Yesterday, CNN’s Chief Congressional Correspondent, Manu Raju, shared a draft letter that is being circulated by a coalition of House members, including Reps. Josh Gottheimer (D-NJ), Jared Golden (D-ME), Kurt Schrader (D-OR), Vincente González (D-TX), Ed Case (D-HI), and Filemon Vela (D-TX). The letter calls on Speaker Pelosi to bring the $550 billion bipartisan infrastructure bill to the House for a standalone vote as soon as the Senate reaches final agreement on the legislation. It’s an attempt to move Pelosi away from her pledge to take up the bipartisan bill only after Senate Democrats lock in a reconciliation bill that would clear the way for a separate, larger package (estimated at $3.5 trillion).
For what it’s worth, Pelosi has made her position pretty clear on this.
"There ain't gonna be no bipartisan bill, unless we have a reconciliation bill," she said. "As I said, there won't be an infrastructure bill, unless we have a reconciliation bill. Plain and simple. In fact, I use the word ain't. There ain't going to be an infrastructure bill, unless we have the reconciliation bill passed by the United States Senate," she reiterated.
I read the letter the way I read everything—i.e. through an MMT lens. Here’s what jumped out at at me.
First, lawmakers suggest that they’re worried about committing to another multi-trillion dollar package on top of the roughly $5 trillion that has already been spent to support the economy through the pandemic.
We also must have the financial resources to respond to any new waves of the pandemic.
Are they worried about running out of money? It sounds an awful lot like what former Treasury Secretaries Jack Lew and Larry Summers said in the run-up to passage of the Trump tax cuts back in 2017. Back then, both men warned that if the Republicans were successful in passing the Tax Cuts and Jobs Act (TCJA), then Congress would be left without the capacity to boost spending in the event of an emergency.
If we had a crisis right now whether a financial crisis or a business cycle recession, we don’t have the fiscal policy to respond or the monetary policy. It’s quite scary. … We now don’t have a fiscal arsenal because we spent it on the tax cut and on the spending agreement. We’ve kind of spent the fiscal resources.
And here’s Summers:
Our country will be living on a shoestring for decades because of the increases in the deficits that will result. This is a serious threat to our national security because of what it will mean over time for our ability to fund national defense.
Obviously, both men were wrong. The TCJA passed, adding an estimated $1.9 trillion to fiscal deficits over the next decade. Two years later, when COVID hit, Congress had no difficulty passing a slew of multi-trillion dollar spending bills. Not only did they have plenty of firepower to respond, they did it without raising taxes to “pay for” it. Oh, and last month, lawmakers voted to add $25 billion to the defense budget, boosting the annual appropriation to $778 billion.
Easy. Congress has the Power of the Purse. It can’t run out of financial resources. If the votes are there, the money will go out. A central tenet of MMT is that a currency-issuing government can afford to buy whatever is available and for sale in its own currency. Fortunately, the deficits of the past don’t tie the hands of future lawmakers. If they did, we’d still be in the midst of a recession instead of a recovery.
Second, the authors describe the bipartisan package as a chance to make a “once-in-a-century investment” in our nation’s physical infrastructure. This kind of thinking helps to explain why America’s infrastructure remains in such poor condition.
It’s why ‘infrastructure week’ has been a running joke for years, why we experience a water main break every two minutes, why forty-three percent of public roadways are in poor or mediocre condition, and why more than 46,000 of our nation’s bridges are considered “structurally deficient.” We need to stop thinking of infrastructure—physical and human—as something that should receive robust federal-funding only “once-in-a-century.” It puts too much pressure on Congress to try to cram in as much as possible all at once, and it fosters a kind of one-and-done mentality that can be used to justify future inaction.
To his credit, President Biden used bolder language in his first detailed speech on the American Jobs Plan back in March.
So, today, I’m proposing a plan for the nation that rewards work, not just rewards wealth. It builds a fair economy that gives everybody a chance to succeed, and it’s going to create the strongest, most resilient, innovative economy in the world. It’s not a plan that tinkers around the edges. It’s a once-in-a generation investment in America, unlike anything we’ve seen or done since we built the Interstate Highway System and the Space Race decades ago.
So he’s talking about a once-in-a-generation (rather than once-in-a-century) investment. For some historical context, here are just some of the large-scale investments that helped the US prosper in the 20th century. The point is, we should always be looking for ways to invest in our well-being.
Finally, the House members who are making their appeal to Pelosi say that they don’t want to be locked into a two-step process without a clearer picture of the final price tag on the reconciliation package, the scope of the proposed spending, and the source of any new revenue to offset that spending, citing concerns over inflation and the national debt. Reading this through an MMT lens, I have some sympathy for the concern with inflation risk but share no worry over the so-called national debt.
The latter is merely a historical record of all of the dollars that have ever been spent (added to balance sheets) by government but not taxed back. They exist as a form of interest-bearing currency in the form of US Treasuries. You can think of these interest-bearing dollars as part of the broader US money supply. If lawmakers are concerned about the magnitude of this particular component of our collective wealth and savings, they should explain why. I doubt they could articulate a compelling cause for concern.
On the other hand, inflation risk is at least a legitimate reason to want to know more about the size and scope of the proposed reconciliation bill. How quickly might the Senate want to roll out $3.5 trillion in new spending? What, exactly, do they want to spend on? And how will that spending be offset? These are all reasonable questions, particularly if you believe the economy is set to bump up against full employment in the near term.
For the record, I don’t share that concern. We are still digging out of a very deep hole. There is still substantial unused capacity in the system. There are headwinds looming (Delta variant, expiring UI, etc.). And much of the headline inflation we’ve been experiencing can be traced to supply-chain disruptions, industry-specific bottlenecks, and other idiosyncratic pressures related to the reopening.
Those pressures could be with us for some time to come, but experts have concluded that Congress could enact both the bipartisan infrastructure bill and the proposed $3.5 trillion reconciliation bill without exacerbating inflation. Indeed, a much-touted analysis from Moody’s Analytics casts doubt on the House members’ inflation concerns, noting “Worries that the plan will ignite undesirably high inflation and an overheating economy are overdone,” adding that passing the full Biden agenda would add just enough fiscal support “to get the economy back to full employment.” But that’s not all. Moody’s also found that spending more could actually mitigate inflationary pressures over time.
Moreover, much of the additional fiscal support being considered is designed to lift the economy’s longer-term growth potential and ease inflation pressures. For example, consider the additional spending on new rental housing supply for lower-income households, which is critical to rein in rent growth and housing costs, or the efforts to reduce prescription drug costs.
So the letter to Speaker Pelosi is mostly barking up the wrong tree. The one area where House members are flagging a potentially legitimate concern—inflation risk— is probably not a realistic cause for worry. If they believe otherwise, the burden of proof should be on them to offer some credible evidence to the contrary.