Will Joe Biden’s fiscal stimulus and the Fed’s loose monetary policy overheat the American economy?

无怒之火 Fire without fury-书迷号 shumihao.com

ON JANUARY 20TH Joe Biden entered the White House during an economic crisis for the second time. On January 14th he unveiled his plan for dealing with the downturn wrought by the pandemic. Viewed from the bottom up, it combines vital spending on vaccines and health care, needed economic relief and other, more debatable handouts. Seen from the top down, it is a huge debt-funded stimulus. Mr Biden’s plan is worth about 9% of pre-crisis GDP, nearly twice the size of President Barack Obama’s spending package in 2009. And it is big, too, relative to the shortfall in demand that America might suffer once it puts the winter wave of covid-19 behind it, given the stimulus already in place.

A natural question to ask, then, is whether the proposal, admittedly an opening gambit in a negotiation with Congress, might overheat the economy if implemented. The most prominent figure to warn that this may happen is Larry Summers of Harvard University. His criticisms are notable both because he was an adviser to Mr Obama and because he was hitherto perhaps the world’s foremost advocate of deficit spending. “If we get covid behind us, we will have an economy that is on fire,” he said on January 14th.

There are three main reasons to suspect overheating might be on the cards: emerging evidence that the downturn may prove temporary; generous stimulus; and the Federal Reserve’s monetary-policy strategy. Take first the evidence that today’s downturn might be more temporary hiatus than prolonged slump. The number of non-farm jobs remains around 10m, or 6.3%, below its pre-pandemic peak—similar to the shortfall seen in 2010. Yet after the first wave of infections last year, unemployment fell much more rapidly than forecasters expected. If job creation were to return to the average pace achieved between June and November 2020, the pre-pandemic peak in employment would be reconquered in less than a year. It was not until midway through Mr Biden’s second vice-presidential term that such a milestone was reached last time.

Bolstering the case for a rapid rebound is the fact that economic disruption appears concentrated in certain sectors, rather than spread widely. America shed jobs, on net, in December, but only because the leisure and hospitality industries were hit by social distancing. The ratio of job openings to unemployed workers remains high and, outside the affected sectors, wage growth has not fallen much. The shortfall in spending is also concentrated. Consumer spending in the week to January 3rd was down by just 2.8% compared with a year earlier, according to Opportunity Insights, a research group. Yet retail spending on goods was 16.5% higher; it is restaurants, transport and entertainment that are in trouble. And stimulus has more than made up the disruption to incomes in 2020. In November Americans’ total after-tax income was 4.3% higher than a year ago.
一个事实支撑了经济会快速反弹的预测:对经济的破坏看起来集中在某些行业而非广泛分布。美国去年12月就业岗位出现净减少,但这只是因为休闲与餐旅业受到了社交疏离措施的冲击。职位空缺与失业者之比仍在高位,而在受影响的行业之外工资增长的降幅不大。消费下降也比较集中。据研究组织Opportunity Insights的数据,在到1月3日的一周里消费支出与去年同期相比仅下降了2.8%。但这期间商品零售支出增长了16.5%,陷入困境的是餐饮、交通和娱乐业。而且刺激措施所做的弥补已经超过了2020年的收入损失。11月,美国人的税后总收入同比增加了4.3%。

Indeed, the arithmetic of stimulus is a second reason why the economy may heat up. Before December, total fiscal stimulus in 2020 amounted to almost $3trn (about 14% of GDP in 2019), much more than the probable fall in output. Social-distancing measures meant that much of this cash piled up in bank accounts. According to Fannie Mae, a government-backed housing-finance firm, by mid-December Americans had accumulated about $1.6trn in excess savings. It is hard to know what might happen to this cash pile; economists typically assume that households are much less likely to spend wealth windfalls (such as the gains from a rise in the stockmarket) than income. But if people instead regard these excess savings as delayed income, then the cash hoard represents stimulus that has not yet gone to work, to be unleashed when the economy fully reopens.
事实上,刺激措施的账目是美国经济可能会过热的第二个原因。在12月前,2020年的财政刺激措施总额已接近三万亿美元(约为2019年GDP的14%),远高于可能的产出下降。保持社交距离的措施让这些资金大多积聚在人们的银行账户中。据美国政府支持的住房融资公司房利美(Fannie Mae)的数据,到12月中旬,美国人已经积累了约1.6万亿美元的过剩储蓄。很难知道人们会怎么使用这些现金。经济学家通常认为,比起一般收入,家庭对于意外之财(比如股市上涨带来的收益)的花钱意愿要小得多。但如果人们把这些过剩储蓄视为延迟的收入,那么这些囤积的现金就代表尚未发挥作用的刺激力量,将在经济完全重启时释放出来。

In December President Donald Trump signed into law another $935bn of deficit spending, which extended unemployment benefits, provided more support for small firms, and sent most Americans a cheque for $600. This ensured that lost income would continue to be replaced. Mr Biden’s proposed $1.9trn of stimulus, which includes another $1,400 in cheques, would make the total fiscal boost in 2021 roughly equal to that in 2020.

