Business Maverick

International Finance

Top Economists See Biden’s Spending Plan Adding to Inflation

US President Joe Biden listens during a virtual summit with Chinese President Xi Jinping in the Roosevelt Room of the White House in Washington DC, USA, 15 November 2021. (Photo: EPA-EFE/SARAH SILBIGER / POOL)

The roughly $2 trillion tax and spending bill being championed by President Joe Biden will act to push up inflation next year if passed by Congress.

That’s according to three senior economists — Mark Zandi at Moody’s Analytics, Douglas Holtz-Eakin of the American Action Forum and Harvard University professor Doug Elmendorf — who appeared on a virtual panel sponsored by the National Association for Business Economics on Wednesday.

While they all agreed the bill as presently constituted would add to inflationary pressures in the short run, they differed over how worrying that would be — with Zandi exhibiting the least concern and Holtz-Eakin the most.

Democratic lawmakers are continuing to discuss the details of the bill, with some moderates voicing uneasiness over the impact it could have on inflation, raising doubts about its ultimate contours and even its fate. Republicans have also attacked the bill, branding it wasteful government spending.

The administration, for its part, has argued that the president’s so-called Build Back Better agenda will act to push down inflation in the longer run by increasing the size and productivity of America’s workforce.

Inflation Surge

Surging inflation has soured consumer sentiment and helped drag down Biden’s approval ratings in opinion polls. Consumer prices skyrocketed by 6.2% in October from a year earlier, led by cars, food, gasoline, electricity and fuel oil. Most economists see it coming down sometime next year, but the debate is over how soon and by how much.

Zandi, a proponent of the reconciliation bill whose analysis has often been cited by the White House and top congressional Democrats, said he didn’t think it will lead to significant price pressures.

But “it will add a little bit to inflation,” tacking on a few tenths of a percentage point to gains in the consumer price index in 2022 and 2023, he said. The plan will also boost gross domestic product and speed up a return to full employment, the Moody’s Analytics chief economist said.

Holtz-Eakin, a Republican who served in the administration of former President George W. Bush, said he was a little more worried about the near-term impact than Zandi.


A lot of the spending in the package is front-loaded, he said. Combined with the bill’s tax cuts and tax breaks, that could end up pushing some $500 billion into an economy that doesn’t need it, according to the president of the American Action Forum.

“We may get some growth,” he said. “But we don’t avoid some additional pressure on inflation.”

Elmendorf, who served in the administration of former Democratic President Bill Clinton, essentially split the difference between Zandi and Holtz-Eakin as far as the bill’s short-run impact is concerned.

“This bill goes the wrong way in the short term, but I think it doesn’t go in the wrong way very far,” he said.

The bill will probably increase demand over the next few years, Elmendorf said. “That will tend to push up GDP and employment and inflation — which is not the policy impulse we need right now,” he added.

Elmendorf also said that he expects the Federal Reserve to significantly offset whatever inflationary impulses arise through changes in monetary policy.


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