How much is too much?



There is a strange economics argument brewing. The Biden administration has proposed a $1.9 trillion aid package, and even economists who are normally debt enthusiasts, like Olivier Blanchard and Larry Summers, are worried that it’s too big. Some relief is needed, but the important question is how much? Why should we spend more than what COVID cost the economy? Household balance sheets are in good shape, and once the economy opens, it’s poised to bounce back. So why give money to people who don’t need it?
Fans of the plan argue don’t have answers other than, “Why not?” We need to do something, so why not make it as big as possible—and what’s the harm? After all, lots of people are suffering. This is the natural argument to make once you believe that there is no costs to running large debts. I’ve seen it argued in The Atlantic and The Economist that debt doesn’t matter, because we can monetize it and roll it over. And if debt doesn’t matter, why not send everyone a check?
Economists have spent years trying to figure out the magic number, i.e., the level of debt that tips an economy into a debt crisis or inflation spiral. And that number may not even exist. But just because there’s no magic number doesn’t mean that there’s no limit to debt.

Author(s): Allison Schrager

Publication Date: 16 February 2021

Publication Site: Known Unknowns