Too much of a good thing?

With the end of the pandemic coming ever closer and the Biden administration pouring trillions into recovery initiatives, economists are debating whether the government risks going too far, stoking runaway inflation. But as our colleague Neil Irwin at the Upshot asks: How will we know if the economy is running too hot?

Economists acknowledge that some rise in inflation is inevitable, as demand for certain goods and services outstrips supply. (Other events, like strained supply chains, are also pushing up prices.) Where they disagree is over the severity of the inflation that will result:

The Biden administration and its allies think that prices will recalibrate, unemployment will fall and inflation will stabilize at a manageable level.
Skeptics worry that people will believe elevated inflation is the new normal, leading to climbing prices, demands for higher wages, a weakening dollar and higher interest rates on government debt. That could prompt policymakers to intervene forcefully — and set off a recession.

Ten economists explained what the warning signs of an overheating economy would look like. A summary of common themes:

Several, like Greg Mankiw and Jason Furman of Harvard, said they would start to worry about several years of inflation above 3 percent.
Others, like Austan Goolsbee of the University of Chicago and Claudia Sahm of the Jain Family Institute, are looking out for a significant acceleration in inflation, as happened in the 1970s.
Wendy Edelberg of the Brookings Institution is watching for signs that people believe an economic overheating is permanent, like a housing and construction boom and high readings in the five-year, five-year forward inflation expectation rate.

Larry Summers, who recently kicked the debate into higher gear, thinks there are roughly equal odds that everything will turn out fine, that ever-rising inflation will set in and that the Fed will crash the economy to stop that from happening.
The New York Times