Moody's Talks - Inside Economics - Back to Normal and Build Back Better

Episode Date: April 9, 2021

Mark Zandi and team discuss the trade deficit, jobless claims, the Back to Normal Index, President Biden's infrastructure plan and more. Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to another episode of Inside Economics. I'm Mark Sandy, the chief economist of Moody's analytics. Thank you for joining. I'm also joined by two of my colleagues, Chris Duretis, the deputy chief economist of Moody's Analytics and Ryan Sweet, the head of real-time economics. And we'll get to these guys in just a minute. Just to give you the frame, part one of the conversation is going to be, we're each going to identify a, statistic, a data point, an event that we think was critical to understanding what's been going on over the past week or will be important for the coming week, although that's rather limiting. You can pick any statistic you want.

That's kind of how I was thinking about it. Part two, the big topic. This week we're going to talk about President Biden's proposed infrastructure plan. Part of his build back better agenda, and we'll dig into that, a lot of controversy around that in debate and we're going to weigh in and then I'll give you my three cents at the end kind of tying it all together. So that's where we're headed. So with that, the big statistic, the key statistic, and Ryan, you're ahead of real-time economics. So give us a real-time statistic. What are you looking at? What do you think we should all be looking at?

71.1 billion. That was the nominal trade deficit. Wait, wait, 71.1 billion. Okay. Chris, what is this? Trade deficit. That's the trade deficit. Did I get it right? Yeah, the nominal trade deficit. Oh, the nominal trade deficit for February. Okay. So why is that important? Because this is going to be the new norm. We're going to be running enormous trade deficits over the next several months. And some of that's attributed to the weakness in the global economy, the strength in the U.S. dollar, but also the fiscal stimulus. When you throw a lot of money into the economy, we're going to be importing a lot of goods and services, particularly with the shift of consumer away from services to goods, this trade deficit's not going to narrow anytime soon.

Yeah, you're a bit of a downer, though, I'd say, Ryan. I mean, because, you know, there's nothing but good news here. And the reason why the trade deficit is growing is because the economy is strong, right? Oh, yeah. No, I think it's a good one. Oh, yeah. I'm not saying the trade deficit's bad. Okay. I think this is a good number because the import numbers suggest that, you know, the domestic economy is improving. Yeah, got it. So are we running a bigger trade deficit with any country or countries in particular, or is it just across the board? It's fairly across the board, but China widened, you know, quite noticeably between January and February. Oh, is that right? And is our trade deficit with China any bigger, smaller than it was

before the phase one trade deal that was struck right before the pandemic? Do you remember that? It's a little smaller. Not, but not a big difference. I don't believe so. I got to double check. So you would think that phase one trade deal, hard to know, given all the moving parts here, but you don't think that was a big deal at the end of the- Yeah, I think even without the pandemic, I don't think the trade deal would have made an enormous dent in the trade deficit with China. Okay, let's put this into context, though, into context. Okay, so we think the economy is measured by GDP is going to grow somewhere between six and seven percent, you know, this year. How, what is the drag on GDP from the growing trade deficit?

Right now it's a full percentage point. Percentage point. Okay. So if the trade deficit was just neutral with respect to the economy, this year growth would be between seven or eight percent. Correct. And normally, we're talking big numbers now, six, seven percent. But when we're tracking GDP in our high frequency model, when we're down like two or

three percent, the trade deficit meant a lot more of a drag. But now, you know, it's kind of like a round, round the air. Okay, very good. Okay, that's a good statistic. You know, I think you can do better, but, you know, that's okay. You just keep an eye on it, but it's not a... Yeah. Well, jobless claims, ignore jobless claims. Well, that, I want to ask you about that. You know, the jobless claims numbers, of course, we were all focused on that early in the pandemic because that was a real read on how a bigger problem the pandemic was to the labor market and the economy. But they remained very much. very, they're coming in, they're coming down with the improving economy, but they remain very elevated. I mean, I think last week, regular initial UI claims were, what, over 700K, and then you throw in the pandemic unemployment, and that would put it, what, 850K, something like that.

And just for context, a well-functioning economy, which is what we had, you know, prior to the pandemic, we were 225 per week, maybe, you know, 235, something like that. So we're still, four times what you would kind of expect in a good economy. So what's going on? I mean, is the economy that bad or what's going on there? No. No, I think you got to throw jobless claims out the window. I think there's a lot of fraud.

