Hexapodia podcast, Episode I

"Relief, Support, Stimulus" or "Stimulus, Inflation, Catastrophe"?: The Biden $1.9T Reconciliation Plan

Brad DeLong and I have a podcast!!

The name of this podcast is “Hexapodia: The Key Insight”, or Hexapodia for short. It’s a very nerdy reference to Vernor Vinge’s epic sci-fi novel, A Fire Upon the Deep. The reference is explained in greater detail in Episode 1. The podcast itself is about economics, with a heavy dose of sci-fi nerdery. (We’re still working out the kinks of the audio production, so be patient with us!)

If you don’t know who Brad DeLong is, by the way, he’s an economist at the University of California Berkeley, who was also one of the earliest bloggers on the internet. In fact, his is the blog that originally made me want to start blogging! He now has a Substack, which you can and should subscribe to! Brad’s research is mostly about economic history, but also includes finance and other fun stuff.

Anyway, in this first episode of Hexapodia, we discuss Biden’s $1.9 trillion COVID relief bill, whether it’s really a stimulus (no), whether it’s too big (also no), and whether the Fed and Congress can get things under control in the extremely unlikely eventuality that it does turn out to be too big (yes).

There’s one point that I’d like to highlight, which I made kind of near the end. Basically, as I see it, it doesn’t make a lot of sense for folks like Larry Summers and Olivier Blanchard to be afraid of a $1.9 trillion relief bill when they weren’t afraid of the $2.2 trillion CARES Act and its $0.9 trillion December sequel. So why are they worried?

My guess is that they’re worried about a political-economic regime change. Basically, since 1980, we’ve had this weird equilibrium when it came to government deficits. Democrats were basically Keynesian, running deficits during busts (as in 2009) and austerity during booms (as in the late 1990s). Republican were more politically opportunistic, running deficits when they were in power (Reagan, Bush, Trump) even if it was in a boom, and clamoring for austerity whenever a Democrat was in power. It was a weird asymmetrical system, but it kept the U.S. from running up as high of a federal debt as some other rich countries.

Now, however, there’s the possibility that the Democratic party has decided to no longer play that asymmetric game, and will turn on the taps when their own President is in power. And there’s the possibility that the Republicans will be more responsive to their own constituents, who demand more spending. And there’s the possibility that the Fed, afraid of raising interest rates even an inch above zero for fear of spiking the economy, and possibly also afraid of raising the government’s interest payments, will keep rates pegged at zero essentially forever.

In other words, I think Blanchard and Summers, on some level, are afraid that COVID and the Trump Era have changed the game, and that we live in an MMT world now, where there’s no effective check whatsoever on federal borrowing. Remember that some economists believe that policy regime changes are exactly what kicks off economic catastrophes like hyperinflation.

So perhaps Blanchard and Summers see themselves as one of a rapidly decreasing set of institutional checks on the new regime. Perhaps they view their role as reassuring markets that there are still influential people who don’t agree that deficits should be sent to the moon. In other words, perhaps they think that one key to economic stability is to have some visible “adults in the room”, and have taken that role upon themselves.

Anyway, there’s much more in the podcast, so give it a listen! And please provide any feedback you can think of in the comment section, because I’m very new at this!

Oh, and here is the Works Referenced list from this episode. Big thanks to my co-host for putting that together!

Works Referenced:

Twirlip of the Mists: Hexapodia as the Key Insight 

Vernor Vinge: A Fire Upon the Deep 

Vernor Vinge: A Deepness in the Sky

Larry Summers: The Biden Stimulus Is Admirably Ambitious. But It Brings Some Big Risks too

Olivier Blanchard:

Olivier Blanchard @ojblanchard1

Let me double down and go through some numbers. I agree that too much is better than too little and we should aim for some overheating. The question is how much. Much too much is both possible and harmful. I think this package is too much.

Paul Krugman: Nonstimulus Arithmetic: Why the American Rescue Plan has to be big <https://paulkrugman.substack.com/p/nonstimulus-arithmetic>

Noah Smith: COVID Relief Isn't Stimulus, It's Social Insurance: It’s not about priming the pump; it's about making people whole 

Wendy Edelberg & Louise Sheiner: Macroeconomic Implications of Biden’s $1.9 Trillion Fiscal Package 

Brad DeLong: DeLongToday: Nudging Ourselves Back to Full Employment 

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