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Biden's advisers gauging inflation

Little effect seen in spending plan by The New York Times | August 24, 2021 at 2:00 a.m.

With the White House under pressure to deal with rising prices on cars, food and gasoline, President Joe Biden's top economic advisers said Monday that his plan to spend trillions of dollars on roads, bridges, child care, a transition to low-carbon energy and a variety of other economic initiatives would have "little, if any, effect" on inflation in the months to come and would help relieve price pressures in the long term.

A blog post Monday from Jared Bernstein, a member of Biden's Council of Economic Advisers, and Ernie Tedeschi, a senior adviser to the council, amounts to the most economically detailed defense of Biden's agenda against Republican warnings that the increased spending will exacerbate already-high inflation.

Bernstein and Tedeschi contend that Biden's efforts will expand the capacity of the economy -- and help hold down prices over the long term -- by encouraging more Americans to work, through efforts like subsidized child care and increased federal spending on home health care for older and disabled Americans.

They also say Biden's agenda will improve productivity -- and reduce price pressures -- by raising education levels among workers by offering universal pre-K and through other spending plans like two years of free tuition for community college.

The economists see the end of pandemic stimulus spending as a counterbalance to any additional heat added to the economy that the infrastructure and other new spending might create.

They note that federal deficit spending will decline sharply over the next year as the $1.9 trillion American Rescue Plan Biden signed in March fades out, creating a drag on economic growth and, they say, helping to keep prices in check.

The infrastructure and other spending the president has proposed will only partly compensate for that drag, they wrote, which will dampen the effects of the new spending on inflation -- as will the fact that Biden has called for all the spending to be offset by tax increases on businesses and high earners, along with other cost-saving efforts.

The economists write that this net fiscal drag was "a feature, not a bug," of Biden's stimulus bill, which was intended to deliver quick relief to people, businesses and local governments, and his longer-view efforts to increase the performance of the economy through spending programs meant to strengthen the supply and skills of workers.

"The Rescue Plan continues to provide essential resources to states and school systems dealing with the rise of the delta variant," they wrote. "But, this also means that those raising the possibility of overheating of the economy [which would generate inflation] must recognize that even with the new plans, fiscal policy will likely be a drag on growth next year."

They also note that the infrastructure and other spending measures, which could total $4.5 trillion, are intended to be spent slowly over the course of a decade, blunting their effects on inflation in any circumstance.

Some conservative economists, like Michael Strain of the American Enterprise Institute in Washington, have warned that parts of Biden's plans -- like the extension of an expanded tax credit that functions as a monthly payment to parents -- could exacerbate inflation next year.

But other economists who have expressed concerns about the threat of inflation to the economic recovery have sided with the White House and have said Biden's further spending plans are unlikely to add to the risk. Jason Furman, a former top economist for President Barack Obama, made such a case Monday in a virtual event for the Center for American Progress.

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