There's multiple filers. There's a lot of issues with the data. I mean, think about where over a year after the pandemic began and jobless claims have been north of 700,000 every week but one. And, you know, even the last week's jobless claims would been among the high during the peak of any recession we've seen in recent memory. So you throw on top of that, you look at, you know, the census poll survey that shows a big pickup in hours worked, number of businesses that are hiring, look at the job numbers that we're

getting from the BLS, the Jolt's data, nothing really jibes with jobless claims. And this pains me to say this, but I mean, jobless claims used to be my favorite economic indicator because they didn't send false signals. But now I don't believe them. You know, Chris, the fact that, now I'm talking to Chris about you, Ryan, you know, Chris, the fact that UI claims were his favorite statistic is makes certainly a window into how weird Ryan really is,

you know, deep down, yeah. I thought he was a yield curve fan, but that's what I thought, you know, that's exactly what I thought, a yield curve fan, yeah. There's nothing more that I don't like more than the yield curve. Really? Can you explain that? What's that?

That's a whole other podcast. I mean, we can, it's a whole another podcast. We're going to spend hours on that next time the yield curve gets close to inverting. All right, but put that in the book. We're going to do that as a big topic at some point down the road. Okay, Chris. To answer your question, the only, the reason I hate the yield curve is that,

yeah, I mean, correlation versus causation drives me nuts. The inversion of the yield curve doesn't cause recessions. And it only got this one right because of a fluke. And it was because of the pandemic. I'm telling you, I, and you. guys have to give me credit for this. I told you there was going to be a recession in 2020, almost two years before the recession hit. And the reason was the yield curve. The yield curve, yeah, I'm not saying it's the causation, but it definitely has something to say. And it's usually,

and it is always very accurate. So you ignore the yield curve at your peril, Ryan. I'm telling you. I'm learning a lesson. Okay. There you go. All right. Chris, what's your, what's your, what's statistic of the week, your data point? All right. I'm going to give you two. Oh, okay. You're up for it. The first one, 58,400. Wait a second. Fifty-eight thousand four hundred number of COVID infections on average are the past seven days. That's a good guess. It's pretty close to that, but that's not it. You guys, you guys think I don't know stuff. I know stuff. Okay, here's one. This one is, that is the current value of Bitcoin. Oh. That's, yeah. I knew that was common.

Ah, yes, yes. The Crypto King. I got a little less to take it. It was last week, just for context, 58,877. So those of you who listened to me, you know, you made a little money. You made some money. Yeah. Good.

What's your second statistic? Second statistic, 27.6 billion. Oh, I don't know. I don't know what that one is. Yeah. That is consumer credit growth in the month of February. Oh, really? Up substantially.

It's close to 8% annualized. So consumers are out there. They're borrowing. We saw big growth in revolving credit, which had been done. So consumers are clearly coming back and they're willing to borrow. I'm really confused by that one because we got all these stimulus checks, right? And the surveys, Ryan mentioned the household pulse survey from census. I think it shows that 25% of respondents say they're paying down debt.

So why would we see this increase in consumer credit in the context of it? That's just bizarre. How do you explain it? So I would say it's distributional, right? You have to be careful what groups you're talking about with the checks versus the borrowing. And I think two things can be simultaneously true. So, huh. And the one thing I would add is with revolving credit, it tracks gasoline prices.

So when prices go up at the pump, you know, people are, you know, swiping their credit cards. Oh, yeah. You maybe it's the difference between transactions, to your point, transactions versus debt, right? Because this reflects, that number reflects both borrowing debt, people taking on debt, and also just an increase in the sheer volume of transactions, right? So if you're, you know, putting more stuff on your card, you're going to, it's going to show up as a increase. So, oh, that's interesting. Okay, here's mine. The back to normal index, the BNI. This is an index that we at Moody's have constructed along with CNN business. And it measures the,

where the economy is today compared to where it was pre-pandemic. In the last week, it was 86%. So that means the economy, based on all of the economic data, third-party data that we have incorporated into the BNI, says that the economy's operating at 86% of normal, 86% of pre-pandemic levels. So the good news is that's up from the bottom. You know, the low point was back a year ago in April. Hard to believe it was a year ago that we were in severe lockdown, but the index hit 60% of normal. So we've come way back, but obviously it does highlight the challenges here. We're still not, we're still a long way from getting back to, you know, anything we would all feel comfortable about.

Interestingly enough, this one other factoid, the state with the highest back to normal measure is, anyone want to guess what it is? What do you think? No? That's where you are. Yeah, very good. I am. Florida, it's Florida. 97 percent.

