WEBVTT - Jared Bernstein on Taxes, Spending, and Why President Biden Wants to 'Pay for It' 0:00:10.760 --> 0:00:14.920 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:15.000 --> 0:00:19.000 I'm Joe Wisenthal and I'm Tracy Allaway. Tracy, I'm very 0:00:19.079 --> 0:00:23.000 excited about today's episode. Obviously, you know, we we talk 0:00:23.040 --> 0:00:27.160 a lot about economic theory on the show. We talk 0:00:27.200 --> 0:00:31.120 a lot about how like changes have in economic thinking 0:00:31.240 --> 0:00:34.680 have changed from you know, now and pre crisis and 0:00:34.760 --> 0:00:37.839 so forth. We talked about the sort of condition of 0:00:37.880 --> 0:00:40.640 the macro economy quite a bit, but you know, not 0:00:40.800 --> 0:00:47.080 as much on the actual I guess, specific policymaking side. Yeah, well, 0:00:47.159 --> 0:00:50.239 today is a chance for us to put theory into practice, 0:00:50.479 --> 0:00:53.720 I guess. And we've been talking basically a year now 0:00:53.920 --> 0:00:57.400 about this idea of the handoff to fiscal policy, this 0:00:57.480 --> 0:01:01.440 movement from monetary policy to fiscal eimulus being more important 0:01:01.520 --> 0:01:05.480 for economies post COVID, and now's our chance to actually 0:01:05.560 --> 0:01:10.520 dig into how fiscal policy is enacted and how people 0:01:10.640 --> 0:01:14.679 in power are thinking about it. Yeah, exactly right. So 0:01:14.800 --> 0:01:17.320 like that is of course a huge theme, a huge 0:01:17.319 --> 0:01:20.479 discussion the sort of the post I guess. I would say, 0:01:20.520 --> 0:01:22.720 you know that the lesson of the last years that 0:01:22.800 --> 0:01:28.880 fiscal firepower has been incredibly effective at reviving the economy, 0:01:28.920 --> 0:01:32.399 and there is certainly an increased openness, it feels like, 0:01:32.480 --> 0:01:37.280 politically and also intellectually to really take a more expansive 0:01:37.319 --> 0:01:42.240 view of what government spending and taxation power is capable 0:01:42.360 --> 0:01:44.880 of in terms of building into economy and sort of 0:01:45.160 --> 0:01:47.640 not leaving all of so many of so much of 0:01:47.640 --> 0:01:51.520 the decision making to um the Central Bank. Yeah, I 0:01:51.520 --> 0:01:55.360 think that's exactly right. And we are seeing even you know, 0:01:55.440 --> 0:01:58.040 if you think back a couple of years, even the 0:01:58.120 --> 0:02:01.720 idea of massive fiscal spend ending things like direct payments 0:02:01.760 --> 0:02:06.480 to Americans were kind of on the fringe. But now 0:02:06.680 --> 0:02:08.720 not only have we seen that happen, but people are 0:02:08.760 --> 0:02:12.680 talking about other things for future crises, such as automatic 0:02:12.720 --> 0:02:17.800 stabilizers things like that. Yeah, exactly right. It feels like 0:02:17.840 --> 0:02:21.320 it's a time of of openness to new ideas, which 0:02:21.320 --> 0:02:24.280 often is the case after a big crisis. Anyway, I 0:02:24.280 --> 0:02:27.240 want to jump right into our discussion today because we 0:02:27.280 --> 0:02:30.400 have the perfect guest with the perfect perspective to talk 0:02:30.440 --> 0:02:33.120 about all this. We're gonna be speaking with Jared Bernstein. 0:02:33.160 --> 0:02:35.920 He is a member of the White Houses Council of 0:02:36.080 --> 0:02:41.720 Economic Advisors right now, advising the President on economic policy, 0:02:41.840 --> 0:02:45.440 and he was the Previously, he was the chief economist 0:02:45.480 --> 0:02:49.320 and economic advisor to then Vice President Joe Biden coming 0:02:49.320 --> 0:02:51.880 out of the Great Financial Crisis. So he's truly an 0:02:51.880 --> 0:02:57.160 extraordinary purch extraordinary position, great perspective to talk about today, 0:02:57.240 --> 0:03:00.040 in the past and everything that's going on. Uh A, 0:03:00.480 --> 0:03:03.600 thank you so much for joining odd lots. Well, thanks 0:03:03.639 --> 0:03:06.160 so much for inviting me. I think the right way 0:03:06.200 --> 0:03:09.200 to start is to say long time listener, first time caller, 0:03:09.680 --> 0:03:13.200 as they say, that's great. I love hearing that. I've 0:03:13.240 --> 0:03:16.880 taken