Tag: Build Back better

Building Back Better Manchin Style

DonkeyHotey, CC BY 2.0 https://creativecommons.org/licenses/by/2.0, via Wikimedia Commons

Time is running out for Democrats to resurrect parts of their Build Back Better agenda and pass a Democrats-only reconciliation package in time for the midterms, when they are almost certain to lose one or both houses of Congress. Democrats believe that if they don’t at least get a framework by Memorial Day it will be too late. Manchin has laid out his priorities: drug price reform, tax increases for the wealthy, deficit reduction – going so far as to say that half the revenue should go towards deficit reduction. He also wants the programs to be permanent, instead of having arbitrary sunsets. But as NBC News reported, if Democrats are waiting for him to write the bill they’re going to be left waiting.

Luckily there’s a way to meet all of Manchin’s demands within the framework of the original Build Back Better Act, and include extending the Obamacare subsides expanded under the American Rescue Plan – which Insider reported would run out right before the midterms if Democrats don’t act. Democrats are bad at politics but they can’t be that bad at politics, right? RIGHT!?

Anyway, in case Democrats are that bad at politics (they are) I’ve decided to write the bill for them. Here is my Build Back Better Bill: Manchin Style!

Build Back Better: Manchin Edition

Total Spending: $998 billion
Total Offsets: $1975 billion

Deficit Impact: -$977 billion

According to CBO estimates permanently expanding the Obamacare subsidies would cost $428 billion over ten years, while the climate provisions laid out in the Build Back Better Act added up to $570 billion. That’s $998 billion in spending over ten years, which can be more than offset with savings from prescription drug pricing reforms ($270 billion), tax increases and other revenue ($1705 billion). Approximately half of the revenue raised ($977 billion) would go towards deficit reduction while the other half ($998) would go towards healthcare, prescription drugs, and fighting climate change.

Left on the cutting room floor are things like affordable housing ($175 billion) and universal pre-k and childcare ($752 billion), though if Manchin eases off his demand that half the money go towards deficit reduction (not likely) they could be added back in and we’d still reduce the deficit by $50 billion over 10 years. Another option would be to include a scaled-down childcare and pre-k package. Politico has reported Democrats have been shopping around just such a package that would come in at about $200 billion. Were Democrats able to convince Manchin to go along with it we could have a bill that looks something like this:

Build Back Better: Manchin Plus

Total Spending: $1373 billion
Total Offsets: $1975 billion

Deficit Impact: -$602 billion

In this scenerio you would have $1373 billion in spending and $1975 billion in total offsets for a deficit reduction of $602 billion, meaning around 30% of the revenue would go towards deficit reduction. Would Manchin go for it? Probably not, but a boy can dream!

Not an Economist: A Build Back Better For Inflation

Welcome to my brand new “Not an Economist” series, where I talk about economics with the small caveat that I’m not an economist so I may very well be talking out of my ass. Enjoy!

With Congress coming back from a two week recess and the clock winding down until the midterms, word on the street is Democrats are ready to restart formal negotiations on another reconciliation bill. As I’ve argued in the past, the old Build Back Better wasn’t going to have much of an effect on inflation either way. It might have slightly increased inflation in the short term (and by slightly I mean a few tenths of a percentage point) because much of the spending was frontloaded, but it would have likely lowered inflationary pressure over the long term – since it was fully paid for and would increase the productive capacity of the economy. But, of course, that bill is dead. The new bill doesn’t exist yet but from what I can glean from what’s been reported it looks like it will be better designed to ease inflationary pressure, both in the short-term and the long-term, and will lower the burden of high prices on working families. For starters, here’s what the the bill will probably look like:

1. Lower the cost of prescription drugs
2. Extend the expanded Obamacare subsidies
3. Massive investments in clean energy
4. Raise taxes on those making more than $400,000 a year
5. Reduce the deficit

So how would these items lower inflation? Well the first two are self-expanatory. By allowing medicare to negotiate prices, the bill will bring down the cost of prescription drugs. Extending the Obamacare subsidies, which were made more generous by the American Rescue Plan, would keep out-of-pocket healthcare costs down for most people. These would have the added benefit of keeping people healthy so they don’t miss work and could help nudge those still sitting on the sidelines back into the workforce. More workers means we can produce more things which will help ease some of the supply-chain shortages fueling inflation. And more workers also means companies won’t have to compete as much for talent, which would lower the upward pressure on wages – another contributor to inflation.

Everyone is upset about the price of gas these days. Well while we can take steps to bring down gas prices in the short-term, a long-term solution would be to move away from oil and gas entirely to cheaper, cleaner sources of energy. Onshore wind and solar are currently the cheapest ways of generating electricity. Making the investments to expand these technologies will drive down energy costs and make us less reliant on other countries for our energy needs. I know everyone talks about wanting to be “energy independent” but the truth is that we only have about 4% of the world’s proven oil reserves. We consume around 20% of the world’s energy every year. The only way to be truly “energy independent” is to move to sources of energy we have in abundance here at home. As someone who lives in California, let me tell you, we’ve got plenty of sun. And I’ve asked some of my friends in Chicago. Turns out we’ve got plenty of wind too! The other benefit of doing this is that it will save lives. More than 100,000 people die in this country every year from air pollution. From a strict macro-economic standpoint more people alive equals more workers which means lower inflation.

