President Joe Biden is pushing for trillions of dollars in spending on infrastructure and a more robust social safety net. The conventional wisdom is that the ambition is big and the price tag is high.
Columbia professor Adam Tooze, the author of a forthcoming book about the Coronavirus crisis is unconvinced, and worries the plan is “far too small.” On the latest episode of the Odd Lots podcast, he argued that when you really look at the scale of the challenges ahead, particularly relating to huge issues like climate change, a few trillion is just not enough.
He even expressed some sympathy to criticisms put forth by the likes of former Treasury Secretary Larry Summers, that the $1.9 trillion cash stimulus makes politically harder to garner the political will to spend again on a really big scale. Focusing on what can be “paid for” by tax revenue, further curtails the ability to spend big.
Here’s his argument, which starts around the 25 minute mark of the discussion:
…I have to say that I’ve struggled with that position a bit and actually feel that a greater degree of sympathy now that we’ve seen the American Jobs Plan, than I did before, because I think their position after all has always been, you know, right. We don’t need to worry about debt quite so much, and no one has made that case more consistently than Blanchard, but Summers as well as well, working with Furman and people like that has consistently said that their main criticism of the, you know, the first Biden stimulus was simply that it was a sugar high, right?
That this was delivering stimulus in a highly inefficient way, whereas the priority needed to be investment. And furthermore, this large initial injection of, as it were, immediate stimulus would prejudice the chances of a large investment program in future. And so it was, you know, dangerous from that point of view. And furthermore, with a view to 2022, if the aim of the game is in fact to be in the best macro position possible ahead of the midterms, then coming off a sugar high from this immediate hit a stimulus may not be the best place to be. I don’t think they said that out loud, but I think one can infer that. And if you look at the jobs plan, you’ve got to say, you know, it is massively undersized. And when it comes to the jobs plan, it turns out that they are doing ‘pay fors,’ which to me is sort of really topsy-turvy because presumably it’s an investment program. So that’s precisely the kind of thing you would borrow for.
But all of a sudden we’re back in the pay for territory and why? Because of politics. Because basically they think that’s what Manchin will buy. And then you run the social justice argument that says, well, if we’re going to have pay fors, what should they be? Well, they should be corporate tax increases, which is nothing wrong with that. It’s just that there’s only so much corporate tax increase that you can get through. And that then caps the overall size of your investment program at 2 trillion odd. And 2 trillion odd over eight to ten. years is, you know, it doesn’t address any of the big ticket items. It doesn’t allow you to, you know, mount a credible challenge to China in the high speed rail stakes. And it doesn’t allow you to address climate change really consistently.
So I’m actually, you know, in a space of it, doesn’t, it doesn’t negate what happened with the 1.9 trillion. It doesn’t negate the historical significance of that move, but I’m beginning to worry that there isn’t more wisdom in, you know, Summer’s intervention on the question of the relationship between the initial stimulus and the investment part that’s followed and the way in which the political argument has shifted between those two components. And I am very much focused on, on this question of how America establishes itself as a credible contributor to let alone leader to the, to the global fight on, on climate. And this, this American Jobs Plan doesn’t do it. It’s far too small.
There’s a lot here. But one interesting idea straight away is simply that the idea of having to “pay for it” ends up causing you to spend less.
If you discard the idea that spending has to be matched with tax revenue, you can (theoretically) authorize spending to whatever the scale of the problem actually is. Once you bring into the discussion the need to raise revenue and match outlays with receipts, everything becomes more constrained.
Check out the whole discussion here.
This content was originally published here.