“There are advantages and disadvantages,” she said. “Getting the economy hot may be a good thing, but it could also be a painful adjustment with a slow-growth period on the other side of the mountain.”
In a hot economy, employers face labor shortages and need to raise their wages to attract employees. Together with possible bottlenecks in various raw materials, this can theoretically fuel a vicious circle of rising prices.
For the past 13 years, arguably longer, the United States has had the opposite problem. A large number of prime-age Americans – 25 to 54 years old – were either unemployed or inactive at all. Wage growth has been weak for most of the time, and inflation has persisted below the Federal Reserve’s target.
Some argue that estimates of the potential output of the C.B.O. and private economists are too pessimistic – that Americans should dare to dream bigger. “We don’t really know what the GDP output gap is really big,” said Mark Paul, an economist at the New College of Florida. “Economists have been wrong for decades and have been too cautious thinking that full output is significantly lower than that it actually is. We consistently run a cold economy and create massive problems for social cohesion. “
In a newspaper Released in December, he said a more than $ 3 trillion pandemic relief package was warranted based on the extent of job losses suffered. The output gap looks worse than G.D.P. because of employment, also because in sectors where there is a relatively low economic output per worker, such as B. restaurants, disproportionately many jobs have been lost.
However, the extent of the pandemic aid already on the train explains why Mr Biden faces a difficult road to gaining a Senate majority on the next bill, even among Republicans who conceptually are not against stimulus spending.
“It’s hard for me to understand why we’d have such a big package when we just received $ 900 billion in assistance,” said Senator Susan Collins, the Republican from Maine. said recently. “Maybe in a few months the needs will be obvious and we have something significant to do, but I don’t see it now.”