America’s Stimulus Debate

The US Congress is currently debating President Joe Biden’s proposed $1.9 trillion economic rescue package, which includes a planned increase in the federal minimum wage to $15 per hour. Policymakers and economists disagree not only about the appropriate size and scope of the measures, but also on the broader question of whether fiscal policy can and should return to center stage.

In this Big Picture, Nobel laureate economist Joseph E. Stiglitz says Biden’s spending plan is urgently needed, and warns that failure to enact a large recovery package risks doing enormous and possibly long-lasting damage to the US economy. Moreover, argues James K. Galbraith of the University of Texas at Austin, Biden is right to focus first on implementing a rescue plan before turning to economic reconstruction, which should emphasize infrastructure, energy, and climate policy. 

MIT’s Daron Acemoglu explains why a higher federal minimum wage, though no panacea, would generate a much-needed impetus for the creation of good jobs. And Yale University’s Koichi Hamada disagrees with Larry Summers’ view that the Biden plan is too large, saying that the former US Treasury Secretary’s argument fails to appreciate just how badly Americans need support today.

But Columbia University’s Shang-Jin Wei fears that the US could become trapped in a recurring cycle of fiscal and monetary stimulus, rising asset prices, and redistributive measures that weaken investment and job growth. And before his recent death at age 100, George P. Shultz, a former US Secretary of the Treasury and Secretary of State, together with Stanford University’s John F. Cogan and John B. Taylor, warned that excessive federal government spending is creating serious economic and national-security risks.

Robert Skidelsky, on the other hand, welcomes policymakers’ tacit acknowledgement that fiscal stimulus must be central to post-pandemic recovery plans, and calls on governments to play a much larger role in allocating capital.