many a job accompanied by the two of you, 0:03:17.440 --> 0:03:21.800 which has helped, you know, burn calories and learn something 0:03:21.800 --> 0:03:27.240 while I'm running. So well, we're all about physical fitness. Yeah, 0:03:27.280 --> 0:03:31.120 you're the second person recently to actually cite our podcast 0:03:31.240 --> 0:03:34.200 in contributing to burn calories, which is, you know, it's 0:03:34.240 --> 0:03:37.080 nice to be listened to by influential people and stuff, 0:03:37.080 --> 0:03:38.840 but we really want to help people lose weights, so 0:03:39.400 --> 0:03:42.080 that that really means a lot. But you know, I 0:03:42.120 --> 0:03:45.560 want to start actually with something UM kind of specific. 0:03:45.640 --> 0:03:48.400 So we're in this I think pretty extraordinary moment. Economic 0:03:48.440 --> 0:03:51.320 growth is much faster than I think a lot of 0:03:51.360 --> 0:03:55.360 people UM would have guests. The willingness of the government 0:03:55.400 --> 0:03:58.080 over the last year, both onto the last administration in 0:03:58.200 --> 0:04:02.000 this one, to you engage age and aggressive fiscal expansion 0:04:02.200 --> 0:04:05.600 is truly historical. But there is this other bill or 0:04:05.800 --> 0:04:08.040 possibly set of bills that the White House is aiming 0:04:08.080 --> 0:04:10.040 to pass later this year, and I want to get 0:04:10.040 --> 0:04:14.000 into those. But right now everyone's talking about inflation, lumber prices, 0:04:14.120 --> 0:04:17.200 gas prices, and so forth. We know that the Fed 0:04:17.440 --> 0:04:21.200 is planning on basically really looking through that understanding its transitory, 0:04:21.240 --> 0:04:24.560 but from a political perspective and thinking about the task 0:04:24.960 --> 0:04:28.279 ahead of you this summer and sort of building support 0:04:28.400 --> 0:04:34.160 for more aggressive fiscal firepower infrastructure. Is that a political challenge? 0:04:34.320 --> 0:04:37.160 You know? This, this sort of thinking about, Okay, we 0:04:37.200 --> 0:04:40.280 need to convince members of Congress and the Senate to 0:04:40.320 --> 0:04:42.520 spend a lot more money. At the same time, the 0:04:42.600 --> 0:04:47.400 news is filled with stories about rising prices. Well, I 0:04:47.400 --> 0:04:52.320 think anything you undertake in Washington, given the legislative environment, 0:04:52.360 --> 0:04:55.800 as a political challenge. But you're very much correct to 0:04:56.440 --> 0:04:58.919 think about this, at least from my perspective and that 0:04:59.040 --> 0:05:03.000 of our economic t from the perspective of political economy 0:05:03.080 --> 0:05:07.240 or the intersection of politics and uh, the kind of 0:05:07.279 --> 0:05:12.560 economics concerns embedded in your question from the inflation perspective, 0:05:12.640 --> 0:05:16.680 it's really really important to separate the American Rescue Plan 0:05:17.400 --> 0:05:20.719 from the Families and Jobs Plan because the former the 0:05:20.839 --> 0:05:24.480 former is very much in the spirit really of relief 0:05:24.640 --> 0:05:27.359 more than stimulus, and that that that's a subtle difference, 0:05:27.360 --> 0:05:29.599 but one that I think it probably isn't lost on 0:05:29.640 --> 0:05:34.640 this audience, where stimulus is often about trying to quickly 0:05:34.680 --> 0:05:37.799 address a demand shock and get people back into the economy, 0:05:37.800 --> 0:05:41.120 where relief is more about helping people and businesses get 0:05:41.160 --> 0:05:44.000 to the other side. But putting that distinction aside for 0:05:44.040 --> 0:05:47.840 a second, there's a big difference between direct impact payments 0:05:47.920 --> 0:05:51.520 or the checks you were just referencing, and enhanced Unemployment 0:05:51.560 --> 0:05:56.039 benefit PPP loans things like that, and a set of 0:05:56.080 --> 0:06:00.000 investments that spend out over eight to ten years from 0:06:00.040 --> 0:06:02.839 both from the perspective of kind of the of the 0:06:02.839 --> 0:06:06.040 political economy or the kind of the politics of those 0:06:06.080 --> 0:06:10.280 different initiatives, and uh to your question from the perspective 0:06:10.279 --> 0:06:14.040 