Determined To Go Big, Democrats Ignored All Warnings About Inflation As They Hastened To Pass $2 Trillion In Stimulus Spending

Democrats Were Warned As They Were Writing Their $1.9 Trillion Spending Blowout That They Risked Unleashing ‘Inflationary Pressures Of A Kind We Have Not Seen In A Generation’

In February 2021, Former Clinton Administration Treasury Secretary Larry Summers Cautioned That Spending From The American Rescue Plan Could ‘Set Off Inflationary Pressures Of A Kind We Have Not Seen In A Generation’

LARRY SUMMERS: “[T]here 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…. [G]iven 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. Stimulus measures of the magnitude contemplated are steps into the unknown.” (Larry Summers, Op-Ed, “The Biden Stimulus Is Admirably Ambitious. But It Brings Some Big Risks, Too.,” The Washington Post, 2/04/2021)

Summers Wasn’t The Only Economist Sounding The Inflation Alarm In Early 2021

STEVEN RATTNER, former Obama Administration Counselor to the Secretary of the Treasury: “I spent an early part of my career as a reporter at The New York Times, chronicling the rampant inflation that scarred the economy in the 1970s and the Federal Reserve’s struggle to contain it…. But now, with Congress poised to approve an additional $1.9 trillion in spending through the American Rescue Plan Act, I’m worrying again.” (Steven Rattner, Op-Ed, “Too Many Smart People Are Being Too Dismissive of Inflation,” The New York Times, 3/05/2021)

• “The prices of many commodities are surging — copper and lumber because of a jump in home building. Global steel demand has pushed up iron ore prices. Even tin, heavily used in electronics, has soared as suppliers rush to meet consumer demand for new gadgets. Inflation expectations are also on the rise among traders. Interest rates on long-term Treasury bonds — a reliable inflation indicator — remain historically low, but have been marching upward. That, in turn, has shaken financial markets, which rightfully view climbing interest rates as the enemy of their investments. It is against this backdrop that Congress is on the verge of injecting an additional $1.9 trillion into an economy that has already received more than $4 trillion in boosts from Washington. According to several estimates, the measure’s spending far exceeds the extent of the shortfall in economic output caused by the pandemic. And let’s not forget the effects of easy money from our central bank. The Federal Reserve, which has driven short-term interest rates to near zero, has also injected more money into the economy in the past year than it did fighting the Great Recession in 2008.” (Steven Rattner, Op-Ed, “Too Many Smart People Are Being Too Dismissive of Inflation,” The New York Times, 3/05/2021)

• “Some commentators, and White House advisers, dismiss inflation fears on the grounds that the economy has fundamentally changed since the 1970s…. That has led to many pronouncements that when it comes to inflation, this time will be different. ‘It’s better to overreact than underreact to crises’ has become a conventional mantra, along with a promise that if inflation picks up too much, the Fed has the tools to deal with it. OK — but let’s not be so blasé about how hard it would be to put that tiger back in its cage. Forty years ago, curbing the painful hike in prices took the Fed raising interest rates to 20 percent, forcing the economy into a brutal recession…. [M]ore prudence is merited. Start with cutting back the $1.9 trillion package.” (Steven Rattner, Op-Ed, “Too Many Smart People Are Being Too Dismissive of Inflation,” The New York Times, 3/05/2021)

OLIVIER BLANCHARD, former chief economist for the International Monetary Fund: “And I worry that if we spend 1.9 trillion, then we are going to increase demand by so much that we’ll get overheating. The economy will not be able to actually increase production enough to satisfy that demand. And then we may get inflation, but not just one or 2% more than now, but substantially more. We may force the Fed to react by adjusting rates up, in order to slow down the economy and acting faster and stronger than they really want to and I think we should avoid that.” (Oliver Blanchard, Remarks, 2/8/2021)

In March 2021, Senate Republicans Also Warned, ‘Enacting A Stimulus Unmoored From Economic Reality Poses Real Risks To Our Economy,’ ‘It Means That As There Are More And More Dollars Chasing Fewer Goods, You Are Going To Get Inflation’