It’s long been a charge from the right that raising taxes, especially for those at the top, slows economic growth and hurts the economy. Well for once there’s an argument that that’s exaclty what we need to do. It kind of confounds me that Democrats haven’t been pushing more for raising taxes on the wealthy, since it’s one of their most popular agenda items, and since it’s a natural solution to fighting inflation. If pumping too much money into the economy causes inflation, it stands to reason that taking money out of the economy will lower inflation. Raising taxes could slow economic growth and stunt job growth but in an economy that’s running too hot that might be a good thing. Taking excess money out of the economy and using it to pay down the deficit will have long-term benefits for the economy and lower inflation in the short term.

Finally I’d be remiss if I didn’t mention another bill making its way through Congress that could help with inflation. It’s the China competition bill. One of the big drivers of inflation early on was the rapidly rising price of used cars, as a semiconductor shortage made companies unable to produce enough new cars to meet demand. China’s recent lockdown of Shanghai, which has caused even more supply chain snags, is a good reminder of the dangers of relying on other countries (especially adversaries) for essential items. Investing in the manufacturing of these components here at home will help ease the burden of supply chains snarls, and ease inflationary pressure.

The truth is that there isn’t much fiscal policy makers can do about inflation. That is Fed’s wheelhouse. But we can and should act where we can to move things at the margins. The good news is Democrats can still pass much of their agenda without having to worry about increasing inflation. In fact, the small effect it will have on inflation will be to bring down prices. And that is good for everyone.

The Biden Theory of the Case

It’s easy to get lost in the minutia of day to day politics but I really think people are missing the forest for the trees. In the grand scheme of things Biden’s little spat with Manchin and Build Back Better isn’t really going to matter. The bill will pass and disappointment about what gets left on the cutting room floor will inevitably fade and give way to excitement about what IS in the bill. Think about the argument we’re having right now: Do we want universal pre-k or or a universal child allowance? Should we make the largest investment ever in combatting climate change or the largest expansion of affordable healthcare in a over a decade? Or maybe we should focus on the greatest expansion of civil rights and voting rights since 1965? These are not bad problems to have.

I just don’t buy all the punditry saying Joe Biden misread his mandate or made a mistake by going too bold and now people are inevitably going to be dissapointed. It’s easy to play Monday morning quarterback but let’s game out some other scenerios. Biden ran on a bold, progressive platform. What would have happened if he said, “Never mind. I only got 50 votes in the Senate, so all that stuff I said I was gonna do – I’m not even going to try.” He would have had a progressive revolt and thrown away any chance of doing anything. Biden has a difficult task before him – keeping the disparate factions of the Democratic party together and united behind his agenda – and in my opinion (Manchin spat aside) he’s done so masterfully.

I just finished reading Evan Osnos’ biography of Joe Biden (you can thank my long layover in Texas for that). I highly reccommend it. It really helps you understand what he’s doing and why he’s doing it. Here’s the Biden theory of the case: the only way to save our democracy is to prove that a democratically elected government can deliver results for people. Put another way, the only way to defeat Trumpism is to show Trump’s supporters that their voices are being heard and that they don’t have to turn to someone like Trump to get a government responsive to their problems. That’s why Biden’s been so singularly focused on Build Back Better. It’s why he’s billed the infrastructure bill a “blue collar blueprint to rebuild America.” And it’s working. Wage growth for those without a college degree has outpaced wage growth for those with a degree since January 2021 – the longest period on record.

The bad actors are going to act bad – that’s what they do – the only thing we can do is make the outrage they’re peddling less appealing. Remember: the outrage machine only amplifies anger and resentment, but there has to be an existing base of anger and resentment for it to amplify, and though you’re never going to remove all the things that make people angry or upset, you can reduce it to a level that is sustainable. Just like how reducing transmission of the virus allows society to function normally, reducing anger and resentment to a sustainable level will allow democracy to function. The only way out is through helping people, not punishing them.

Of course governing effectively is only one piece of the puzzle. There’s an important second piece too. If making the bad actors less appealing is step one, reforming democracy to shore up the weaknesses exposed by the bad actors is step two. Biden has gotten a lot of flack (including from me) for not paying enough attention to voting rights. Bad actors all across the country are using the “Big Lie” as an excuse to pass restrictions that make it harder to vote, and they’re likely to continue in 2022. Passing both the Freedom to Vote Act and John Lewis Voting Rights Advancement Act will push back against these state level restrictions and also put an end to gerrymandering, which causes increased polarization by making elections less and less competitive.

