Here is Larry Summers, appearing at a Zoom debate, hosted by Princeton last month, on the Biden Administration’s $1.9 trillion rescue package. Summers, who is wearing a sports jacket and appears against a blue backdrop advertising Harvard’s Kennedy School, believes the package is too big and therefore too risky. Waiting patiently to oppose him is Paul Krugman, the Nobel Prize-winning economist and Times columnist, and Summers’s frequent sparring partner. Set aside the specific subject matter, and Summers might have been teleported in from almost any point during the past three decades, when he led so many institutions of the neoliberal establishment (as Secretary of the Treasury in the Clinton Administration, director of the National Economic Council in the Obama Administration, and president of Harvard in the Democratic interregnum) that he just about defines it. Above all, it is his voice that marks him out: he talks loudly and very confidently, with both precision and slight impatience, like a man dictating a lunch order via speakerphone.
The difference this time—one measure, though not the only one, of the quiet transformations of the Biden Administration—is that now Summers is an outsider. He does not have a role in government, and his allies and disciples have much less of a hold on economic policy than they did under Barack Obama or Bill Clinton. Under Biden, the economic policymakers tend to be younger and more progressive, and more likely to be rooted in Washington rather than academia. “The weight of that generation of academic economists has fallen practically to zero,” the much more progressive economist James Galbraith, of the University of Texas, said, with no little amount of glee. “Is there anyone who came down from Harvard to instruct the Biden Administration on how to run the economy?” Summers has not worked in Washington since 2010, and in that decade he has sharpened his prophetic demeanor, warning, in a 2013 talk that became a book, of the danger of “secular stagnation” in the American economy—the prospect that structural factors such as an aging population or sluggish technological growth could lead to a persistent shortfall in demand that not even near-zero interest rates could fill. In certain ways, being an outsider suits Summers, in that he now has a platform from which to argue that everyone else is getting the big things wrong.
At the debate, Summers displayed an arresting bar graph representing the size of the “output gap” in 2009, 2020, and 2021 in red bars, and the amount of stimulus deployed to fix it in black ones. In 2009, the output gap was several times the size of the stimulus—in short, the stimulus was too small, Summers said. But, in 2020, the situation was different: the stimulus was twice the size of the output gap. For the 2021 projections, the black bar dwarfed the red one. Summers said, “If you remember only one number that I say, remember this one: income—wages and salary, total income—is running about twenty-five billion dollars a month below an optimistic projection of where it would have been without COVID. In contrast, if you look at the unemployment insurance, plus the checks, plus the child credits, plus the rental assistance, which is small, and you spread that out over the whole year, you are getting a number that is in excess of a hundred billion dollars a month.” There was no question that the 2009 stimulus should have been bigger, Summers said. “But was it too small by a factor of five? That’s not an argument I’ve heard.”
The Biden rescue package will pour out enough sand to fill a hole, and then keep pouring. In Summers’s view, this is economically risky, because it means that the Federal Reserve will probably eventually need to manage inflation, a recipe for a bumpy future. “My reading is that there are roughly zero historical examples where we got inflation to the point where the Fed got nervous and had to tighten and the whole thing happened smoothly,” Summers told me last week. He also sees the stimulus as politically risky, in that there are only so many times the Biden Administration can ask Congress to spend huge amounts of money without raising taxes to offset it, and fewer still if they spend this round inefficiently. Summers said, “I think they should be heavily investing in infrastructure, they should be heavily investing in science, in education, in green things. But there’s not going to be unlimited money for that stuff.”
Krugman came to the Zoom debate dressed for a different role. Wearing a black mock turtleneck, with longish hair and his usual beard, he was the guy who says your whole approach is wrong. “The whole framework of a stimulus to fill an output gap is not the right way to think about where we are,” Krugman said. This wasn’t really a stimulus at all, Krugman said, but a rescue package. He went on, “In some ways it’s like fighting a war. When Pearl Harbor gets attacked, you don’t say, ‘How big is the output gap? Let’s size the defense budget based on plausible multipliers to fill that output gap.’ You spend enough to actually win the struggle that you’re in.” Krugman asked, rhetorically, which elements of the package Summers would cut. Not the public goods, like vaccination and funds for school reopening, and surely not the needed income support. What was left was the part that members of Congress had most vociferously demanded: the aid to state and local governments (which Krugman agreed probably exceeded the fiscal need) and the checks to people who had not much suffered. Krugman said, “The checks, which are the least-justifiable piece in terms of standard economics, are also by far the most popular, and I don’t think we can entirely disregard that.”
One part of this debate had been won by Krugman before it started, in that the Biden Administration was following his advice and ignoring Summers’s, a victory confirmed last week, when the $1.9 trillion package was signed into law with scarcely an edit. I rewatched the Krugman-Summers debate then, and spoke with some economists about the aftermath, and found it all a little bit breathtaking. The Biden Administration is staffed largely by Obama alumni, and they had gone very big where in 2009 they had gone small, backing an aggressive if arguably inefficient fiscal intervention instead of a tauter one that leaned more heavily on the technocratic management of the Federal Reserve. The past year has seen some experiments in more ambitious interventions, and there have been successes: Republicans, too, were willing to go big with the CARES Act, which helped to reduce the poverty rate between April and June even as millions of people were losing their jobs. With the American Rescue Plan Act signed into law, some economists now believe that child poverty this year will be halved. More interventionist approaches beckon. “It seems plausible,” Brad DeLong, an economic historian at Berkeley and a Clinton Treasury official, said, that “the neoliberal era is over.”
