Joe Biden’s $1.75 trillion social spending bill, known as the Build Back Better (BBB) Act, is fraught with risk for the US economy, warn two former Obama administration economic officials, suggesting that Biden’s earlier $1.9 trillion stimulus package likely triggered the inflation hike.
Larry Summers, ex-Treasury Secretary in the Clinton and Obama administrations, told Bloomberg News on 10 December that “the inflation rate would be slightly higher in 2022 and 2023 with Build Back Better than it would be without the Build Back Better.” He added that in his long term perspective, there could be “some effects that go the other way” but not over the next couple of years.
“[Inflation] isn’t going to just go away of its own accord,” the former Obama economic official said. “We put in motion for the first time in 40 years, excessive inflation, caused by overheating of the economy, and that’s going to have to be worked out of the system and that’s probably not going to be such an easy thing.”
On 13 December, Summers tweeted his warning: “I cannot understand why so many in [the Biden] administration and out cling to the idea that inflation is caused by bottlenecks and will soon recede to normal levels,” he wrote, adding, “of course there is uncertainty but the idea that inflation will revert soon to levels anywhere near Fed’s target looks like a long shot.”
The economic expert in particular referred to a nonpartisan BLS CPI report which cites inflation as “broad increases in most sectors…similar to last month.”
Summers believes that “barring a major recessionary or financial shock next fall,” headline inflation might round down to 5%: “We are beyond where the Vietnam inflation took us but still have plenty of time to stop a late 1970s situation from developing, if we have the will,” he tweeted, referring to the US “great inflation” of the 1970s when interest rates rose nearly 20%.
Steven Rattner, a lead adviser to the Presidential Task Force on the Auto Industry in 2009, shared Summers’ concerns over rising inflation. He suggested in a Friday interview with Bloomberg News that it could take many years to work the problem out.
“It is going to be painful,” Rattner said. “And it’s going to be painful for growth. It’s going to be painful for jobs. And we do have an election coming next year which is going to be complicated.”
In addition to this, the former Obama aide projected that the BBB Act “would add $150 to $200 billion a year to the deficit.”
Appearing on the MSNBC Morning Joe show on 22 November, Rattner highlighted that the $1.75-trillion spending package would not be “deficit neutral” as some Democrats have claimed. In an earlier op-ed for The New York Times the Obama-era-auto-czar-turned-economic-journalist argued that the problem had been triggered by Biden’s $1.9-trillion coronavirus relief package.
“The original sin was the $1.9 trillion American Rescue Plan, passed in March,” Rattner wrote. “The bill — almost completely unfunded — sought to counter the effects of the Covid pandemic by focusing on demand-side stimulus rather than on investment. That has contributed materially to today’s inflation levels.”
The fears of Summers and Rattner square with a Friday Congressional Budget Office (CBO) analysis that BBB could increase the federal budget deficit by $3 trillion over the next decade, if the programmes included in the social and climate spending package are made permanent.
The $1.75 trillion bill was passed by House Democrats in November, envisaging expanding Medicaid, providing new funding for child care, establishing universal preschool and offering green energy tax credits, to name only a few of the bill’s programmes.
Moderate Democratic Senator from West Virginia Joe Manchin has repeatedly subjected Biden’s landmark bill to criticism, primarily citing soaring inflation. Originally, the US president’s package amounted to $3.5 trillion. However, after emerging dissent from Democratic Party moderates, the bill was shrunk to $1.75 trillion. Some observers suggest that the legislation’s price tag will be subjected to further cuts in the US Senate. On 13 December, White House Press Secretary Jen Psaki said that Biden held a phone conversation with Senator Manchin, whose vote in the evenly split Senate is crucial for passing the bill.
Customers shop at a Dollar Tree store in New York, the United States, Nov. 26, 2021.Photo:Xinhua