Jason Furman, another former Obama adviser, calculates that the combined impact of the December package and the Biden plan would be about $300bn per month for the nine months in 2021 for which the measures will be in effect. By comparison, the shortfall in GDP, compared with its pre-crisis trend, was only about $80bn in November. Typically, Keynesians argue that fiscal stimulus boosts the economy because of a sizeable “multiplier” effect. But the case for the stimulus to be as large as Mr Biden’s proposal “has to be that you think the multiplier in 2021 is really small”, says Mr Furman. Otherwise, it seems destined to take total spending in the economy beyond what it can produce next year, resulting in a burst of inflation.
据奥巴马另一位前顾问贾森·弗曼(Jason Furman)计算,把12月的刺激法案和拜登的计划加起来,那么在2021年这些措施生效的九个月内,每月将支出约3000亿美元。相比之下,在去年11月时GDP相较危机前走势仅相差800亿美元左右。通常情况下,凯恩斯主义者认为,财政刺激政策之所以能提振经济是因为存在相当大的“乘数”效应。但要赞成拜登提出的这么庞大的刺激计划,理由“只能是认为2021年的乘数实在很小”,弗曼说。否则,这似乎定然会使美国经济的总支出超过明年可能的产出,导致通胀爆发。

Were the economy to show signs of such overheating, the Fed might typically be expected to raise interest rates to cool things down. Indeed, since January 6th, when the Democrats won the crucial Senate seats in Georgia that might allow them to pass a big stimulus, the ten-year Treasury yield has risen from about 0.9% to around 1.1%. The yields on inflation-linked bonds have risen roughly commensurately, suggesting that bond investors have been expecting higher real interest rates, rather than just higher inflation.

But the Fed is tripping over itself to signal that monetary policy will remain loose—a third reason to expect overheating. The time to raise interest rates is “no time soon”, said Jerome Powell, its chairman, on January 14th. He also pooh-poohed the idea that the Fed might soon taper its $120bn monthly purchases of Treasuries and mortgage-backed securities. Mr Powell says the Fed has learned the lessons of 2013, when its hints that it might taper asset purchases sent bond markets into a tizz. Monetary policymakers still say that preserving “smooth market functioning” is one of the goals of their purchases, even though no dysfunction has been seen in bond markets since the spring.

The Fed is so willing to keep the pedal to the metal because, in contrast to the recovery from the financial crisis, it is seeking to overshoot its 2% inflation target, in order to make up for continuing shortfalls. The strategy, announced last summer, is still being digested by investors. It is unclear whether policymakers are committed to “average inflation targeting” as an end in itself, or simply as a means to stop inflation expectations from slipping too much during the downturn, argues David Mericle of Goldman Sachs, a bank. Given that inflation expectations have risen recently, that distinction might prove important. Regardless, the Fed has been clear that it will not raise rates until inflation is “on track to moderately exceed 2% for some time”.
美联储如此积极地要继续踩油门是因为,与金融危机后的复苏不同,它目前正在努力超额实现其2%的通胀目标,以弥补持续的未达标。对于这一去年夏天宣布的战略,投资者尚未完全消化。高盛的大卫·梅里克(David Mericle)认为,目前还不清楚决策者是执着于“平均通胀目标”这个目的本身,还是仅视之为阻止通胀预期在衰退期过度下滑的手段。鉴于近期通胀预期有所上升,区分这两者可能是重要的。尽管如此,美联储却已经明言,在通胀“有望在一段时间内适度超过2%”之前它是不会加息的。

Those who are zealously committed to breaking the world economy out of the low-rate, low-inflation trap of the 2010s might welcome the even larger burst of inflation that the current fiscal and monetary policy mix could enable. The Fed, however, is not in that camp. Were overheating to provoke it into earlier rate rises than markets expect, the assumption of cheap money that underpins today’s sky-high asset prices and the sustainability of rocketing public debt might begin to unravel.

Such a scenario remains a tail risk. The most likely outcome is that Congress agrees on a smaller stimulus than Mr Biden has proposed, and that overheating, if it occurs, proves temporary. Beyond that, nobody really knows how fast the economy can grow without setting off inflation. Should economic policy stay in uncharted territory, though, its speed limits may be tested more frequently. ■