At least, the era of the world-straddling neoliberal economist—the post-Cold War role perhaps most defined by Summers himself—may be. When I profiled Krugman during the Obama Administration, I thought that Krugman tended to see Summers as his personal foil (“a one-man control group for his study of himself,” I wrote then). Krugman would snipe at Summers for departing too much from the optimum result to compromise with power, and Summers at Krugman for being a naïf. Now the situation is reversed. Krugman, in his black mock turtleneck, is cheering the government on. Summers, with his sports jacket and his Harvard logo, is screaming at it to stop.
After watching the anti-drama of the Rescue Act’s passage in Washington, I found myself wondering whether the talk of a sharp pivot away from neoliberalism overstated how much had changed from the Obama years. I called Jason Furman, who served as a senior economic adviser to Obama beginning in the 2008 campaign, and asked how he recalled the debates over stimulus at the outset of the Obama Administration, when the economy was in worse shape than it is now. The opening bid for stimulus from House Democrats was three hundred billion dollars, and a large group of progressive economists signed a letter insisting on three to four hundred billion dollars. “Paul Krugman was the crazy man calling for six hundred billion,” Furman said.
Now the entire Democratic Party has signed on to a package several times that size, and no one seemed to blink. If you combine the Biden rescue plan with the nine hundred billion in emergency stimulus authorized by Congress in December, that means nearly three trillion dollars in stimulus funds in the span of a single winter. “There is no one I know who is privately exasperated, like, ‘Oh, my God, this thing is too small,’ ” Furman said. “There’s no economist in the country, as far left as you go, who in December was calling for $2.8 trillion of stimulus.”
If the politics of fiscal stimulus have changed, that’s partly because the views of economists have changed—there is a pattern within the pattern. The narrow universe of left-of-center economic policymakers worries less about deficits than it did a decade ago, and the general consensus that the 2009 stimulus was too small has made those policymakers more comfortable with aggressive fiscal interventions in emergencies. DeLong, of Berkeley and the Clinton Administration, guessed that about half of the leftward turn within this universe was owing to these factors. “There is not nearly so much trust in the ability of the market to heal itself,” he said. The other half, he said, was the part that tended to isolate Summers. DeLong ascribed it to politics, and to the general feeling (“in my view, twenty-seven years too late”) that Republicans would never be willing partners for expansive economic intervention. There was little disagreement among liberal economists, he emphasized, over how the Biden Administration ought to spend the money in an ideal world: “Most of us would say infrastructure rather than checks—if we had that option. Only Larry believes we have that option.” DeLong’s own view is that if the Biden Administration had pared back the stimulus in the hopes of building a bipartisan consensus for infrastructure, it would find that no such consensus existed. “In the absence of Republican negotiating partners, center-left Democrats have got to look to the left,” DeLong said. “This is an example of that actually happening.”
I can’t tell whether it is cause or effect, or whether it will last, but as I called around to these economists I noticed a subtle change in mood. The grim sense of American stagnation and decline—the worry that we are still wringing the last gains from the computing revolution without having developed anything big to replace it—was less detectable than it has been for the past decade. “The Great Stagnation,” Tyler Cowen called it, in his 2011 book of that name, and the social-surveillance habits of the big tech companies and the zero-sum politics of the Trump era did have a stingy, end-of-days feel about them. But Cowen has been sounding more optimistic notes recently, and, when I called him last week, he listed several potentially transformative developments: the ubiquity of cloud computing, the plummeting cost of wind and solar power, the development of electric cars, and the rapid development of the COVID-19 vaccines built on an mRNA platform, on which further breakthroughs might also be built. A decade ago, he thought the country might be stagnant for twenty years. Now, he said, “I’m inclined to think that the Great Stagnation is over.”
This change in the intellectual weather wouldn’t affect any economist’s projection of the growth rate or estimate of the stimulus’s multiplier, or shape how responsive Republicans might be to the infrastructure bill. But it might subtly contribute to a more expansive sense of what is possible in the future, and therefore what could be risked now. Certainly, Summers talked as if the people he was arguing with were overly exuberant. When I called him last week, after the bill had passed, Summers said, “Just take the test: Have any statements been made that couldn’t have been made if they argued for a five-trillion-dollar stimulus?” Furman told me he was less worried than Summers seemed to be about inflation; he thought there was “unambiguously more economic room.” But if, as Krugman and Summers agreed, there was a need for a further major round of investment, Furman said he found it harder to gauge whether the scale of this package would make that more or less likely. “I think there is a danger that this is crowding things out politically,” Furman said, but “I think it could also be crowding things in politically.” Those considerations mattered more. “This is sort of a political thing,” Furman said. “Which is fine.”
Right now it’s interesting to wonder (as Bloomberg’s Tracy Alloway and Joe Weisenthal did in a podcast, and Columbia’s Adam Tooze did in an essay at Foreign Policy) what might replace the neoliberal era if it is in fact over, or permanently changed. For now, it makes sense to me to follow the politics—to ask, “Where are the votes?” At precisely the same time that Democrats backed this expansive fiscal intervention, they also declined to raise the minimum wage—maybe the revolution wasn’t complete after all. Still, this whole episode—Larry Summers versus the stimulus—gives some definition to the Biden Administration, one which shades away from Obamaism and toward the personality of the new President. More political and less technocratic, more hot than cold, impatient to make a splash. James Galbraith, the progressive economist at the University of Texas, told me that he never thought he’d get a package he liked so much. He said, “Old men in a hurry are a good thing.”
