The Grinch, the Goose Egg, and the Gloomier Economic Outlook

By now, you’ve heard about the untimely bombshell delivered by Senator Joe Manchin (D-WV) on FOX News Sunday. Manchin’s declaration put a fork in President Biden’s Build Back Better (BBB) agenda.

While a handful of progressive lawmakers (and some republicans) anticipated this outcome months ago, most of Manchin’s democratic colleagues seemed genuinely stunned by the news. For months, the White House worked to bridge differences with the Senate’s most notable BBB-detractors—Joe Manchin and Krysten Sinema—painting an image of plodding negotiations that were progressing “in good faith.”

Although everyone understood that the Senate wasn’t going to simply rubber-stamp the Build Back Better Act as written and passed by the House of Representatives, the White House was hoping to reach a deal on something close to $1.75 trillion by the end of the year. Those hopes were dashed on Sunday morning.

“I can’t vote for it. I just can’t. This is a no.” Manchin revealed, catching the president and his team completely by surprise. Within hours, White House Press Secretary Jen Psaki issued a strongly-worded statement, expressing frustration with the “sudden and inexplicable reversal in his position.”

There’s a lot of talk about whether BBB is truly dead or just mostly dead. There are reports that Manchin submitted his own $1.8 trillion outline—one that excludes the Child Tax Credit (CTC) but includes money for pre-K, climate, and more—to President Biden just days before pulling the plug on BBB.

Some democrats, including Rep. Pramilia Jayapal (D-Wash.), have interpreted the reported $1.8 trillion outline as a sort of counteroffer that leaves a pulse on much of the president’s agenda. She reached out to Senator Manchin on Tuesday in the hope of keeping at least parts of BBB alive. It’s anyone’s guess as to where it all goes from here. But as Jayapal recognizes, one thing is clear:

“We all understand that we need 50 votes, and he’s our 50th vote.”

I’ve heard pundits suggest that it might be possible for Democrats to peel off enough Republican votes to preserve the CTC in a stand-alone-bill. And while I suppose anything is possible—the CTC is really good public policy—it’s probably not going to happen that way. Democrats know this. To do just about anything, they’re going to need Senator Manchin’s vote, which is why they’re scrambling to structure a deal on his terms.

A Goose Egg

What triggered Manchin’s sudden change of heart? Was he really doing everything he could to “get there” on BBB or had he known all along that he would ultimately come out against the president’s agenda? These are questions I’ve been getting a lot lately. And while only Senator Manchin knows for sure, there were certainly plenty of signs that things would unfold as they did.

Let’s not forget that Manchin told his Senate colleagues that he was perfectly content to see the entire BBB go down in flames. “We shouldn’t do it at all,” he told fellow democrats in a closed-door meeting on October 20. “I’m comfortable with zero,” he said, making the goose-egg symbol with his thumb and index finger during a heated exchange with Vermont Senator Bernie Sanders. He pointed to inflation—which was running at 5.4% (CPI-U)—and suggested holding back on additional spending:

"This will contribute to inflation. We've already passed the American Rescue Plan. We should just pass the infrastructure bill and, you know, pause for six months.

While some of his colleagues left the meeting still believing that a deal on a top-line number might be imminent, Manchin quickly told reporters, “This is not gonna happen anytime soon,” adding, “I don’t see it happening.”

Some observers—including my friends Dan Alpert and Claudia Sahm—believe that Manchin’s decision to throw in the towel on BBB was triggered by a fear of accelerating inflation. They blame people like Larry Summers and Jason Furman who “fanned the flames of inflation phobia.” Here’s part of what Dan wrote in a Twitter thread:

“Summers and other nominal Democrats who advanced inflation fears, and seized on the narrative of over-stimulation of the economy, granted Manchin cover to take a like position.

…without the inflation-phobes, we'd have a bill.”

And here’s Claudia:

“Larry killed 'kids, care, climate' package (aka Build Back Better) with his NONSTOP blathering about inflation. Kids thrown back into poverty in January should send him a thank-you note. Children, are our future. Got darker due to him.”