So Florida's only three percent away from being back. to pre-pandemic levels. Okay, and here's the bonus question. Which state, here I might, let's call it, say which big, relatively big state is got the lowest B&I, the lowest back to normal index. California?

I'm thinking, New York. Chris is good. You know, Chris is really good. Yeah, he's absolutely right. It's 74%. Illinois is not too far behind Chicago, obviously. So California is also pretty weak, but not quite as weak.

big urban areas, you know, with big cities that got creamed by the pandemic early on are still, you know, lagging here. But I will say, Chris and I, you know, we've been, we have bets, believe it or not, we have bets, dollar bets. And to Chris's credit, I have not won a dollar bet ever, except I will win the next one around housing construction and housing starts. That's a winner for me. It's two years, two years down the road. Yeah, well, I'm going to collect, baby. Yeah, yeah. So, all right.

Speaking of Florida, how's your spring break going, Mark? My spring break? I'm kidding me. I'm sheltering in place, you know, here on my back deck, you know, in Florida. So trying to stay away from the crowds. But I'll tell you, it's if you just walk into a, you know, we have wawas down here in Florida too. You know, wawas are a staple in Philadelphia, our hometown. And if you walk into a wawa, you wouldn't know that we were still in a pandemic.

I mean, it's, no one's wearing a mask. You know, people are just, it's crowded. So I try not to go in. But I'm still sheltering. But I'm getting my second shot next week. Oh, good. Yeah. But there's your back to normal index.

There's my back to normal index. Just go to Wawa. You know, that's right. I think that would work. That would be. It's all of Mark spending on coffee at Wawa. Yeah. Yeah.

I'm still sipping my coffee from this morning. I haven't quite finished. All right. So, Mark, before we move on, can I ask you one quick question? Sure. I read your weekly COVID piece. Okay. Oh, boy. And in 30, you said in 30 years of a professional forecaster,

you've never been more confident in your forecast. You know, that's right. That caught me off guard. That's a strong statement, isn't it? It's a very strong statement. In 30 years. I email Chris. I email Chris.

It was like, I think Mark's like Babe Ruth in calling his shot. Yeah, right. Yeah, I know. I've been doing this for 30 odd years. and of course have made many projections, some of which I feel confident about some, not so much. But I'll have to say I'm as confident as I've ever been in this economy, this rip-worn economy we're going to have over the next, certainly over the next six months, probably 12.

And it's a little bit of a stretch, but maybe even 18 months, you know, going into mid-2020. We're going to see a lot of GDP. We're going to see a lot of jobs. We're going to see much lower unemployment. I'm confident. You know, obviously things can go wrong, but, but I feel very good about things at this point. But, but, yeah, thanks for calling that out. Most confident.

This is, this is it. This is the pinnacle. I've never been as confident, no. Never have. I really never have. Directionally, right? Yeah, well, in terms of the, the strength of the economy, right? I mean, you know, maybe it ends up being five or maybe ends up being nine, you know, but, you know, that's, in terms of spirit, in terms of, you know,

what's going on in terms of the strength of the economy, you know, our six, seven percent growth forecast I feel very, very strongly about. I think we're often running here. Yeah, for sure. Okay, no more distractions. Let's move on. This is a podcast. It's not a, you know, a lecture.

So we have to get moving here. Let's talk about the big topic. And that is the President Biden's infrastructure plan. And just unless you haven't been paying any attention, the plan is a big one. If you towed it all up, it's by my accounting over the next 10 years, $2.6 trillion in increased spending on various forms of infrastructure and some tax credits. There's some tax credits in there for housing and green investment. There's also, to help pay for it, increases in corporate taxes. Over the next 10 years, the increase is about $1.8 trillion.

So if you kind of do the arithmetic next 10 years, it does add to the budget deficit on a static basis. And I won't even go into what that means. But on, you know, on a doing straight up arithmetic, it adds about $800, $850 billion to the budget deficit over the next 10 years. Although, if you extend out the horizon to 15 years, because the spending on infrastructure is one time and winds down and the tax cuts remain in place, after 15 years, the tax revenue generated from the the higher corporate taxes fully pays for all of the government spending and the tax credits. And it's basically a wash on the budget deficit. But over the next 10 years under the Congressional Budget Office budget horizon of a decade,

you get $850 billion. So there's a lot of moving parts here. We did a study, our own, you know, we quick analysis came up with some estimates. And, you know, I'll give you my three cents for quickly. and I'll turn back to you guys to get yours. I think it's a winner. I think it's going to help the economy out both near term. You know, it's going to generate a lot of good paying jobs.

