Biden Presidency Starts With a Giant Bet on Run-It-Hot Economics

Joe Biden’s administration has dedicated its first few weeks in office to spending more money on pandemic relief -- and shrugged off warnings that the economy may overheat as a result.

If the president sticks to his guns, it could mark another milestone in the great policy rethink that got under way after the 2008 financial crisis.

Biden’s $1.9 trillion aid plan would be the second-largest injection of federal cash in U.S. history. Only last year’s Cares Act was bigger -- but that came at the start of the pandemic, when the deepest recession in decades lay directly ahead.

The next round of fiscal support, by contrast, will flow into an economy that’s already bounced much of the way back.

Millions of Americans, especially among low-income groups, are still suffering the full effects of the slump, and that’s why the government says another round of spending is vital. But aggregate numbers show that production of goods and services isn’t too far short of pre-pandemic output -- thanks in part to households still flush from the last round of checks.

Vaccines may soon make it easier for Americans to spend all that cash. When they do, some form of inflation won’t be far behind, the skeptics say.

It’s a prospect that, not long ago, would have set off alarm bells all over.

For decades, the managers of the U.S. economy had a cautionary bias. Central bankers worried that prices might spike at any time. Budget officials fretted that deficits would get out of hand, trigger the bond vigilantes and send interest rates soaring. Both stood permanently on guard, ready to ward off such threats with tighter policy.

The result was an economy that expanded at below its potential growth rate in three-quarters of the years since 1980, according to the Congressional Budget Office. It grew steadily more unequal over that period too.

Since the financial crisis and the lackluster recovery that followed it, policy makers and economists have slowly come round to a different view. In effect, they’ve decided that it makes more sense to fight today’s problems with all the firepower they have, instead of trying to pre-empt tomorrow’s.