Thread by @JayCShambaugh

A lot of talk of risk on overheating if we do 1.9T relief bill (e.g. @LHSummers @ojblanchard1 ). Of course there’s a risk of anything. Question is balance of risks and costs of different outcomes. A thread on why risks of too much should not be overstated.

1. Virus persists / mutates. We don’t really come out of pandemic very well, stagnation in job market keeps up. In this case. We’re very glad to have done a big package (though we’d probably wish we’d done more using triggers, especially on UI and SNAP). Cost of too little is big

2.There’s room to run. CBO marked down output gap but says we were OVER potential in 2019. Seems their estimate of potential is too low. So, we’d want a big package to push economy back to actual potential (not the underestimate). High cost of too little: slack, low wage growth

3. We solve pandemic and do well. Economy bounces fast. But inflation likely outcome? Or we run a bigger trade deficit 1-2 years as Americans spend more than produce. Given struggles in rest of world, might help lift global economy out of recession faster. Cost of too much is low

4. Economy/Virus go really well. Too much spending turns inflationary not into trade deficit and FED is unable to handle inflation properly. Here we’d regret doing too much.

But is 4 the most likely scenario?

More fair question may be whether too much spending today reduces ambition for major long term priorities. I have no idea. But 2009-12 does not make me think spending too little allowed for more long term priority spending.

Lastly. I certainly advocate for use of triggers to right size package to economy (put together a book on it). Much doesn’t need that (vaccine, schools, immediate relief) but some (UI, SNAP, state aid) would be better if kept going until sufficient recovery.

And, if anyone reading this far hasn't seen it, on triggers, see book from May 2019 edited by me, @RyanDNunn and @HBoushey that included @Claudia_Sahm and @jasonfurman (and many others) hamiltonproject.org/papers/recessi…

Very lastly. As I (in other places) and many others in last few days (e.g. @itsafronomics or @Claudia_Sahm ) have highlighted: the current pain is not equally distributed. People who get hurt if we do too little are disproportionately women, low wage, non-white.