But more importantly, much more importantly, it's going to help the economy longer run. That we as a nation have been underinvesting in public infrastructure pretty significantly. We can talk through some of the statistics. But we've been underinvesting and it's showing. You can feel it in, you know, everything we do. If you get on a train, get in an airplane, in a car, you know, what's going on with the power grid in Texas this winter, you know, the dilapidated water systems in Michigan.

I mean, there's a gazillion examples of how this is really starting to weigh on all of us in our economy. And so investing in infrastructure longer run reaps benefit. And at the end of the day, 10 years from now, the economy as measured by GDP is about 3% larger. So it adds three tenths of a percent to per annum growth of the next. next 10 years. It adds about 2.7 million jobs 10 years from now. Obviously, that's just a point in time and it changes if you go out further in the future, but that gives you a sense of it. And the, most importantly, the underlying potential, so-called potential growth rate of the economy is, a growth rate of the economy is about a tenth of a percent per annum higher in 2030 as a result

of the plan. So instead of growing, I'm just going to give you a sense of magnitude or instead of growing, say, 1.9% per annum, that's what we previously had. It would now be 2% per annum. So, you know, that doesn't sound like a lot. You know, in any given year, it's not a lot, but over a period of a decade, a generation or two generation, that adds up to real money. It really makes a different, we'll make a difference in people's lives. It makes a big difference in terms of asset returns and in terms of people's wealth in terms of the fiscal situation. So in my view, and again, there's a lot of things we need to debate here and discuss, but, but, but, from a 30,000 foot level looking down at this plan, I think it's, I think it's a winner.

I think we should do this thing and we'll be better off for it. But that's just my view. Let me turn to you, Chris. What is your sense of the plan? And where do you think the holes are? What do you think the problems are the plan are? Yeah, so infrastructure, well, first of all, it's called an infrastructure plan, but that's a little bit of a misnomer, right?

There's a lot more than what we might consider, at least traditional infrastructure in there. We'll come back to that. Let's put a pin in that. Let's come back to that because I want to talk about that. But let's put a point in. Okay. Yeah. So there are lots of different components here in terms of a traditional infrastructure.

It's only only. It's about $600 billion by my calculations in terms of highways, airports, ports, what we would think of as traditional infrastructure. So first of all, there's a scale. So if we're just focusing on that infrastructure piece, I think there's no doubt that we need. I think there's universal agreement in terms of the lack of investment, the neglect in a lot of the infrastructure that we have around the country. So that part certainly on board with. I am big concern.

My takeaway is we might be overstating the case in terms of what the predictivity enhancement would be from that investment. For me, this is more about taking care of neglected infrastructure, right, repairing what we already have. So it's more about avoiding loss of additional productivity versus really enhancing productivity, right? I don't think we're talking about building a new highway system or, you know, putting in a lot of new bridges. This is about repairing. Well, let's put a pin in that one too, because I want to come back to that. Okay. Well, I guess that's my main point is that.

Okay. I think some of the gains you're talking about there. I think we will have gains, but I think it's overstated. I think, I don't think it's going to have quite the impact in terms of growth that we're talking about. Okay, well, you're a senator from Pennsylvania. You're sitting there. The bill is now up for a vote. Would you vote for it? As is? No changes? Well, yeah, no changes. We can discuss changes. But yeah, you had no choice. This is it. You got to vote. Yay or nay. And there's no option. There's no second bill coming around, right? This is it, baby.

You got to vote. And don't think about your voters. I know you're very politically oriented. You're worried about the voters, but do lead. Don't follow. Well, there's the other aspect here, which we haven't touched on, which is how we're paying for this. I've got problems with that, too.

Oh, bummer. Okay. You're not going to vote for it, are you? I'm on the fence. I'm not convinced you. You're like Senator Mansion. You're going to be a problem. Yeah, okay.

All right. We'll move on. I'm coming back to you. All right. By the way, I've already voted for it. Yeah. I'm with you. You're with me, Ryan?

Yeah, I'd vote for it. You would? Okay. All right. What do you know, Chris is complaining about the, what's infrastructure? He's complaining about the productivity gain. He's complaining about in a, you know, in a Chris way, the corporate tax increases. So anything in the program you don't like or you're worried about?

I mean, if you, if you were king, What would you do to change it? You already said you're going to vote for it, but it doesn't mean you wouldn't change it. So what would you change in it? I'd have more investment in early childhood education. I mean, I think that helps with longer term productivity growth.

