Possible Perils Of Too Much Stimulus

By Michael A. MacDowell

If you are confused about the status of the economic recovery from COVID-19, you are not alone. Whether it be long economic tomes about job growth, detailed data on the stimulus multiplier or politically inspired verbiage representing conflicting points of view, the amount of information on the economy is enough to confuse even the most careful reader.

There are reasons for this. It is still early in the "recovery" and so there is not enough collected data to enable the development of trend lines covering what is working and what is not. Further, many of the pronouncements and actions taken by the current administration are designed to support their preconceived programs regardless of the efficacy of their stimulus effects.

Experience should tell us something. The various spending programs of Roosevelt's New Deal are often cited as the reason for the recovery from the Great Depression. However, even today there is disagreement as to whether the "alphabet soup" of New Deal programs of the 1930s really helped the economy recover. Many economists maintain that it was not the New Deal programs but rather war spending that should be credited for the recovery.

Encouraged by political allies and economic leaders, such as Jerome Powell, President of the Federal Reserve, the Biden administration plans to spend more. These plans are underway even though we do not know the full impact of the two previous stimulus spending bills, including the $2 trillion pumped into the economy in the waning months of the Trump Administration followed in March by Biden's $1.9 trillion COVID-19 Relief Plan.

What we do know is that signs of recovery are appearing in some of the data. A few economists are now saying that job growth will be over 1 million this month alone. The Institute for Supply Chain Management March survey showed that managers' attitude about their industry is at an all-time high. However, they caution that their projections are based upon their ability to hire enough workers.

Ironically, it is the current shortage of workers in some sectors of the economy that may retard the economic growth that the stimulus programs were designed to foster. In many regions of the country companies and establishments are coming "back on-line" slowly because of a lack of employees. In Florida some restaurants continue to operate at reduced seating, not because of COVID restrictions, but because they cannot find workers willing to work when the alternative is unemployment insurance buttressed by federal relief. Some states are address this issue. The Virginia Employment Commission is again requiring weekly job search for anyone receiving an unemployment check.

Significant signs of recovery have not stopped the administration from even more potential spending as evidenced by Biden's plan for an $2.3 trillion infrastructure bill. Apparently, the thinking is that if a lot of spending now is good, even more spending later is better. Perhaps this is because the specifics of Biden's infrastructure plan contain much sought after expenditures by progressives. It is hard to argue that this country's infrastructure is not in need of repair and updating, but even a cursory examination of the proposed infrastructure bill reveals its true colors. The bill contains $400 billion to care for the aging and disabled, and $300 billion in new affordable housing funds to mention a few key components of the proposed legislation.

In the rush to usher in expenditures for federally funded projects such as these, the potential for over stimulating the economy and initiating inflation worries many economists. Even Larry Summers, Secretary of the Treasury in the Obama Administration, cautions that the current course of spending will almost inevitably result in inflation. He applauds focused and well managed infrastructure programs that create jobs and add to the productive capacity of the country. However, Summers worries that when they are combined with the multitude of other previously enacted components of the recovery acts that inflation will ensue. He also expresses concern that rapidly developed infrastructure programs can create a rush to spend. Instead, well thought out and carefully orchestrated construction and renovation projects should be designed and specific plans for their implementation be made public. We should heed his warnings.

Michael A. MacDowell is President Emeritus of Misericordia University and a trustee of the Calvin K. Kazanjian Economics Foundation.