of inflation, I think it's actually quite a non sequitur 0:06:14.400 --> 0:06:18.000 to talk about the Jobs and the Family Plan and 0:06:18.440 --> 0:06:21.600 the kind of you know, monthly inflation reads that we're 0:06:21.880 --> 0:06:24.280 digging into right now, that are very much driven by 0:06:24.360 --> 0:06:29.280 base effects, by what we we believe to be transitory 0:06:29.360 --> 0:06:33.120 supply demand misalignments by some of the pent up demand, 0:06:33.160 --> 0:06:37.840 and the elevated savings rates and investments in long term 0:06:37.839 --> 0:06:44.479 clean energy initiatives, advanced manufacturing, standing up a care sector 0:06:44.920 --> 0:06:46.919 measures which I'm sure we can get into from the 0:06:46.960 --> 0:06:50.479 Families and Jobs Plan, pretty different creatures from the perspective 0:06:50.520 --> 0:06:54.760 of price pressures. Well, just on that subject, is there 0:06:54.800 --> 0:06:59.839 anything the administration could do to expand capacity for things 0:06:59.839 --> 0:07:02.719 that are in short supply? So I'm thinking, you know, 0:07:02.839 --> 0:07:07.520 lumber is obviously important for housing. Horn prices have also surged, 0:07:08.040 --> 0:07:12.200 important source of food, animal feed, semiconductors have already been 0:07:12.240 --> 0:07:17.520 discussed by the administration as being strategically important. But is 0:07:17.560 --> 0:07:20.760 there more that you could do? Would you be inclined 0:07:20.800 --> 0:07:25.640 to do more? So let me begin my answer there 0:07:26.280 --> 0:07:30.600 with with a very firm statement which may sound a 0:07:30.600 --> 0:07:33.360 little tangential to your question, Tracy, but I don't think 0:07:33.520 --> 0:07:37.000 is um, which is that when it comes to managing inflation, 0:07:37.520 --> 0:07:42.200 that is first and last, beginning and end. Uh. How 0:07:42.320 --> 0:07:45.000 I want to just really emphasize this, the remit of 0:07:45.040 --> 0:07:48.920 the Federal Reserve, not the White House. Clearly we are 0:07:49.880 --> 0:07:54.720 tracking carefully monitoring inflationary developments, and by the way, not 0:07:54.840 --> 0:07:57.480 just in the data, which we're doing with the regular data, 0:07:57.520 --> 0:08:00.640 the high frequency data, but also anecdote. I mean, this 0:08:00.720 --> 0:08:04.000 is something we're tracking extremely carefully. But when it comes 0:08:04.040 --> 0:08:08.400 to managing price pressures, that's the job of the Federal Reserve. Yeah, 0:08:08.480 --> 0:08:11.120 so that that that's that kind of independence of the 0:08:11.120 --> 0:08:14.240 Fed is a huge value of of course our administration. 0:08:14.840 --> 0:08:18.680 That said, um, you raise a perfectly legitimate question that 0:08:18.840 --> 0:08:23.240 is addressed by some of the measures in the Job's Plan. 0:08:23.320 --> 0:08:27.200 In particular, you mentioned semiconductors. So there's a fifty billion 0:08:27.240 --> 0:08:31.760 dollar investment in the in the Job's Plan to help 0:08:31.960 --> 0:08:39.840 promote and onshore some critical supply chain aspects, including semiconductors. 0:08:39.840 --> 0:08:42.840 But this is not something that happens, you know right away. 0:08:42.920 --> 0:08:46.160 I mean as as I was mentioning to Joe. You know, obviously, 0:08:46.440 --> 0:08:48.560 on like the Rescue Plan, the Jobs Plan still has 0:08:48.600 --> 0:08:50.920 to be legislated, but it takes a couple of years 0:08:51.000 --> 0:08:53.840 to stand up a semiconductor plant. When it comes to 0:08:54.120 --> 0:09:00.080 addressing what we're looking at as transitory misalignments between and 0:09:00.120 --> 0:09:02.679 supplying them in and some of the sectors you mentioned, 0:09:03.080 --> 0:09:04.920 I think right there, we have to think about the 0:09:04.960 --> 0:09:10.479 sort of elasticities or response functions that occur in markets 0:09:10.480 --> 0:09:15.720 where demand for lumber sends a signal to saw mills 0:09:15.760 --> 0:09:20.240 to activate the lines that have been dormant. And now 0:09:20.320 --> 0:09:24.280 there there are misalignments that evolved throughout the course of 0:09:24.320 --> 0:09:28.720 the pandemic where I think some key actors