The Radical Modesty of Biden’s Budget

The Radical Modesty of Biden’s Budget

May 31, 2021

Paul Krugman

 

Many reports about the Biden administration’s budget proposal, released Friday, convey the sense that it’s huge. President Biden, scream some of the headlines, wants to spend SIX TRILLION DOLLARS next year. (Sorry, can’t help doing my best Dr. Evil imitation.) It takes some digging to learn that the baseline — the amount the administration estimates we’d spend next fiscal year without new policies — is $5.7 trillion.

PAUL KRUGMAN: 

In fact, one of the most striking things about Biden’s budget initiative — arguably about his whole administration — is its relative modesty in terms of both money spent and claims about what that spending would accomplish. He is neither proposing nor promising a revolution, just policies that would make Americans’ lives significantly better.

And I, for one, find this hugely refreshing after Former Guy’s achievement-free bombast.

Now, the Biden plan is by no means trivial. The budget proposes spending 24.5 percent of G.D.P. over the next decade, up from a baseline of 22.7 percent. That increase, mainly driven by increased expenditures for infrastructure and families, is bigger than it looks because so much of the baseline is devoted to the military, Medicare and Social Security. But it’s not socialism, either. It would still leave the United States with a smaller government than most other wealthy countries’.

Still, the extra spending would make a huge difference to some economic sectors, notably renewable energy, and vastly improve some American lives, especially those of lower-income families with children.

Notably, however, the administration is not claiming that these policies would dramatically accelerate economic growth. Former Guy’s economists predicted that their policies would produce sustained G.D.P. growth of 3 percent a year, which would have been extraordinary in an economy whose working-age population is barely growing. Biden’s economists are projecting growth of less than 2 percent after the economy has bounced back from the pandemic.

Why this modesty? Part of it may be political strategy: Biden likes to underpromise and overdeliver, the way he did with vaccinations. The administration’s economists are actually quite optimistic, for example, about the possibility that child care and other family policies would expand labor force participation and that investing in children would yield big economic returns in the long run.

But they also know history. Governments can do a lot to fight short-term recessions (or make them worse), but the fact is that it’s very hard for policy to make a big difference to the economy’s long-term growth rate.

This is something the right has never understood. (It’s difficult to get people to understand something when their salaries depend on their not understanding it.)

Conservatives are constantly pushing the claim that tax cuts, in particular, will supercharge growth; they love to cite the supposed economic triumph of Ronald Reagan. But Reagan presided over only a couple of years of very rapid growth, as the economy recovered from a severe recession. Over the course of the 1980s, the economy grew only 0.015 percentage points faster — basically a rounding error — than it did in the troubled 1970s.

And looking more broadly across history at both the national and the state levels shows predictions that tax cuts will produce economic miracles have never panned out — not once. Neither, by the way, have predictions that tax hikes, like the increased levies on corporations and the wealthy that Biden is proposing, will leadto disaster.

So it makes sense for the Biden administration to avoid making big claims about economic growth. But does this mean that its plans are no big deal? Not at all.

You see, while government policies rarely have major effects on the economy’s overall growth rate, they can have huge effects on the quality of people’s lives. Governments can, for example, ensure that their citizens have access to affordable health care; they can drastically reduce the number of children whose lives are scarred by poverty. The Biden plan would take big steps on these and other fronts.

And this is the sense in which the Biden plan, despite its relatively moderate price tag, represents a radical departure from past economic policy.

For the past four decades, U.S. economic debate has been dominated by an ideology fundamentally opposed to spending money to help ordinary citizens: We can’t borrow more, lest we provoke a debt crisis. We can’t raise taxes on those able to pay, lest we destroy their incentive to create wealth.

The Biden budget, however, reveals an administration free from these fears. The budget doesn’t propose huge deficit spending, but it does point out that the burden of federal debt, properly measured, is minimal. And administration officials have made it clear that they don’t buy into low-tax propaganda.

You could say that the most important thing about this budget isn’t so much the dollars it would deliver as the dogma it dismisses. And if Biden’s presidency is seen as a success, this ideological liberation will have huge consequences.

Read more from Paul Krugman

 

  

What Is in the Bill ?

 David Dayen, the American Prospect 

Tomorrow, the $1.9 trillion American Rescue Plan will be signed, maybe the largest pure economic uplift bill in U.S. history. Considering that Congress had to add $60 billion in tax measures to adhere to that pre-set price tag, it’s closer to $2 trillion in outlays.   One of the big complaints with the bill from the likes of Larry Summers was particularly incoherent. He didn’t mind a lot of spending, it’s just that it should be channeled to public investment, not just giving away a bunch of money. This is critically wrong on a number of levels, but the biggest is that the ARP does in fact bring lasting public investment in certain areas, and considering that it’s so big, that makes it a huge one-year investment bill as well. Much of these investments prevent deterioration, but a smaller hole to drag out of in the future certainly helps matters. And some will create pockets of durability, things that will be remembered as part of the ARP. That’s especially true if key investments are eventually made permanent.

