2021年2月2日 星期二

Covid relief and the Mae West principle

Why we shouldn't worry about overdoing it.
Natanael Evangelista, an undocumented cook who decided to become a delivery worker after losing his job to the pandemic, waits to complete his final delivery order of the morning.Jose A. Alvarado Jr. for The New York Times
Author Headshot

By Paul Krugman

Opinion Columnist

My latest column is about the Republican counteroffer to Joe Biden's proposed rescue package, and why it's grotesquely inadequate. I guess I got a bit fire-and-brimstone on the topic, but I'd argue that G.O.P. bad faith deserves it.

While the Republican offering is criminally underpowered, however, is it possible that Biden's plan overdoes it? Could the extensive aid to families, businesses, and state and local governments end up being more than needed?

Yes, it could, although we don't know that for sure; it depends on how long the pandemic lasts, and how quickly the economy rebounds once we get herd immunity. Maybe we're overdoing it, maybe not. But this seems like a good time to invoke the Mae West doctrine: "Too much of a good thing can be wonderful."

Seriously, while an inadequate response to the pandemic would mean vast suffering, there don't seem to be major risks associated with an economic program that turns out, in retrospect, to have been bigger than necessary.

To see why, think about what it would mean for the Covid-19 package to have been "too big."

The story would go like this: vaccination proceeds rapidly, and the new strains of the coronavirus don't prove as problematic as some fear; meanwhile, infection rates come down rapidly, perhaps in part because with the change in administrations the federal government is finally enforcing mask-wearing where it can and encouraging it where it can't.

ADVERTISEMENT

As a result of all this, affluent consumers — who have, on average, done fairly well during the pandemic, but have been saving at very high rates because of limited opportunities to spend — release a lot of pent-up demand. Consumer spending is further boosted by all the aid in the Biden rescue package. And so the economy booms.

How much might it boom? Some of the bank newsletters I get are suggesting something not far short of the "morning in America" boom of 1983-84, when the economy briefly posted growth rates of around 8 percent. And it wouldn't take much of that to push us all the way to full employment and beyond, into the realm of inflationary overheating.

If that happens — which is by no means guaranteed — we might look back and say that the rescue package was, in hindsight, bigger than it needed to be. But how much of a problem is that? Everything we know says, not much.

First of all, fiscal policy — trying to steer the economy with changes in spending and taxes — isn't the only game in town. Monetary policy — changes in interest rates, which the Federal Reserve can achieve (roughly speaking) by changing the money supply — is also in the mix. And while the Fed can't cut rates from here, because they're already zero, it can easily raise them to head off excessive inflation.

ADVERTISEMENT

Now, the Fed probably won't rush to do that, for good reason. Very low unemployment rates do seem to lead to a rise in inflation (the famous Phillips curve), but there's a lot of research indicating that this curve is "very flat" in the short run. That is, running the economy hot will lead to rising inflation, but it's a slow process, and there's plenty of time to rein it in.

Also, we won't know how hot we can run the economy until we try it. Few economists thought 3.5 percent unemployment was achievable until it actually happened. As Ms. West said, too much of a good thing can be wonderful.

So yes, the rescue plan might overshoot, but there's not much harm if it does. On the other hand, an inadequate plan would lead to vast, unnecessary suffering. So we actually want the plan to be bigger than we expect we'll need, just in case.

I joined my colleague Ezra Klein on his podcast last week to discuss the current state of America's economy and why, as I tell Ezra, this is not a conventional recession. I hope you'll listen.

ADVERTISEMENT

Quick Hits

About the Phillips curve.

The new Treasury secretary has been advocating a "high-pressure," low unemployment economy for years.

Consensus views about how hot economies can run are generally worthless.

I was going to write about GameStop; until I do, this is good.

Feedback
If you're enjoying what you're reading, please consider recommending it to friends. They can sign up here. If you want to share your thoughts on an item in this week's newsletter or on the newsletter in general, please email me at krugman-newsletter@nytimes.com.

Facing the Music

Giving a new meaning to world musicYouTube

Soumaya Keynes of The Economist has a musical side, which isn't sufficiently separate from her day job.

Need help? Review our newsletter help page or contact us for assistance.

You received this email because you signed up for Paul Krugman from The New York Times.

To stop receiving these emails, unsubscribe or manage your email preferences.

Subscribe to The Times

Connect with us on:

facebooktwitterinstagram

Change Your EmailPrivacy PolicyContact UsCalifornia Notices

The New York Times Company. 620 Eighth Avenue New York, NY 10018

沒有留言:

張貼留言