took down 0:09:28.800 --> 0:09:32.160 production not foreseeing that it would come back as quickly 0:09:32.160 --> 0:09:35.120 as it did, and those sorts of things that that's not, 0:09:35.440 --> 0:09:39.800 you know, necessarily a position for an administration to intervene in. 0:09:40.640 --> 0:09:45.160 But we'll see how that evolves as as time unfold. Well, 0:09:45.280 --> 0:09:47.319 on that note, and this is a theme that we 0:09:47.400 --> 0:09:49.280 talked about a lot, which is the you know, we 0:09:49.960 --> 0:09:53.200 supply and demand sometimes get discussed as if they're like 0:09:53.240 --> 0:09:56.600 these sort of very distinct separate things and two lines 0:09:56.640 --> 0:09:59.040 intersect on a chart and there is the price. But 0:09:59.120 --> 0:10:02.560 of course, as you basically just alluded to, you know, 0:10:02.600 --> 0:10:05.120 we lost we've lost a lot of supply in part 0:10:05.200 --> 0:10:07.640 because of weak demand, and so we lost saw mill 0:10:07.760 --> 0:10:11.079 demand over the last decade after the Great Financial Crisis, 0:10:11.080 --> 0:10:15.400 with the mediocre housing recovery and tech capex hasn't been 0:10:15.440 --> 0:10:19.360 impressive in your thinking about investment, and you know, again 0:10:19.400 --> 0:10:23.920 the longer term investment. Do you think about basically this 0:10:24.000 --> 0:10:28.640 idea of maintaining demand, whether it's direct purchases of equipment 0:10:28.880 --> 0:10:33.360 or incentives to keep you know, growth high, such that 0:10:33.520 --> 0:10:39.000 private sector actors will be incentivized to continue to build 0:10:39.000 --> 0:10:41.640 out capacity and not just look at the current moment 0:10:41.760 --> 0:10:46.439 as a sort of short short blip. Yeah, generally I 0:10:46.480 --> 0:10:50.679 would say more yes than no, although nobody I wouldn't. 0:10:50.679 --> 0:10:53.679 I wouldn't use the phrase short blip because you just 0:10:53.720 --> 0:10:57.160 don't know right fair enough, We and others have packed 0:10:57.160 --> 0:11:00.600 a lot into this word transitory, but I think what 0:11:00.640 --> 0:11:05.400 it really means is that we expect these misalignments to correct, 0:11:06.320 --> 0:11:08.680 although I don't know that any of us really have 0:11:08.760 --> 0:11:11.320 a great feel for the timing of that because we 0:11:11.360 --> 0:11:14.000 haven't been through this before. I mean, like you said 0:11:14.080 --> 0:11:17.240 Joe earlier, this is a remarkable period. We've we essentially 0:11:17.240 --> 0:11:19.720 shut the economy off and we're turning it back on. 0:11:20.240 --> 0:11:22.600 That's a you know, not something that we have a 0:11:22.600 --> 0:11:26.680 lot of time series evidence on. I think that theoretically, 0:11:27.840 --> 0:11:30.959 the theory of the case is kind of this law 0:11:31.120 --> 0:11:34.840 and this is this is very traditional kind of Keynesian economics. 0:11:34.920 --> 0:11:39.600 Is this is this recognition that the world works much 0:11:39.640 --> 0:11:43.439 more in Keynesian term than in Says Law term, meaning 0:11:43.520 --> 0:11:47.000 that it's it's it's not correct to believe that supply 0:11:47.160 --> 0:11:51.160 creates demand. It's more correct to believe that demand pulls 0:11:51.160 --> 0:11:54.600 in supply. That theory of the case is very much 0:11:54.840 --> 0:11:57.200 you know, embedded in my and I would argue our 0:11:57.280 --> 0:12:01.760 thinking in the administration. However, that said, if you look 0:12:01.760 --> 0:12:05.080 at our plans, particularly the job's plan, but also the 0:12:05.120 --> 0:12:09.160 families Plan, the longer term investment plans, what you see 0:12:09.240 --> 0:12:12.719 there is not a you know, kind of acceptance that 0:12:13.240 --> 0:12:15.559 it's it's you know, completely up to the market to 0:12:15.679 --> 0:12:19.560 align supply and demand and deliver whatever outcomes the market 0:12:19.559 --> 0:12:22.199 delivers full stop. And we'll just stand on the sideline 0:12:22.200 --> 0:12:26.760 and observed. There's much more intention there about, for example, 0:12:27.160 --> 0:12:30.920 not just job creation, but the quality of the jobs 0:12:30.920 --> 0:12:34.960 that are created, um ensuring that those jobs are union 0:12:35.040 --> 0:12:37.960 jobs that pay a good middle class wage. That's one 0:12:38.000 --> 0:12:42.280 of President Biden's most important marching orders to us. It's 0:12:42.320 --> 0:12:47.360 recognizing that there are serious missing markets in this economy. 