Biden’s ‘go big’ stimulus has kicked off a huge debate about just how big a hole the pandemic punched in the economy

Biden’s ‘go big’ stimulus has kicked off a huge debate about just how big a hole the pandemic punched in the economy

Congressional Democrats and President Joe Biden are betting there's a bigger hole in the US economy than some government models suggest.

The main conflict around Biden's $1.9 trillion stimulus plan has to do with a fairly simple concept: the output gap. That gauge measures the difference between actual output and the maximum potential output generated by an economy. During a recession, it's a popular metric for judging how much more an economy can rebound before overheating.

Positive output gaps “” in which actual GDP exceeds the estimated maximum “” tend to fuel inflation due to strong demand for goods and services. Conversely, a negative output gap drags inflation even further below the Federal Reserve's target. Weak inflation can be a sign of slowing economic growth and stifled wage improvement.

Lawmakers largely agree more stimulus is necessary to fill the hole in the economy created by the pandemic. But debate over a new relief bill places fresh focus on the output gap and its true size.

Democrats have repeatedly warned that passing too little stimulus would fail to close the gap and, in turn, leave the US economy languishing in a weakened state. Lawmakers should "go big" on stimulus and stray from passing an inadequate