THREAD. Overheating is a risk from Biden's $1.9 trillion stimulus. It is not a certainty. But it could lead to truncating the length of the expansion—and excluding lower-wage workers from its full benefits. That risk is not worth taking.

By me, in @NRO.…
2/ If the president’s $1.9 trillion proposal were better targeted on low-wage workers and low-income households, then the risk of overheating and prematurely ending the current expansion might be justified. But it isn’t, with large sums of money intended for the middle class.
3/ By creating conditions that could lead the Federal Reserve to slow the recovery, President Biden’s $1.9 trillion economic relief and stimulus proposal might stop the benefits of an expanding economy from reaching low-wage workers.
4/ Biden's stimulus will provide a huge boost to economic demand. There is significant uncertainty about the response of consumer price inflation to that big demand-side push.
5/ Economists do not adequately understand how inflationary pressures affect expectations about inflation, or how expectations about prices and actual prices affect each other.
6/ It may be that the economy can absorb this degree of fiscal stimulus and proceed through the end of the pandemic without large increases in prices. The future paths of GDP, employment, and the output gap are all unusually uncertain, as well.
7/ But there is a possibility that inflationary pressures will lead to actual inflation. Much of the debate has focused on the possibility of the U.S. entering a new, sustained inflationary regime. This would be problematic. But more benign scenarios could be problematic, as well
8/ Trend inflation rising, say, 50 basis points above the Fed’s 2 percent target would be a welcome policy victory. But inflation would become front-page news if that trend were coupled with a month here and a month there of 4 or 5 percent price growth.
9/ It would be the talk of market participants. Congress might hold hearings.
10/ The big boost in income from the president’s stimulus plan would balloon households savings above its already elevated levels. This will cause asset prices to continue to rise. The Fed would become increasingly concerned that excessive demand was fueling financial bubbles.
11/ In the face of this dynamic — trend inflation above target, occasional spikes in monthly inflation data, and concern about financial market bubbles — the Fed could quickly begin to feel that it had fallen behind the curve.
12/ In this situation, the Fed might try to slow the pace of the expansion without ending it. But confidence in the Fed’s ability to fine tune the economy is misplaced. When the unemployment rate goes up a little, it tends to go up a lot.
13/ Prematurely ending or slowing the post-virus expansion would create the risk that low-wage workers would be left out of the recovery.
Fin/ For the sake of low-wage workers, our goal should be for the current expansion to beat that record. An expanding economy is the best jobs program we have. The President's stimulus plan puts longevity at risk.

My latest, in @NRO.…

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More from @MichaelRStrain

17 Feb
THREAD. Yes, tax revenues are up in many states. But what matters for the overall national recovery is employment, not tax revenue. Employment hasn't recovered. States and localities need federal assistance.

My latest Bloomberg column:… @bopinion
2/ Like the overall economy, state and local governments’ tax revenues looked better and better as 2020 unfolded. @jeffreypclemens & @stanveuger have been tracking this. Their latest projections are for $130 billion of pandemic revenue losses.…
3/ And despite the implicit assumptions in this debate, the federal government has given lots of money to states and localities --- around $360 billion.
Read 13 tweets
20 Jan
THREAD. It’s a slam-dunk case that a $15 federal minimum wage would lead to significant declines in employment opportunities for workers with few skills or little experience.

My latest Bloomberg column:… @bopinion
2/ In 2019 (before the pandemic), in 47 states, at least one-quarter of all workers earn less than $15 per hour. In 20 states, half of all workers earn less than $18 per hour, and in 30 states, the median hourly wage is less than $19.
3/ These statistics show that $15 is a very high wage floor. For employers to keep all their workers would require raising the wages of a huge share of the national workforce.
Read 16 tweets
22 Dec 20
THREAD. I expect history will judge PPP a success. Congress was right to include a second round of PPP in its $900 billion relief package. And many of the changes Congress made to PPP today are positive.

My latest Bloomberg column:… @bopinion
2/ "Second draw” PPP loans will only be available to companies with 300 or fewer employees, while the original plan allowed businesses with up to 500 employees to be eligible.
3/ The new version also includes special measures to help businesses with 10 or fewer employees to have access to funds. My research with Glenn Hubbard shows that the program was likely most effective for smaller companies.
Read 15 tweets

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