0:12:47.720 --> 0:12:51.240 The care area is one where that's really pronounced where 0:12:51.559 --> 0:12:55.480 unlike most other advanced countries, we simply don't have an affordable, 0:12:55.480 --> 0:12:59.680 accessible care sector for people who are providing elder care 0:12:59.760 --> 0:13:03.760 or wildcare, which those people are disproportionately women and moms, 0:13:04.320 --> 0:13:07.320 to be able to find a clear path into the 0:13:07.360 --> 0:13:09.480 job market if that's what they want to do, So 0:13:09.559 --> 0:13:12.280 we have to help stand up that sector. The economy 0:13:12.320 --> 0:13:16.280 will under invest in research and innovation, particularly when the 0:13:16.320 --> 0:13:19.720 returns from those investments are longer term. The economy will 0:13:19.800 --> 0:13:24.840 under invest in clean energy at tremendous existential cost to 0:13:25.040 --> 0:13:28.240 our survival, and so there are areas where we have 0:13:28.400 --> 0:13:31.680 to make sure that our investment meets those missing markets 0:13:32.120 --> 0:13:35.480 and helps to create demand that will lead to better 0:13:35.559 --> 0:13:41.120 quality jobs and investments in under invested sectors. Mhm. So 0:13:41.440 --> 0:13:43.559 we have so much to get through, and I want 0:13:43.559 --> 0:13:46.240 to make sure we have time for everything. So if 0:13:46.320 --> 0:13:49.400 I could shift gears slightly to one of the big 0:13:49.520 --> 0:13:54.440 questions hanging over you know, Biden spending plans, which is 0:13:54.720 --> 0:13:57.960 how are they actually going to be paid for? So 0:13:58.679 --> 0:14:01.679 I would love to know you're thinking about the deficit 0:14:02.080 --> 0:14:06.600 I suppose, And also the proposed package includes I think 0:14:06.600 --> 0:14:10.400 tax hikes well enormous tax hikes for the rich, you know, 0:14:10.480 --> 0:14:15.280 something equivalent to one percent of GDP per year. Why 0:14:15.520 --> 0:14:20.040 tax hikes to fund this particular package? And the reason 0:14:20.080 --> 0:14:21.960 I asked that is because, you know, Joe and I 0:14:22.040 --> 0:14:26.480 talked a little bit about economic opinion maybe changing in 0:14:26.640 --> 0:14:31.000 political circles, this idea of stuff like modern monetary theory 0:14:31.160 --> 0:14:35.560 making inroads in the administration. So are the tax hikes 0:14:35.600 --> 0:14:39.960 because you're actually worried about funding the spending plan and 0:14:40.080 --> 0:14:45.040 deficits or is it more about seizing a political opportunity 0:14:45.120 --> 0:14:48.520 that's arisen from this extraordinary time? Is Joe mentioned to 0:14:48.720 --> 0:14:55.880 actually tackle inequality? Okay, another great set of questions to unpack. Sorry, 0:14:56.680 --> 0:14:59.080 I know that it's the only take about three and 0:14:59.120 --> 0:15:04.040 a half hours, but do my. I'll try to be succinct. 0:15:04.160 --> 0:15:06.840 First of all, though, I want to challenge and adjective views, 0:15:06.920 --> 0:15:11.280 which is enormous. Um. Yeah, sorry, I knew you too. 0:15:11.560 --> 0:15:15.040 And well it's it's not just saying that. I happen 0:15:15.080 --> 0:15:18.440 to be looking right now at a new paper that 0:15:18.560 --> 0:15:21.760 just came out by the economist Mark Zany, And in 0:15:21.920 --> 0:15:25.440 chart three of that paper, we shows the building back better, 0:15:25.520 --> 0:15:29.800 that is, American families and jobs planned tax hikes in context, 0:15:29.880 --> 0:15:31.880 and he has a bar chart of all the tax 0:15:31.960 --> 0:15:35.640 hikes that have occurred, you know, since the nineteen thirties. 