The section-by-section summary of the bill has already yielded a number of surprises popping up in political media. But these haven’t gone far enough. Let’s start with the health infrastructure investments. There’s a section on providing medical supplies and personnel for rural healthcare providers, something that will be difficult to dislodge post-pandemic. There’s $7.6 billion for state and local health department workers and another $7.6 billion for community health centers, which provide basic care to poor communities. For context, Bernie Sanders got $11 billion for community health centers in the Affordable Care Act over five years, and it made a significant difference.  Then there’s the school funding, $128 billion dedicated to K-12. The formula under which it will be given will deliver more to the poorest schools, up to $8,000 per student in low-income districts like Cleveland. Outside of a 20 percent set-aside to address lost learning in the pandemic year, that funding has a pretty wide discretion, meaning it can be used to make long-term investments in schools like improving ventilation, which can serve as both pandemic preparedness and better learning environments. These have proven to make a difference in the classroom. The $39 billion in child care grants can rebuild care infrastructure, which our special report last year showed is desperately needed. Thought about as a one-year investment it’s absolutely enormous. There’s also a $7 billion Emergency Connectivity Fund for remote learning, which comes too late but can help provide lasting broadband infrastructure. The $200 million for libraries is also a broadband infrastructure investment for those who have no other options for connectivity. There’s also $30.5 billion for public transit, which will go toward arresting the sector-wide crisis from low pandemic ridership, which easily could have spiraled into permanent cutbacks. This will sustain transit budgets until 2023 in some areas.

I’m not a huge fan of the $2 billion snuck in for IT and cybersecurity, but it will modernize federal agency systems. There’s $100 million for better air quality monitoring, which will last. This is all on top of the $350 billion investment in state and local governments, which thanks to a last-minute change, can go toward service improvement in things like water, sewage, and broadband. While being from Los Angeles and seeing up-close our pandemic-driven crisis in public budgeting makes me happiest that this money will avert those tough choices (see Janet Yellen on how we learned from the financial crisis not to offset federal stimulus with state and local austerity), there’s no doubt some of this money will pour into lasting investments and upgrades in key systems. Similarly, the $31 billion for tribal governments, the largest investment in those communities in some time, will likely include lasting infrastructure; some of it is earmarked for housing. Finally, there’s a term I cannot stand—investment in human capital. But when you have legislation that for one year would reduce poverty from 13.7 percent to 8.7 percent and cut child poverty by more than half, you are freeing people from many day-to-day stresses and putting them in position to succeed. When you have airline workers being told to tear up their furlough notices, and an economic recovery time that’s twice as fast as previously projected, and economic growth at the fastest level since the Korean War, that likely means better bargaining power for labor and more opportunity for rising wages. These investments allow people to contribute and succeed.

It’s no wonder Republicans, who voted against the ARP en masse, are already trying to take credit for it. Not all of these above-mentioned items will leave permanent investments in place. In fact, they’ll need to be fought for to ensure this isn’t just a blip. This is the beginning of a second War on Poverty, not the end. What Democrats do next, and whether this bill sets up for a midterm victory, will tell that story. But there could be as much as $100 billion in investments here, if not $200 billion. As a one-year boost, at the most optimistic level that’s equivalent to a decade-long, two trillion-dollar infrastructure package proposed by a guy named… Larry Summers.

 

 

Moneyed Class Finds New Way to Steal Pension Money from Workers

The excellent blog Capital & Main has an important piece up about the proposal to create a new retirement system in the state for workers who do not have a pension system.

 http://capitalandmain.com/latest-news/issues/labor-and-economy/retirement-board-facing-critical-pension-decision-0325/

As the writer Judith Lewis Mernit well describes, California ( and the nation)

is facing a growing retirement crisis and more and more jobs no longer have pensions.  This is an emerging crisis.

For comparison, here is the Sacramento Bee version of the same story. http://www.sacbee.com/news/politics-government/article68342897.html

The Capital and Main piece is a good piece on important issues. But, do we really only want to consider the neoliberal finance approach?  For example, the proposal calls for employers to insist on participation, but apparently does not require employers to contribute- as does social security.

Then, the advocates claim it is progressive because of the pooled IRA project.  But, IRA's are still invested in the markets. This is like the Peterson Institute arguing for the privatization of social security.