This is more a discussion than a "debate" between two giants of the economics profession. Both are Democrats and agree on the basics, though Krugman is more of a center-left/ Keynesian economist, while Summers' leanings are more center-right with a natural sympathy towards market forces.
Anyways, Summers generated a quite a bit of stir in policy circles a few weeks back when he questioned the size of Biden's proposed $1.9T stimulus package, particularly the need for $2,000 of stimulus checks ("stimis"). We wrote about this before. In short, Summers' argument was that the data showed that due to a combination of people returning to work, government support of various kinds and stimulus checks, aggregate income in the US was only $30B below pre-pandemic trend. So, he contends, by continuing with unemployment benefits (~$300B), more PPP (~$300B), Covid aid to state and local governments (~$300B) and some additional aid (~$100B) we only require about a $1T of support. So why the need for almost double the amount and so much direct cash payments?
Summers would rather see the additional $1T or so go to infrastructure investments rather than sent out as checks which will go to a lot middle and high-income households that don't need it and likely won't spend it (because, as shown in the chart below, they didn't in the past; click to enlarge); which, of course, translates to a low multiplier effect. And up to this point, I agree with him.
But Summers' main issue is that all that extra aid will cause inflation. The favorite bogeyman of macroeconomists, even the best ones it seems. Summers is concerned that once inflation gets going it's going to be hard for the Fed control it without sending the economy into a recession...and so on.
Krugman is not having the inflation argument. He believes inflation is no more a danger today than it was a decade ago...argues that Summers himself persuasively makes that case in his famous secular stagnation thesis; that is to say that there are large structural forces at work that will keep price pressure down for the foreseeable future. Krugman does concede that a lot of money will go to people who may just save it (even to buy GME and stuff)...but so what? Such behavior will only serve to dampen the very inflationary pressures Summers is worried about.
Krugman's big worry is that the Biden Administration will repeat the mistake of the Obama Administration and not go big enough and risk a weak recovery. Moreover, interest rates are extremely low, so we don't really have to worry about the debt! Krugman also talks a lot about politics...but that is somewhat beside the point when you are debating the merits of an economic policy...even if in reality politics drives policy.
Ironically, Summers is the one with more real-world policy experience as a former Treasury Secretary. And I think he's right that it may be difficult to pass a $2T bill and come back for another trillion dollars of infrastructure spending. (Sure, if Republicans controlled all three branches of government they could easily do it...they are always united and on message on the big things...but Democrats are less disciplined and crave bi-partisanship, particularly Biden.)
Anyways enjoy this fascinating discussion:
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