0:15:35.680 --> 0:15:37.840 Really it's it's really a lot of work went into 0:15:37.880 --> 0:15:40.440 this chart, and the one at the very bottom is 0:15:40.800 --> 0:15:43.040 the one we've proposed. So I think you have to 0:15:43.040 --> 0:15:47.960 recognize two things send my adjective, okay, And I think 0:15:48.000 --> 0:15:51.160 the reason you get that result is twofold. One is 0:15:51.200 --> 0:15:54.160 that many cases were resetting rates to where they've been 0:15:54.200 --> 0:15:56.800 before or not. Even in the case of the corporate rate. 0:15:57.040 --> 0:15:59.880 Of course, the Trump tax that took the corporate rate 0:16:00.000 --> 0:16:02.600 of thirty five to twenty one, we take it to eight. 0:16:02.680 --> 0:16:05.200 That's our proposal, So that's kind of right in the middle. 0:16:05.400 --> 0:16:08.760 But also, and this is most important for listeners to 0:16:08.960 --> 0:16:13.360 recognize that these tax increases do not hit anybody under 0:16:13.400 --> 0:16:17.280 four hundred thousand family income. And if we're talking about 0:16:17.280 --> 0:16:20.840 the capital gains tax increase, it's only above one million, 0:16:20.880 --> 0:16:24.920 so it only affects the top point three percent. Okay, 0:16:24.920 --> 0:16:26.320 So now that we got that out of the way, 0:16:26.760 --> 0:16:30.000 let's get to the kind of meaty part of your 0:16:30.040 --> 0:16:34.000 question around how we're thinking about deficits and debt. It 0:16:34.160 --> 0:16:39.400 is the president's view that longer term or more permanent 0:16:39.760 --> 0:16:43.440 proposals should be paid for. I think that makes sense, 0:16:43.560 --> 0:16:46.640 and I think one way to recognize the sense that 0:16:46.640 --> 0:16:51.000 that makes is to look at the disinvestment in the 0:16:51.040 --> 0:16:54.400 things that the Jobs Plan in particular, as well as 0:16:54.440 --> 0:16:59.760 the Famili's Plan, invests in research and development, innovation, the 0:17:00.080 --> 0:17:06.480 kinds of long term return investments that private firms often 0:17:06.560 --> 0:17:09.960 won't make because it simply doesn't fit the kind of 0:17:10.000 --> 0:17:13.440 schedule that they have to report on to their investors. 0:17:14.080 --> 0:17:18.840 If you look at infrastructure, everything from public education to 0:17:20.119 --> 0:17:23.320 replacing pipes that have led in them. You know, there's 0:17:23.400 --> 0:17:26.360 hundreds of thousands of kids who are are still exposed 0:17:26.720 --> 0:17:30.280 in today's America to let in the water. That's completely 0:17:30.359 --> 0:17:35.119 unacceptable to this administration. Again, I talked earlier about a 0:17:35.240 --> 0:17:38.280 car agenda, but even even traditional stuff, you know, roads 0:17:38.280 --> 0:17:43.400 and bridges, those investments have really suffered over the long term. 0:17:43.400 --> 0:17:46.040 And if you look at the share of GDP invested, 0:17:46.080 --> 0:17:48.320 for example, in R and D and innovation, it's gone 0:17:48.359 --> 0:17:51.040 from about two percent in the sixties too about half 0:17:51.040 --> 0:17:55.320 a percent now, a big and portentious drop. Reversing those 0:17:55.359 --> 0:17:59.720 investments is the point of the building back Better agenda, 0:18:00.200 --> 0:18:03.359 and one of the reasons why those investments have failed 0:18:03.440 --> 0:18:08.359 is because they don't have any reliable funding sources. So 0:18:08.440 --> 0:18:12.119 while I completely understand and have in fact contributed to 0:18:12.160 --> 0:18:16.160 the literature that understands deficits and debt in a new 0:18:16.240 --> 0:18:18.720 and different, and you can call it a more progressive way, 0:18:18.720 --> 0:18:23.480 I'd probably call it a more economically and empirically sound way. 0:18:23.520 --> 0:18:26.800 I'm very much moved by that work. I also think 0:18:26.840 --> 0:18:30.399 you have to recognize that the effects of not having 0:18:30.920 --> 0:18:34.760 um funding sources for permanent programs show up all the 0:18:34.840 --> 0:18:41.760 time in their disinvestment, and they're insufficient upkeep. By contrast, 0:18:41.840 --> 0:18:45.040 look at Medicare and Social Security, which have held up, 0:18:45.080 --> 0:18:47.639 you know, relatively well in that space because they have 0:18:47.800 --> 0:18:51.600 dedicated funding sources. We need to keep unpacking this because 0:18:51.720 --> 0:18:53.600 I kind of get that and I kind of don't 0:18:53.760 --> 0:18:57.800 with the so called entitlements or Medicare social Security. Yes, 0:18:57.880 --> 0:19:01.480 they have dedicated funding sources, but they also just have 0:19:01.680 --> 0:19:07.720 laws that say these programs will exist and they're not sunseted. 