LEADER McCONNELL: “Only 9% of this $1.9 trillion is related to healthcare and less than 1% of this $1.9 trillion bill is related to vaccines. It’s a wildly out of proportion response to where the country is at the moment. The vaccines are going out, the economies are opening up. A lot of money that was sitting on the sidelines for obvious reasons is about to begin to be spent.” (Fox News’ “The Story with Martha MacCallum,” 3/03/2021)

• LEADER McCONNELL: “Democrats say they will break the bipartisan streak that has defined the pandemic response until now. They are dead-set on ramming through an ideological spending spree packed with non-COVID-related policies…. Larry Summers, a top economist in both the Clinton and Obama Administrations, says this plan piles way more debt on our kids and grandkids than we need to spend right now. Jason Furman, who chaired President Obama’s CEA, has said the state and local bailouts are overkill. These are liberal economists…. Here’s what the Washington Post says about this mess: ‘For policy experts and even members of Biden’s own party, the improving picture is raising questions about whether the stimulus bill is mismatched to the needs of the current moment.’ It’s mismatched, all right. Because it was never designed to meet Americans’ needs. The goal was to ‘restructure things to fit’ their ‘vision.’” (Sen. McConnell, Remarks, 2/11/2022)

SENATE REPUBLICAN WHIP JOHN THUNE (R-SD): “There is a lot of money out there in the economy. What does that mean long-term for our economy and for the individual workers in our economy? Well, first off, it means that as there are more and more dollars chasing fewer goods, you are going to get inflation. That is inevitable. When you get inflation, typically what happens is interest rates follow because those who are buying that debt, if it is being lost to inflation, want to make sure that they are getting a return on their investments, so interest rates start to go up. … Well, if you keep putting as much money out there as we are--another $2 trillion out into the economy--I would argue that you are not only going to unleash inflation, which has a dramatic consequence for our fiscal situation as a country, but it also has a dramatic consequence for the personal financial situation of the American family because when inflation takes off, everything that people have to buy, from food to gasoline to clothing--all those things go up. Inflation pushes the prices of things higher, which means they are more expensive to the average family in this country.” (Sen. Thune, Congressional Record, S1006, 3/03/2021)

• SEN. THUNE: “The Democrats’ COVID bill runs a very real risk of overstimulating the economy, as evidenced by the large increase we have seen in money supply which could, among other things, drive up prices on the goods that Americans use every day--in other words, inflation. Even some liberal economists have sounded the alarm over the size of the Democrats’ coronavirus legislation. …  And that, I believe, is a very, very real threat, because if you look at what is happening right now with the economy and with all the money that we have flooded out there so far and another $2 trillion, if the Democrats have their way in this particular proposal, and all that money out there starts pushing up those costs and we start seeing inflation in the economy, it doesn’t take very long for interest rates to go with it. In fact, they already are. If those interest rates start pushing up very quickly on the amount of debt that we are piling up, financing that debt--the amount of interest, the cost of interest on that debt--would be absolutely overwhelming and devastating to this country.” (Sen. Thune, Congressional Record, S969, 3/01/2021)

SEN. CHUCK GRASSLEY (R-IA): “At this time, instead of $2 trillion, two-thirds of it not needed, why not help those hurting and not pour gasoline on the inflationary fires? A COVID relief package should reflect this reality in both size and scope. … Enacting a stimulus unmoored from economic reality poses real risks to our economy, including inflation and slower economic growth moving forward. … While inflation has been subdued in recent years, we shouldn’t let that lull in inflation lull us into a false sense of confidence that we can spend with impunity with no consequences. …  Concerns of inflation have been dismissed by the White House and by the Federal Reserve. This sounds too familiar to those of us who witnessed the stagflation of the 1970s. … It was with this background of stagflation that I first ran for Congress on a platform of fighting inflation. Inflation is a regressive stealth tax on every single American.” (Sen. Grassley, Congressional Record, S1006, 3/03/2021)

SEN. ROB PORTMAN (R-OH): “We heed the advice of prominent Democratic economist Larry Summers and so many others who have now said that the $1.9 trillion Biden stimulus is not just wasting taxpayer money; it risks overheating an already recovering economy, leading to higher inflation, hurting middle-class families, and threatening long-term growth. But rather than the counterproposal leading to this productive type of bipartisan negotiations we had last year, this time we have been told Democrats want to go it alone.” (Sen. Portman, Congressional Record, S1012, 3/03/2021)