That's a good bit. That's the second package though, don't you think? That's the second package. You told me that there's no second package coming. So if I had to tweet. I didn't mean that. I mean, there's no second infrastructure package.

Okay. Okay. Yeah. I mean, not a lot of big changes that I would make. No. You like it. You would vote for it. Okay.

I would. All right. Let me, let me ask another question. So this is more of a personal question and not getting too personal. But if you had the ability to direct some of those infrastructure dollars, what would you, what project and try to be as specific as possible? What one thing would you spend money on? because that would help, well, I'll just send it there. You can pick whatever criteria you want.

But what infrastructure project would you put money on, put money towards? Chris or Ryan? I'll jump in here. Actually, it's a project that's not even on the list. I think we need to be investing in cyber infrastructure more than anything right now. And that's not even discussed, not only debated. I think that's where there's a huge vulnerability. there's there's discussion of expanding access right rural rural internet access that's great but

I think we have a huge problem in terms of threats we're you know throughout the pandemic we heard about the hacks I think that's where I suspect that's coming you know that's probably not part of this package but that doesn't mean it's not coming you know is part of the budget processor so I think they're probably figuring they're going to get that money anyway you know as opposed to let's put it into this package but you but that's you make you make a good point what about you Ryan What project would you put money in? It might overlap a little bit with Chris, but like improving the electrical grid. I mean, we saw what happened in Texas with climate change.

It's only going to get worse rather than getting better. Also, I mean, tying it back with cybersecurity, I mean, we're pretty vulnerable to a cyber attack to the electrical grid. And just imagine what that would do to the economy of, you know, the electrical grid went down for a couple days. Yeah. Okay. You know what I would do? and I know this is very self-serving, but I can't help myself Amtrak.

You know, if we could only get from Philly to New York in a half hour of 45 minutes and from Philly to D.C. in half hour of 45 minutes, that would be, in my view, a big time game changer, you know, for the entire Northeast corridor. And certainly for me personally, for me personally, it would make a big difference. in Philadelphia. It would do wonders for the Philadelphia economy would take off.

It would take off. It would take off. But there's 80 billion for Amtrak, right? What's that? Isn't there 80 billion for Amtrak? Yeah, no, there's Amtrak. I don't know where it's going, though. But yeah, I don't know where it's going.

Okay, let's go back to. Oh, you want it focused on Philly to New York. I'm focused on that corridor right there, you know, between New York and, you know, Billy, Wilmington, Baltimore, and D.C. I know, I know that corridor very. well and he certainly could use some help it's my favorite yeah yeah it is actually i've seen him on the train many times uh actually i have a really good story after he pulled out of the presidential race

against obama did it was it obama yeah he was in that race and he stopped didn't he i'm trying i can't remember exactly which race but i think he was early on in the race and he didn't go anywhere and he uh dropped out and i saw him in the, because I live out towards Wilmington, so I get the train. When I go to D.C., I take get the train from Wilmington. I saw him in the little store they have in the Wilmington train station looking at, I think it was like, it was like Hallmark Cards or something. And I went up to him and I, I'm sure he doesn't remember any of this because he,

a million people do this. But he was all by himself. He was literally all by himself. I go up to him and I said, you know, I think very highly of you. and I'm sorry it didn't turn out. And he was incredibly gracious to me. So I didn't know me from Adam, but I've really stuck with me. You know, this guy was a real nice person, you know, in addition to everything else.

So that really made an impression on me. Oh, let's go back, though, because you bring up some good points, you know, issues with the plan. What is infrastructure? And so you said this isn't really, I think you said this isn't really infrastructure. What did you mean by that? I don't think it's just infrastructure, right? Okay. It's like, for example.

And, well, R&D spending. Oh, really? I like that part. I like that part. Don't get me out. I'm a big fan. I like R&D, but it's not traditional infrastructure, right? It's not what you would classify.

I don't know. I think I would consider, you know, the basic, you know, things like transportation, obvious, infrastructure. And then you have things that go to, I think R&D is building the capital stock, you know, helping to build the capital stock. So I would view that as kind of infrastructure, long-lived infrastructure. And then, you know, there are, I would even consider workforce training and development, you know, building out infrastructure as well.

But I thought you were going to mention the elder care, because there was a big, about 400 billion, I think it was 400 or 500 billion of the 2.6 trillion in support is elder care. That does, that does not feel like infrastructure. That feels like something that would go into the second package, the social program package that's, I think, coming down the road. I thought you're going to talk about that. What about housing? Do you consider, because there's a lot in there about housing and housing supply, would you consider that infrastructure? No, I'm using very near. I guess my definition is physical infrastructure.