In order to pass both of these bills we will need to reform the filibuster – though filibuster reform shouldn’t be thought of as a means to an end, rather, reforming the filibuster is itself essential to saving our democracy. The fact is that one of the reasons people no longer believe democracies can deliver is because whichever party is out of power does their damnest to make sure the party in power can’t get anything done. Giving the minority a blanket veto over the majority’s agenda is insane and runs counter to the way our democracy was designed. Fixing the filibuster will allow our government to function as intended and be more responsive to the needs of it’s people – instead of our current state of affairs where politicians make big promises on the campaign trail that are impossible for them to fullfill once in office.

Finally, we need to update the Electoral Count Act to clarify the Vice President’s role in the counting of electoral votes and also what constitutes grounds for challenging a state’s votes. It’s unclear at this point whether this is something Democrats will have to do on their own or whether there’s enough establishment Republicans (I’m looking at you Mitt Romney) to pass a filibuster proof bipartisan bill. Obviously for big changes like this you’d prefer it to be bipartisan but if going it alone is the only way then that’s the route Democrats must take. This is just too important. Besides, both the 14th and 15th Amendment, which gave citizenship and voting rights to freed-slaves, passed on party-line votes.

Biden has not paid nearly enough attention to voting and democracy reform in the first year of his presidency but it looks like that is starting to change – a very welcome sign for those of us worried about the future of democracy.

Biden has a great task ahead of him: literally saving American democracy. But if he can pass Build Back Better, voting rights and election reform, on top of the infrastructure and COVID relief bills he’s already passed, that would go a long way towards meeting his goal of proving democracies can function. It would also safeguard our democracy against future attacks. I don’t know if it will save Democrats in the midterms but I would still call it a success – and though this has been said about every President, I think it’s the case now more than ever: Biden’s success is America’s success.

Biden, Build Back Better, and Inflation

Is Biden’s spending contributing to inflation? Yes, but not as much as you think. Inflation in October was 6.2% for the year. That’s high, but it’s worth noting that inflation is high all around the world. In Germany it’s 4.5%, in the UK, 4.2%, for the European Union as a whole it’s 4.1%, and the average for OECD nations is 4.6%. Emerging markets are seeing even faster inflation with Brazil at over 10%, Turkey nearly 20% and Argentina experiencing an astonishing 52.1% inflation. The US is certainly leading the pack when it comes to advanced economies but only by around 2%, and historically our economy has tended to run hotter than most European nations.

So how much of our inflation is due to government spending? That’s hard to quantify. Our fiscal response to the pandemic, as a percentage of GDP, was second only to that of Japan, which spent more than 50% of it’s GDP on relief. Yet Japan’s inflation rate was only .1% in September. Yes you read that right. Point one percent. In fact, September was the first time Japan’s inflation has been in the positive since the pandemic began. We’ve spent several times what many European countries spent, yet our inflation rate isn’t several times larger than those countries. But going by spending, even as a percentage of GDP isn’t a perfect measure, as different types of spending can have different effects.

The Federal Reserve Bank of San Fransisco used the vacancy-to-unemployment ratio to asses the impact of Biden’s American Rescue Plan. They found that it’s likely to add .3% to inflation in 2021, .2% in 2022, and a negligible amount in 2023. That means that instead of the 6.2% inflation we had in October, we would have had 5.9%. Not all that big a difference.

We pumped nearly $6 trillion into the economy in response to the pandemic. It would be hard to argue that that’s not contributing somewhat to inflation, but two-thirds of that spending ($4 trillion) happened under Trump, not Biden. Furthermore the economy is not showing the typical signs of overheating. Our output gap, or the difference between potential GDP and real GDP, is still in the negative at -1.67%, and our unemployment rate of 4.6% is low, but not yet what would be considered full employment. This means there’s still slack in the economy. The safe money is that inflation is going to subside and reach a far more sustainable level next year.

As for the new spending, it’s not likely to have much of an impact in inflation either way. That’s because the spending takes place over the course of ten years and is going to be paid for by tax increases and savings elsewhere. In the long-run, there’s a strong argument to be had that both Build Back Better and the bipartisan infrastructure bill will decrease inflationary pressures by increasing productivity.

The Build Back Better Act should be voted on based on the merits, not based on fears over inflation. Even with today’s CBO score, which estimates the bill will add $160 billion to the deficit over ten years, we should keep that in perspective. The Federal Reserve is pumping $120 billion a month into the economy in the form of bond purchases, $16 billlion a year is a drop in the bucket. Plus, the Senate is likely to remove paid family leave and immigration reform, which together cost $315 billion according to CBO. Once they’re stripped out, the final bill it will actually reduce the deficit by $155 billion over ten years.

By almost any measure our economic recovery has been astounding. We’ve created nearly 6 million jobs this year, our unemployment rate is 4.6% – a level not reached after the last recession until February 2017 – and we’re the only major economy who’s GDP is larger now than it was before the pandemic. The lesson is not to pull back but to keep going. Inflation be damned.

Design a site like this with WordPress.com
Get started