Instead Of Heeding These Warnings, Democrats Rushed Ahead, Declaring, ‘The Risk Is Not Doing Too Much,’ ‘The Risk Here … Is Not Going Too Big; It Is Going Too Small,’ ‘We Cannot Do Too Little,’ ‘I Do Not Think The Dangers Of Inflation, At Least In The Near-Term, Are Very Real’

“Presidents who find themselves digging out of recessions have long heeded the warnings of inflation-obsessed economists, who fear that acting aggressively to stimulate a struggling economy will bring a return of the monstrous price increases that plagued the nation in the 1970s. Now, as President Biden presses ahead with plans for a $1.9 trillion stimulus package, he and his top economic advisers are brushing those warnings aside… After years of dire inflation predictions that failed to pan out, the people who run fiscal and monetary policy in Washington have decided the risk of ‘overheating’ the economy is much lower than the risk of failing to heat it up enough.” (“Biden and the Fed Leave 1970s Inflation Fears Behind,” The New York Times, 2/15/2021)

PRESIDENT JOE BIDEN: “We need Congress to pass my American Rescue Plan that deals with the immediate crisis - the urgency. Now, critics say my plan is too big, that it costs $1.9 trillion. So that’s too much. Well, let me ask them: What would they have me cut? What would they have me leave out?” (President Biden, Remarks, 2/19/2021)

• PRESIDENT BIDEN: “The choice couldn’t be clearer. We have learned from past crises that the risk is not doing too much. The risk is not doing enough. And this is a time to act now.” (“Biden, Yellen Call For Swift Action On Coronavirus Relief Package,” The Hill, 1/29/2021)

• PRESIDENT BIDEN: “So, the way I see it: The biggest risk is not going too big, if we go — it’s if we go too small.” (President Biden, Remarks, 2/5/2021)

TREASURY SECRETARY JANET YELLEN: “The president is absolutely right. The price of doing nothing is much higher than the price of doing something, and doing something big… We need to act now, and the benefits of acting now and acting big will far outweigh the costs in the long run.” (“Biden, Yellen Call For Swift Action On Coronavirus Relief Package,” The Hill, 1/29/2021)

• YELLEN: “I think the price of doing too little is much higher than the price of doing something big. We think that the benefits will far outweigh the costs in the longer run.” (“Treasury Secretary Janet Yellen makes push for major stimulus, sees bigger risk in not doing enough”, CNBC, 2/18/2021)

WHITE HOUSE PRESS SECRETARY JEN PSAKI: “But his bottom — the President’s bottom line is that this is a package. The risk here, as he has said many times, is not going too big; it is going too small. That continues to be his belief, and that’s why he supports the efforts by Senator Schumer — Leader Schumer and Speaker Pelosi to move this package forward. … I mean, the President has been clear that our risk is not having a package that’s too big, it’s having a package that’s too small.” (White House Press Briefing, 2/2/2021)

JARED BERNSTEIN, Member of the Council of Economic Advisers: “I mean, one thing is just wrong, which is that that our team is dismissive of inflationary risks. We’ve constantly argued that the risks of doing too little are far greater than the risk of going big, providing families and businesses with the relief they need to finally put this virus behind us. … I’m more concerned about…the damage that will do not just to their lives, but to the United States economy, to the productive capacity of the economy.  I’m more concerned about that than about the possibility which exists of higher inflation. So, this is risk management. This is balancing risks. And in our view, the risks of doing too little are far greater than the risks of doing too much. … The risk is a deflationary risk, which motivates us to go home — or to go big or to go home.  And the costs of inaction, of not addressing these risks, are too steep and too costly to these vulnerable — to these vulnerable groups, relative to the likelihood of overheating.  That’s the way I think about it.” (White House Press Briefing, 2/5/2021)

• BERNSTEIN: “Yes. I think we have to distinguish between heat and overheat. So by overheating, Larry is talking about the possibility of inflation really taking off. Well, we have an unemployment rate that is almost twice what it was before this crisis. … And with inflation running well below 2%, which is the Federal Reserve’s target for almost a decade now. Again, we need to generate heat that’s not going to be overheat.” (CNN, 1/22/2021)