Okay. Yeah, no, I don't, I wouldn't consider that as part of the infrastructure. You would not. Okay. Again, I would part company there. I mean, I think one of the reasons for weak productivity growth in recent years, maybe the last couple decades, has been the fact that we, and you and I've worked on this a lot, Chris,

is the affordable housing shortage, because you are, because of that, forcing people, lower income households to move further out into the suburbs and excerpts further away from the jobs, longer commute times, more difficult to get to work, and that does affect the productivity of the economy. And I suspect that if we can increase the supply of that affordable housing in places that are closer to where the jobs are, that will ultimately help to support long-run productivity growth. In fact, I would use that as a definition here, that anything that ultimately improves labor productivity,

I would consider it to be infrastructure. It goes to improving our ability to Bruce more with less. And I think that we need to have a more fulsome definition of what we mean by infrastructure. Elder care, that's something different. That's labor force participation, perhaps, but that's not labor productivity. But the rest of it feels like it's about labor productivity.

No? Well, that's a pretty wide definition, right? So that's college education, right? We should be providing a college. Why isn't that in the bill here? Well, I mean, I think that should be. I mean, you've got to pick and choose, but that certainly could be, you know, part of it. That probably will be, again, the second package.

But yeah, I think that would be a reasonable thing to throw in the mix. And also, college education is kind of a blend of labor productivity and labor force participation, so maybe, you know, fits more on the participation side on the productivity side. But, you know, I'm splitting hairs, you know, so what do you think, Ryan? Do you have a view on this? I think people are getting too hung up on what is traditional infrastructure versus what's in the package. I mean, they should have just named it the American investment plan. And you kind of get rid of, you know, both sides of the argument. You're investing in infrastructure and then you're investing in human capital. And I think hopefully this bill gets through the way it is.

is or a few tweaks here and there, but I'm concerned there's going to be moderate Democrats that, you know, say there's not enough, or there's, you know, non-infrastructure things in here, and they're going to vote against it, especially with the corporate tax increase. Okay, so let's move on to the second concern you had, Chris, and that's around the productivity lift from the infrastructure spending. And your point, I think, I may have this wrong, is that all we're doing is investing in depreciated public infrastructure, trying to get that back up to something that's more viable. It's not about breaking new ground. It's not like we're building a new highway system, interstate highway system or some big, big deal, big program that would be a game changer.

Is that your view? Yes, that's right. Yeah. So still productivity gains, right? Clearly, road with a lot of potholes is going to have less productivity than one that's nice to smooth. But it's not, to your point, breaking new ground. It's not creating a new distribution route or enhancing productivity to the extent a new project would. Yeah, got it.

Hey, and Ryan, you know, the Penn Wharton folks, they're really good outfit. they do a lot of fiscal policy analysis. And they did an assessment of the Biden plan, just like we did. And just to remind everyone, we found that after 10 years, the economy is about 3% larger in terms of GDP and that we have about 2.7 million more jobs. I don't mean to imply too high degree of precision here, but those were the numbers. Whereas I think Penn Wharton came in with negative GDP. The GDP was actually smaller 10 years from now. And this may fit, this fits in with Chris's point about productivity.

Can I ask you to look into that? I haven't had a chance to really look at it. Can you give us a sense of, you know, where they're coming from and, you know, what their perspective is and why, why they landed in a different, why they landed with a negative sign as opposed to a positive sign? Yeah, so just to give you a couple numbers. So after 10 years, relative to their baseline, real GDPs, 0.25. percent below the baseline. They go out to 2050 and it's still, you know, point three, three percent below

their baseline. I went through it and I think we make a lot of really compelling cases. I think there's two areas that, you know, their assumptions differ or modeling techniques differ than ours. First is on the corporate tax side. You know, I think they're assuming a lot higher taxes, ways on the economy more than I think what, you know, you and Bernard were doing in your, your run of scenario. And then also it seems like crowding out is a much bigger factor in their analysis than, you know, looking at our baseline forecast. Crowding out, meaning higher, the interest rates are higher because of the budget deficits? Are there, are there budget deficits bigger than the static budget deficit? I mentioned earlier,

are the 800 billion over 10? Are they coming up? Yeah, I believe so. It's larger. Really? And I couldn't, I couldn't wrap my arms around. Yeah, I got to go, you know, probably through it a couple more times. Yeah. you know, how they get their interest rate projections. It seems like a lot of it is tied to, you know, the federal budget deficit. And at least, you know, a lot of the work that I've done, I mean, that doesn't usually have a big impact on long-term interest rates. Well, just to give you a sense of the numbers behind our assessment, and this goes to