Dan points to a one-pager that Manchin shared with Senator Schumer (D-NY) back in July. The document—which wasn’t made public until months later—served as an expression of Manchin’s thinking on the budget reconciliation process. It didn’t constitute an “offer,” and Manchin never agreed to support any version of a bill, not even one that ticked all of his boxes. Here’s the final sentence in the document he gave to Schumer:

“Senator Manchin does not guarantee that he will vote for the final reconciliation legislation if it exceeds the conditions outlined in this agreement.”

Manchin didn’t commit to voting against legislation that failed to strictly adhere to his conditions, but he also didn’t commit to voting for a bill that did. So it’s no wonder the House proceeded to move on a more ambitious package, knowing that Manchin (and others) would have an opportunity to force changes when the bill reached the Senate.

In the end, Manchin walked away before a deal could be reached. And while it’s true that he pointed to concerns over inflation, it’s far from obvious that we’d have a bill if Larry & Co. hadn’t granted him that cover. In fact, I suspect we would have ended up where we are today even if inflation had never run hotter than 2 percent.

The Grinch

I don’t believe inflation is what pushed Manchin to “suddenly reverse his position” on Build Back Better. The announcement itself was sudden, but his position on BBB never really changed. That’s because he never really took a position. What he did—from the very outset—was to drape himself in a vast array of misgivings about the president’s agenda.

Here’s his statement from August 11, 2021:

So let’s review his misgivings:

“I have serious concerns about [passing another large spending bill when we have already] injected more than $5 trillion, millions of jobs remain unfilled, [we’ve got] nearly $29 trillion of national debt [placing a burden] on our children and grandchildren, [the economy is] on the verge of overheating [and] more importantly, I firmly believe that continuing to spend at irresponsible levels puts at risk our nation’s ability to respond to the unforeseen crises our country could fact.”

Yes, inflation became a convenient foil, but it’s clear that Senator Manchin had given himself plenty of optionality to shift between a vast array of excuses for backing away from any further spending. If inflation hadn’t given him cover, it would have been the size of the package, the national debt, the Federal Reserve’s bond-buying program, fear of creating “an entitlement society,” budget gimmicks, bizarre claims about supporting drug habits, or anything else.

If you signed up for this newsletter after hearing me speak in London, Chicago, or West Virginia a couple of months ago, then you heard me discount the odds of Democrats coming together to pass anything resembling the president’s BBB agenda this year. And if you’re a regular reader of The Lens, then you know that I’ve been warning all along that the Biden administration’s commitment to fully “pay for” the recovery package was both bad economics and bad politics and that it was being used to kill off BBB like players in the Squid Game. It’s basically what took us from a $3.5 trillion budget resolution down to a $1.75 trillion House bill.

But there’s a difference between forcing the White House to swallow a smaller BBB by snatching away some of the president’s so-called “pay-fors” and completely pulling the rug out from under his agenda in what was supposed to be the final leg of a “good faith” negotiation.

Unfortunately, that’s where we are. On the eve of Christmas, millions of families are set to lose the child benefits they rely on to buy food and pay for other necessities. The Build Back Better Act would have continued those payments.

In a few days, as many as 10 million kids who were lifted out of poverty by the CTC this year will face a bleaker 2022. Walking away from the negotiating table means that money goes away. And so does money for pre-K, child care, elder care, health care, climate, and more. Dash away! dash away! dash away all!

The Chairman of the House Budget Committee finds it unconscionable.

In the end, the Grinch discovered his heart and did right by the people of Whoville. Senator Manchin represents the people of West Virginia, but his stance on BBB impacts us all. The people of West Virginia need his help, but so do kids and communities across America. Without it, millions are facing renewed hardship. Climate change will continue to wreak havoc, and the broader economy will face stronger headwinds that will undermine opportunity for all.

So c’mon. It’s the season of goodwill. Let’s resolve to deliver for the people in the New Year.