Economist Mike Walden: Will Economic Stimulus Be Eaten Up by Inflation?

Both the tax cuts passed last year as well as the proposed infrastructure construction package has some economists worried.   Their concern is that with the economy at almost full employment, any large new spending will simply cause prices to rise more.  What’s your view?

Summary Answer

  1. Big spending programs – like infrastructure – or big tax cuts are usually used when the economy is in a recession and underperforming
  2. But that doesn’t appear to be the case now, with the current growth period on the verge of being the second longest in history, and the jobless rate so low
  3. So if the economy is a full capacity, trying to expand more will be inflationary
  4. But there is a counterview
  5. One part says we are not at full employment – there is hidden unemployment
  6. Also, argument that investments spurred by the tax plan will increase worker productivity – so can produce more even with same number of workers
  7. This is a big deal, because few like higher inflation – consumers, businesses, or the stock market