0:19:08.080 --> 0:19:12.120 They're not temporary. They weren't five year health programs. They 0:19:12.119 --> 0:19:16.440 were at ten year, which they were permanent legal fixtures 0:19:16.520 --> 0:19:20.240 and yes, they did come with dedicated funding sources, payroll 0:19:20.320 --> 0:19:23.399 taxes and so forth. But what makes the programs exist 0:19:23.480 --> 0:19:25.679 forever is the fact that they the laws say they 0:19:25.680 --> 0:19:28.040 have to exist forever. With some of these things that 0:19:28.080 --> 0:19:31.120 you describe, and we agree, you know, or most many 0:19:31.119 --> 0:19:34.719 people would agree, they have been underinvested. How much is 0:19:34.760 --> 0:19:38.320 this a just a just the need to pass a 0:19:38.400 --> 0:19:41.200 law that says this will always be here. So we're 0:19:41.200 --> 0:19:43.560 talking about child care, some sort of family leave thing 0:19:44.080 --> 0:19:47.399 to make it permanent. Seems like it should just be 0:19:47.440 --> 0:19:49.520 a law saying this is a permanent benefit, or it 0:19:49.520 --> 0:19:52.000 seems like it could be solved that way. And so 0:19:52.040 --> 0:19:56.119 when you draw the connection to metacare and Social Security, 0:19:56.359 --> 0:19:59.040 is it that those taxes are needed for the programs 0:19:59.040 --> 0:20:01.760 to exist or are they needed to get the votes 0:20:02.240 --> 0:20:06.480 such that politicians are willing to make them permanent. No, 0:20:06.600 --> 0:20:09.080 I mean, I really think on this one. The way 0:20:09.119 --> 0:20:12.520 I kind of laid it out is, you know, this 0:20:12.640 --> 0:20:14.840 sounds more snarky than I mean, is more correct than 0:20:14.880 --> 0:20:16.560 the way you just laid it out. But let me 0:20:16.600 --> 0:20:19.919 just explain. It's fun I you know you could do that. 0:20:20.000 --> 0:20:22.040 You know, the gut we actually have something called the 0:20:22.080 --> 0:20:27.480 Highway Trust Fund. This is a federal accounting device wherein 0:20:27.800 --> 0:20:31.320 resources are supposed to flow to fund our highway system, 0:20:31.400 --> 0:20:34.639 and its main source of income is a nominal tax 0:20:34.720 --> 0:20:38.320 on gas that hasn't been changed in like thirty five 0:20:38.400 --> 0:20:41.560 years or something. And that and and and even as 0:20:41.640 --> 0:20:45.480 you know, obviously inflation has increased and the efficiency of 0:20:45.600 --> 0:20:49.199 the auto fleet has increased, the Highway Trust Fund is 0:20:49.240 --> 0:20:52.320 always a massive trouble. And it's one of the reasons 0:20:52.359 --> 0:20:56.720 why our transportation infrastructure, including mass transit, by the way, 0:20:56.960 --> 0:20:59.720 mass transit, which by the way is in the rescue 0:20:59.760 --> 0:21:02.919 plan and the Job's plan quite deeply that that trust 0:21:02.960 --> 0:21:05.280 fund has failed to support that and the and the 0:21:05.320 --> 0:21:07.919 reason is that it's a law on the books, you know. 0:21:08.080 --> 0:21:09.840 And you know, according to your theory, a law on 0:21:09.880 --> 0:21:12.280 the book should be all that it takes, but it isn't. 0:21:12.359 --> 0:21:15.200 It takes more than that. I actually think if one 0:21:15.240 --> 0:21:17.600 wanted to make a better you know, kind of an 0:21:17.680 --> 0:21:23.880 argument against having to fund these, uh these building back 0:21:23.920 --> 0:21:28.479 better plans, it would be that the return on the 0:21:28.560 --> 0:21:33.960 investments should be greater than the cost of borrowing. And um, 0:21:34.000 --> 0:21:36.920 you know that that is true, and it makes sense 0:21:36.920 --> 0:21:39.719 to me and you'll hear economists, you know, some of 0:21:39.720 --> 0:21:43.400 my economist friends make that point. They say, hey, look, 0:21:43.440 --> 0:21:45.520 you're going to get a return on these investments that 0:21:45.520 --> 0:21:47.800 are great greater than you're borrowing costs, which