SENATE MAJORITY LEADER CHUCK SCHUMER (D-NY): “I do not think the dangers of inflation, at least in the near-term, are very real.” (MSNBC’s “Morning Joe,’ 3/12/2021)

• SEN. SCHUMER: “The danger of undershooting our response to COVID-19 is far greater than overshooting it. So Congress must pursue a bold response to the prevailing crisis of our time.” (Sen. Schumer, Congressional Record, S158, 1/27/2021)

• SEN. SCHUMER: “We are in the midst of a once-in-a-century crisis. It requires a once-in-a-century effort to overcome it. The dangers of undershooting our response are far greater than overshooting. We should learn the lesson from 2008 and 2009, when Congress was too timid and constrained in its response to the global financial crisis and it took years--years--for the economy to get out of recession. We must not repeat that mistake today.” (Sen. Schumer, Congressional Record, S182, 1/28/2021)

• SEN. SCHUMER: “The only thing we cannot accept is a package that is too small or too narrow to pull our country out of this emergency. We cannot repeat the mistake of 2009. And we must act very soon to get this assistance to those so desperately in need.” (Sen. Schumer, Remarks, 2/1/2021)

• SEN. SCHUMER: “What we can’t do, however, is think small in the face of big problems. We cannot repeat the mistakes of the past. We cannot do too little. We cannot lock our country into a long and slow recovery. We must instead respond to the urgent needs in our country and chart a bold path back to normal.” (Sen. Schumer, Congressional Record, S414, 2/4/2021)

Q: “Speaker Pelosi, did President Biden comment on the criticism from Larry Summers that there is a risk of going too big here?”
HOUSE SPEAKER NANCY PELOSI (D-CA): “No, we didn’t talk about Larry Summers.” (Press Conference, 2/05/2021)

SEN. BRIAN SCHATZ (D-HI): “Why would we listen to the economist who admits he went too small last time if he’s warning us to go small again?” (Sen. Schatz, @brianschatz, Twitter, 2/05/2021)

SEN. TIM KAINE (D-VA): “The bigger risk … was going too small than going too large.” (Bloomberg News, 3/11/2021)

But It Was Quickly Apparent That Democrats’ Thirst For Government Largesse Had Resulted In A Spending Spree That Was ‘Definitely Too Big For The Moment’ ‘[T]hat Has Contributed Materially To Today’s Inflation Levels’

JASON FURMAN, Former Obama White House chairman of the Council of Economic Advisers: “It’s definitely too big for the moment. I don’t know any economist that was recommending something the size of what was done.” (“Obama, Biden Economists in Conflict on Inflation Jump, Spending,” Bloomberg News, 5/12/2021)

STEVEN RATTNER, former Obama Administration Counselor to the Secretary of the Treasury: “Enough already about ‘transitory’ inflation…. How could an administration loaded with savvy political and economic hands have gotten this critical issue so wrong? They can’t say they weren’t warned — notably by Larry Summers, a former Treasury secretary and my former boss in the Obama administration, and less notably by many others, including me. We worried that shoveling an unprecedented amount of spending into an economy already on the road to recovery would mean too much money chasing too few goods.” (Steven Rattner, Op-Ed, “I Warned the Democrats About Inflation,” The New York Times, 11/16/2021)

• RATTNER: “The original sin was the $1.9 trillion American Rescue Plan, passed in March. The bill — almost completely unfunded — sought to counter the effects of the Covid pandemic by focusing on demand-side stimulus rather than on investment. That has contributed materially to today’s inflation levels.” (Steven Rattner, Op-Ed, “I Warned the Democrats About Inflation,” The New York Times, 11/16/2021)

And Now ‘A Chorus Of Economists’ Are ‘Increasingly Pointing To The Scale And Size Of The $1.9 Trillion American Rescue Plan … As Too Big’

‘The United States’ Stimulus Is In A Category Of Its Own’ And Therefore ‘The United States Has Had Much More Inflation Than Almost Any Other Advanced Economy In The World’

“‘The United States has had much more inflation than almost any other advanced economy in the world,’ said Jason Furman, an economist at Harvard University and former Obama administration economic adviser, who used comparable methodologies to look across areas and concluded that U.S. price increases have been consistently faster. The difference, he said, comes because ‘the United States’ stimulus is in a category of its own.’” (“Rapid Inflation Fuels Debate Over What’s to Blame: Pandemic or Policy,” The New York Times, 1/22/2022)