productivity growth, the productivity benefit. If you add it all up across all of the different elements of the plan, we have a a 7% return. So what I, on the, on the, on the infrastructure spending. So what I mean by that is, if you take a dollar of infrastructure spending in a portion of, you know, like the Biden plan has allocated the money, you get seven cents of return, seven cents of return in terms of GDP, increased GDP. And that varies a lot by the type of infrastructure spending that's been proposed. So to give you a sense of that, On the elder care, that piece, I agree with you, Chris, that's, I don't consider that

infrastructure spending. That adds nothing. There's no return on that in terms of labor productivity, in terms of productivity growth. You want to guess what the highest, the type of industry spending had the highest return by our calculation? R&D. Is this traditional or what's in the package? Across the board.

R&D is actually very high, but this is over a 10-year horizon. It actually has a very high return in the longer run. But over a 10-year rise in it's broadband, investment in broadband. It's a little over 10 cents. And then the infrastructure is kind of the traditional transportation. That's about seven, eight cents. It's about kind of an average housing was about six or seven percent kind of return. You know, it varies, you know, quite a bit.

There was some spending on kind of federal government infrastructure, you know, buildings for the federal government. That has a relatively low return, you know, in terms of labor productivity. But you add it all up. it's about seven cents. And that's not too far from what CBO, Congressional Budget Office, has come up with in their estimates of infrastructure spending.

It's a very similar kind of result. They're a little bit lower because they make the assumption that if the federal government is ramping up infrastructure spending, state local governments will offset that by reducing theirs. And in my view, that's less of an issue in the current period because of all of the funds that state and local governments got under the American Rescue Plan, they have a budget, many states are going to have a budget surplus, and a lot of that's actually going to go to infrastructure spending.

So if anything, in the next couple, three years, we may see more infrastructure spending coming on a state local governments, not less. But anyway, that's the difference between our estimate, effectively, and the CBO estimate. And if you do that kind of arithmetic, given the numbers here, you know, that's how you get to the kind of the productivity gains that I was talking about longer run. So a very different kind of perspective on things on how that's going to work. Finally, on the corporate taxes, this one really bugs me. You know, where is the evidence that the lowering of corporate taxes that occurred in 2018, the Trump tax cuts, the tax job, the TCGA, the Tax Cut and Jobs Act, lifted economic growth?

I don't see it. Do you guys see any evidence that there's none? There is none. I was so worried that you're going to argue that it boosted the economy and that we would just go down a rabbit hole. But when you look at business investment by details in the national income and product accounts, when you strip out energy, there was no boost. Growth post tax cuts was almost the same as pre-tax cuts, if not a little bit weaker. So energy, and that wasn't tax-related, that was higher oil prices at the time. So, you know, when you really dig into the details, there was no evidence that it boosted business investment.

Chris, I mean, I know you're a wealthy guy and, you know, all that crypto wealth that you have now. You're trying to protect that. You're a little worried about your tax rate. Do you have a different perspective on the benefit of the lowering of corporate taxes back when Trump cut them? President Trump cut them? I do agree there.

I guess my point here is that. That's certainly not the only way to fund these projects, right? Is this the most efficient way to go forward, right? For example, there's nothing in here about a private public partnership, right? Potentially that could expand the amount available capital and help direct the investments towards the most profitable ones, right? That's always the issue when you have these types of large scale plans is how is the money being allocated. You know, you have these multipliers that you've, you've, you've, quoted here, but when the rubber hits the road, how do we assess what are the guardrails or what

are the, what's the process to ensure that the taxpayers are getting the highest return on their investment, right? So we allocate these huge sums. There's nothing there to really ensure that we are investing these monies properly. So maybe a public, private partnership would be effective or social bonds or, you know, there are lots of other ways to fund. Carbon tax. What's that? Carbon tax, a gas tax, right? Gas tax. Certainly increased gas tax. Yeah, no, fair enough.

Yeah, fair enough. And just to connect the dots for the listener. I mean, I talked about the Trump tax cuts as not supporting, providing much juice to the economy, certainly not longer run. And that's just to make the point that raising taxes are, you know, rolling back some of those tax cuts, which is what Biden is proposing to do to pay for this, probably will have very little long-term negative consequence. So the arguments that, you know, the higher marginal rate, that going from a 20%, 21% marginal rate on corporate taxation to 25 or the president's proposed 28 previously was 35 before the Trump tax cuts would have a big negative impact. Really, I just don't see it.

