One of the world’s leading liberal economists dealt Joe Biden a blow in recent days, warning that the president’s $1.9 trillion covid relief legislation could ignite an inflationary conflagration.
Olivier Blanchard, the former chief economist of the International Monetary Fund and perhaps the most cited economist in the world, spelled out his case against the Biden bill in a series of tweets on Saturday.
Blanchard’s argument is that the size of the stimulus injected into the economy would be too large, especially when added to the measures taken last year. The additional spending power created by the additional $1.9 trillion budget deficit would drive up prices and force the Federal Reserve to hike interest rates.
A careful economist, Blanchard follows up his tweets with warnings that some of the estimations he uses could be wrong. Perhaps the stimulus will have a smaller multiplier effect, he says, so it would not hit the economy with as much force as expected. Or the economy’s ability to expand production to meet the additional command could be greater. Nonetheless, the $1.9 trillion would be too large under any reasonable assumptions, he argues.