It’s the economic equivalent of the 1970s sitcom, “The Odd Couple.”
Two prominent U.S. economists from opposite ends of the political spectrum say the federal government should provide cash to consumers squeezed by soaring inflation and surging energy costs.
Nobel Prize laureate Joseph Stiglitz and former Federal Reserve Governor Lawrence Lindsey both argue that such a move would be good for the economy, though they differ on the details of how such a plan should be structured.
Stiglitz, who headed the Council of Economic Advisers under Democratic President Bill Clinton, backs a one-time tax rebate for lower- and middle-income workers, financed by levies on the wealthy and corporations. Lindsey, who served in the White House under Republican President George W. Bush, wants the government to mail checks to Americans like it did during the pandemic.
There’s no sign that either proposal has gained any traction in Congress or with the administration of President Joe Biden. But the jump in gasoline prices to record highs on the back of Russia’s invasion of Ukraine is raising the political stakes for both parties ahead of the November mid-term elections for Congress, when Biden’s Democrats will defend thin majorities.
“Americans will want relief from high energy prices and they will want to punish Russia and diminish their ability to wreak havoc,” Andy Laperriere, head of U.S. policy for Piper Sandler & Co, said in a March 4 note. “The pressure to do something major -- not window dressing -- could be overwhelming,” he added, though he thinks the focus will be on boosting energy output.
Biden on Tuesday warned companies against “padding profits” by boosting prices excessively, as he announced a ban on imports of Russian energy. “It’s no time for profiteering or price gouging,” he said.
Governments across the world are grappling with the cost-of-living crisis exacerbated by the Ukraine war, which has boosted already-high pandemic inflation. In France, where President Emmanuel Macron is up for re-election next month, the government has promised tax cuts and subsidies to shield households from the impact of more expensive energy. Other European governments have taken similar steps.
Stiglitz’s Proposal
Stiglitz told a webinar last week that his proposal could be packaged as “an inflation-protection tax rebate” and be paired with a levy on “those who have done very well during the pandemic.”
That could assuage the concerns of those like West Virginia Democrat Senator Joe Manchin who fear government spending that isn’t paid-for would boost price pressures.
To protect the most vulnerable, the government should also make sure that a variety of its programs -- food stamps, Medicaid, Medicare and Social Security -- are “adequately indexed” to inflation, said Stiglitz, a Columbia University professor.
Lindsey, who now heads his own consulting firm, said in an interview that there are good economic and political reasons for a new round of stimulus checks. He reckons that the excess savings that many Americans socked away during the pandemic will be exhausted by the end of this year -- eaten up by a decades-high inflation rate.
Lindsey Backs Checks
“There’s no lifeline coming, particularly no lifeline for 2023,” Lindsey said. “It’s political malpractice for the White House to not have put up a very simple bill that would send out -- I’m just picking a number -- $1,000 stimulus checks.”
Lindsey argued that would be less inflationary than the longer-term spending proposals put forward by Biden, which he maintained would end up as permanent fixtures boosting the budget deficit. The White House’s longer-term economic agenda includes items such as expanded child- and earned-income tax credits, but the legislation failed to pass the 50-50 Senate thanks to Manchin’s opposition.
The economic fallout from Russia’s invasion and the sanctions it’s triggered do look to have breathed new life into portions of Biden’s agenda, previously known as “Build Back Better” -- especially those focused on boosting production of alternative energy sources.
Goldman Sachs Group Inc. analyst Alec Phillips said in a March 7 note that the odds of Congress approving a scaled-down package have risen as a result of the war in Ukraine, though he still thinks passage is unlikely.
If legislation does go ahead, it would focus on some $550 billion in renewable energy and climate-change provisions in the “Build Back Better” bill passed by the House of Representatives, and be paid for by higher corporate taxes and drug pricing changes, he said.
Laperriere said Congress could go even further, and combine “massive green energy subsidies” with measures to encourage the output of oil and gas.
“It’s not the base case, but a far-reaching energy policy change is becoming a real possibility,” he said.
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