Summers Says Biden Plan Would Overheat Economy, Which May Be OK

Larry Summers, former U.S. Treasury secretary, speaks during an Economic Club of New York event in New York, U.S., on Wednesday, May 16, 2018. Summers discussed government, budget, and public investment. Photographer: Mark Kauzlarich/Bloomberg
Larry Summers, former U.S. Treasury secretary, speaks during an Economic Club of New York event in New York, U.S., on Wednesday, May 16, 2018. Summers discussed government, budget, and public investment. Photographer: Mark Kauzlarich/Bloomberg

(Bloomberg) -- Former U.S. Treasury Secretary Lawrence Summers said President-elect Joe Biden’s proposed stimulus package would cause the economy to overheat -- and that could be a good thing.

The package is one of the boldest economic plans the U.S. has seen, Summers said in an interview Friday with David Westin for Bloomberg Television’s “Wall Street Week.” As written, it would overheat the economy, but the debate shouldn’t be about that aspect, but whether it would do more for those who have been left behind during the pandemic-led recession, he said.

Read more: Here Are the Major Parts of $1.9 Trillion Biden Relief Plan

“We are going to have to watch this economy very carefully, and I do think the conventional wisdom is underestimating the risks of hitting capacity,” said Summers, a Harvard University professor and paid contributor to Bloomberg TV. “If we do anything approaching this, we are going to be managing the economy with the accelerator more on the floor that any time in peacetime history.”

Summers didn’t elaborate on what the overheating would look like; the term typically refers to inflation accelerating too much, eventually proving harmful to the economy.

He suggested the $1,400 stimulus checks would be poor use of public spending and that the funds should instead be more targeted, though he understands its mass appeal.

“Its universality serves to make it more attractive,” Summers said. “And the authors of this package have put in a variety of other things that are tilted very much towards the poor,” such as the child tax credit.