary pressures of a kind we have not seen in a generation, with consequences for the value of the dollar and financial stability. This will be manageable if monetary and fiscal policy can be rapidly adjusted to address the problem. But given the commitments the Fed has made, administration officials’ dismissal of even the possibility of inflation, and the difficulties in mobilizing congressional support for tax increases or spending cuts, there is the risk of inflation expectations rising sharply.”
Summers noted that unemployment was already falling, unlike in 2009 when Barack Obama put forward a big stimulus bill. Additionally, the Biden plan poured much more money into the economy at one time. As Summers pointed out, under the Biden plan, “if the breadwinner were laid off, the family’s income over the next six months would likely exceed $30,000 as a result of regular unemployment insurance, the $400-a-week special unemployment insurance benefit and tax credits.” In other words, an unemployed person would take home more money than an employed person with a pretax income of $1,000 a week. That was economically destabilizing.
The Biden team rejected Summers’ warnings. Summers, though liberal, is not a radical progressive and has long rejected the progressives’ new economic proposal called Modern Monetary Theory as magical thinking. The theory argues that while inflation is real, big economies can keep printing money without worrying about inflation. It is untried, untested, and we have lessons on inflation going back to Roman Emperors making too many coins causing inflation. When a country makes too much currency, it causes prices to rise.
That is exactly what happened. First, the Biden team said it would be transitory. Then, they said it was a good thing. Then, they said it was Vladimir Putin’s fault. Now, a recession looms. The yield curve has inverted.