I can't see it in the data. It doesn't make intuitive sense. It doesn't make theoretical sense. It's not pretty small. But I understand. Pardon me? I didn't mean to cut you up. Can I give you two numbers?

Yeah, sure. So if you look at U.S. corporate tax revenues, the general, from corporate tax rate as a share of GDP, it's 1% in the U.S. It's 3% in the UK, 4% in Canada, 4% in Japan. Say that again. What's the one per? What is the statistic? So corporate tax revenue as a share of GDP.

Okay. Yeah, okay. Right. We're, you know, we're well below other, you know, developed economies. And the second one is a morning consult did a survey this week and found that 65% of respondents were in favor of paying for the infrastructure bill through higher corporate tax rates. Yeah. Well, Chris, I think that's the reason, you know, it may not be, you know, if you were king,

and I know you are king, but, you know, if you were the real king, you know, you might want to do it differently. I would do it differently too, but the political economy of this. And also, I'd say, you know, President Biden has, for good or bad, made the promise that he's not going to tax anyone below who makes less than $4K a year. So that does put you in a bit of a bind, you know, if you're going to stick to that campaign promise. Like a gasoline tax, you know, becomes, you can't do it if you're going to stick to it because the incidence of that tax is going to be on lower income households. Carbon tax, I like that idea, but, you know, if I were,

if I were king, I'd save that for climate change. Don't conflate it here with this. Corporate taxes are a very good way of paying for this because corporations are going to better. benefit enormously from this. They're the prime benefit, direct prime beneficiaries of this. But the carbon tax I'm sympathetic to, but I would hold on to that. One of the key arguments of this plan is that it's climate change focus. It's, you know, we're building this infrastructure in a green way, right? So how is that the two are completed, right? So why won't you back the dots directly? Yeah, I want to get this done. I want to get this done. I want to get through Congress. I want to get it signed. I know you're not

voting for it, but I think I can get enough votes for it, you know, to get it through Congress. And if you conflate it with a carbon tax at this point, I don't know. You're just opening up a whole other set of worries, debates, arguments, regressivity. You know, it's regressive, right? Fundamentally regressive, you've got to solve that problem. There's all kinds of issues. I just, we need that direct hit on climate change. Let's save it. But I hear you. I mean, you know, you make a very good point there. Anything else you guys want to bring up about the plan? There's obviously a lot to talk about.

Actually, I will say you were harder on me than Maria Barteromo. Believe it or not, I went on Fox News, Fox Business News, and she and I had a bit of a debate, but I'll just say she was nicer to me than you guys. I don't know what, you know.

She was very graceful about the way she did that, even though she's as wrong as you are, you know, Chris. Ryan, I- No compromises, Mark. You're not going to 25, It's not corporate. You're not cutting anything. No, no, no, no.

I compromise. I'll compromise. I'll compromise. Okay. Yeah. Well, we need another discussion for that. Okay. Well, thanks.

Thanks for guys. Let me just kind of bring this home. You know, obviously, this is a big deal, this infrastructure package. And I think it goes to something, you know, even broader. And that is that we've got as a nation very large problems that have developed over periods of not just years, but decades and generations. I mean, we've got problems with our infrastructure. That is certainly a constraint our ability to grow and to achieve the kinds of things that we need to.

We've got big problems with climate change. We've got big problems with income and wealth inequality, racial equity. And I don't think we can solve these problems on our own. These aren't problems that the private sector can address by itself. These are problems that can only be solved collectively. through government. And I do think one of the reasons why I am so optimistic about the economy's future is that I think that perspective has taken hold and we can execute on that politically. I think it feels like we're going to get some things done. And yeah, we're going to debate,

you know, the individual aspects of the infrastructure plan and the social spending plan that's coming down the road. And yeah, we'll have some good debates about, you know, how do we pay for and how much should be paid for. But at the end of the day, I think these things are going to get done and we're not going to solve these problems because these problems have been developing for generations, but it's a good start. We're on our way and it makes me even more confident in our economic future. I think our next, well, I said at 6, 12, 18 months, I feel as confident as I ever have as a forecaster in the economy's prospects. And with things like this infrastructure plan, if it gets passed and I think it will, our long-term prospects are brighter as well.

So with that, I'm going to close the podcast. I do want to ask you, if you're a listener and you are enjoying this conversation, please let us know, rate the podcast. That's very important to us and to get your feedback. So I ask you to do that for us. And we'll be back next week. Thank you.