WE DON’T KNOW, BUT LET’S TRY IT

THIS SPRING THE UNITED STATES embarked on a grand experiment. The American Rescue Plan, signed into law on March 11, appropriated $1.9 trillion in public spending—on top of $2.2 trillion for the CARES Act a year prior—to accelerate recovery from the dramatic economic shock of the pandemic. Combined, these measures amount to a fiscal stimulus of unprecedented scale.

Economists in the Biden administration and the Federal Reserve are bullish that this intervention will enable a rapid return to the boom times—or at least what passed for them—that preceded March 2020. They believe that running the economy “hot,” without much slack in unemployment, will extend the fruits of recovery to historically marginalized populations in the labor market and stimulate greater productive investment. Meanwhile, prominent skeptics such as Lawrence Summers, himself a former Treasury secretary, have sounded the alarm about what they see as the significant risks and early signs of inflation, as existing capacity strains to meet the torrent of renewed demand. Implicitly, these admonitions conjure up the specter of the wage-price spirals of the 1970s.