of course 0:21:47.800 --> 0:21:51.760 are historically low, so why pay for them? And I 0:21:51.920 --> 0:21:55.159 totally get the economics and the public finance kind of 0:21:55.200 --> 0:21:59.399 the g greater than our thinking behind that. But but 0:21:59.480 --> 0:22:02.080 what I do, what I think it misses is the 0:22:02.119 --> 0:22:06.520 political economy of the sustainability point that that Joe Biden 0:22:06.760 --> 0:22:25.600 just intuitively understand. So I actually wanted to ask a 0:22:25.680 --> 0:22:29.760 big picture question on this topic. But do you think 0:22:29.760 --> 0:22:36.240 that economists grasp the political realities of putting theory into practice? 0:22:36.560 --> 0:22:38.840 And what I mean by that is, for instance, it's 0:22:38.880 --> 0:22:42.000 one thing to say, you know, if you're an MMT 0:22:42.160 --> 0:22:45.520 person that deficits are only limited by inflation, but it 0:22:45.600 --> 0:22:49.440 doesn't necessarily help you get to a place where people 0:22:49.520 --> 0:22:53.720 are enacting more fiscal spending. If everyone can't agree on, 0:22:53.920 --> 0:22:56.399 you know, what to spend the money on. I think 0:22:56.520 --> 0:22:59.240 let me answer it this way. I won't name names, 0:22:59.320 --> 0:23:02.080 but I was trying to I was trying to draft 0:23:02.640 --> 0:23:05.359 an economist to come in and work with us who's 0:23:05.400 --> 0:23:09.920 a uh someone I'm really fond of their work, and 0:23:10.320 --> 0:23:12.639 what I he's a private sector person, And what I 0:23:12.640 --> 0:23:16.280 said to him is, if you really want to understand 0:23:16.520 --> 0:23:19.399 how the economy and the nexus of the economy and 0:23:19.440 --> 0:23:23.400 government work, and I would include theory and that nexus, Tracy, 0:23:23.760 --> 0:23:27.200 you've got to work for the government. You can't understand 0:23:27.240 --> 0:23:30.680 it if you don't. So I do think that there 0:23:30.880 --> 0:23:35.520 is a kind of empirical gap between what a lot 0:23:35.520 --> 0:23:39.600 of theoretical economists sort of right about, and even some 0:23:39.640 --> 0:23:44.200 empirical economists right about, and a kind of tangible, granular 0:23:44.400 --> 0:23:49.080 understanding of how economic policy really works. You might I 0:23:49.119 --> 0:23:52.600 think you mentioned MMT that that's a good example because 0:23:52.720 --> 0:23:55.600 in m m T there's there's a belief that if 0:23:55.640 --> 0:23:58.639 inflation were to take off, this is a kind of 0:23:58.680 --> 0:24:02.879 a timely point. I think, if inflation were to take off, 0:24:03.280 --> 0:24:06.800 don't worry and don't assign much to the FED, because 0:24:06.800 --> 0:24:09.320 that's just not part of the kind of cosmology there. 0:24:09.720 --> 0:24:12.720 You can just raise taxes to take money out of 0:24:12.800 --> 0:24:17.600 the economy. Well, you know, that's a coaching theoretical point, 0:24:18.040 --> 0:24:21.960 but when applied to the real political economy and the 0:24:22.080 --> 0:24:27.560 legislative timing involved therein and the partisans squabbling involved therein. 0:24:27.920 --> 0:24:33.320 But that's not you know, a very I think realistic solution, 0:24:33.640 --> 0:24:37.160 especially when you have a central bank whose independence allows 0:24:37.200 --> 0:24:40.720 it to get outside of that political constraints there and 0:24:40.760 --> 0:24:43.360 do what needs to be done for you know, very 0:24:43.400 --> 0:24:47.120 good sound economic reasons. So I do think that there 0:24:47.240 --> 0:24:50.600 can be a gap between theory and practice, not unlike 0:24:50.600 --> 0:24:53.480 the one I just talked about in terms of with 0:24:53.520 --> 0:24:56.160 to Joe, in terms of why I think President Biden's 0:24:56.560 --> 0:24:59.840 view on pay force for the investment programs makes sense. 0:25:00.800 --> 0:25:03.760 Every every answer you give, I have like a billion 0:25:03.800 --> 0:25:07.480 other questions I want to ask another version though, uh 0:25:07.680 --> 0:25:10.080 kind of related to the mm T question. But you know, 0:25:10.119 --> 0:25:11.919 I mentioned in the beginning, and has anyone who has 0:25:11.920 --> 0:25:14.960