LARRY SUMMERS: “I’m not sure that we would have the inflation if there had never been a pandemic and, even if there had been a pandemic, without the overwhelming stimulus that was applied well into recovery — during 2021.” (“Summers Says Pandemic Only Partly To Blame For Record Inflation,” The Harvard Gazette, 2/4/2022)

‘America’s Decision To Flood The Economy With Stimulus Money Helped To Send Consumer Spending Into Overdrive, Exacerbating’ Inflation And Supply Chain Woes

“At a moment when stubbornly rapid price gains are weighing on consumer confidence and creating a political liability for President Biden, White House officials have repeatedly blamed international forces for high inflation … But a chorus of economists point to government policies as a big part of the reason U.S. inflation is at a 40-year high. While they agree that prices are rising as a result of shutdowns and supply chain woes, they say that America’s decision to flood the economy with stimulus money helped to send consumer spending into overdrive, exacerbating those global trends.” (“Rapid Inflation Fuels Debate Over What’s to Blame: Pandemic or Policy,” The New York Times, 1/22/2022)

“Many economists supported protecting workers and businesses early in the pandemic, but some took issue with the size of the $1.9 trillion package last March under the Biden administration. They argued that sending households another round of stimulus, including $1,400 checks, further fueled demand when the economy was already healing. Consumer spending seemed to react: Retail sales, for instance, jumped after the checks went out. Adam Posen, president of the Peterson Institute for International Economics, said the U.S. government spent too much in too short a time in the first half of 2021.” (“Rapid Inflation Fuels Debate Over What’s to Blame: Pandemic or Policy,” The New York Times, 1/22/2022)

“[E]conomists are increasingly pointing to the scale and size of the $1.9 trillion American Rescue Plan — which Democrats passed less than two months after Biden came to office — as too big to fill the economy’s hole. This stimulus re-extended more generous unemployment benefits of $400 a week, gave many Americans another round of stimulus checks and expanded the Child Tax Credit, though it has since expired. It also strengthened nutritional assistance and school lunch programs. Many Democrats — except a rare few, such as Lawrence H. Summers, who served under Presidents Bill Clinton and Barack Obama — initially waved off concerns that the spending power of the package could overwhelm the economy and flame inflation. But over time, it became clear that the massive influx in cash that went straight to American households, plus billions more dollars pumped into the broader economy, overheated the recovery…. And as time goes on, an increasing number of economists concede that the American Rescue Plan was too big to fill the hole left by the coronavirus recession.” (“What To Know About Inflation: Rising Prices Hit In U.S., Around The World,” The Washington Post, 2/09/2022)

Economists Estimate That Inflation Cost U.S. Families $3,500 In 2021 And Is Costing Them An Additional $276 A Month This Year

PENN WHARTON BUDGET MODEL: “We estimate that inflation in 2021 will require the average U.S. household to spend around $3,500 more in 2021 to achieve the same level of consumption of goods and services as in recent previous years (2019 or 2020). Moreover, we estimate that lower-income households spend more of their budget on goods and services that have been more impacted by inflation. Lower-income households will have to spend about 7 percent more while higher-income households will have to spend about 6 percent more.” (“Impact of Inflation by Household Income,” Penn Wharton Budget Model, 12/15/2021)

“The average U.S. household is spending an additional $276 a month because of inflation that is rising at its fastest rate in 40 years, a new economic analysis showed. The squeeze stems from higher prices across a range of products and services, including cars, gasoline, furniture and groceries. Inflation accelerated to a 7.5% annual rate in January, the Labor Department said Thursday, reaching a new four-decade high as consumer demand and supply constraints continued to push prices higher. Inflation has been above 5% for the past eight months.” (“Higher Inflation Is Probably Costing You $276 a Month,” The Wall Street Journal, 2/10/2021)

• RYAN SWEET, Senior Economist at Moody’s Analytics: “A lot of people are hurting because of high inflation. $276 a month—that’s a big burden… It really hammers home the point of ‘what is the cost of inflation?” (“Higher Inflation Is Probably Costing You $276 a Month,” The Wall Street Journal, 2/10/2021)