Moody's Talks - Inside Economics - Diffusion Indices and Deficits

Episode Date: May 21, 2021

In this episode of Inside Economics, our weekly podcast, Bernard Yaros, Economist at Moody's Analytics, joins Mark Zandi and the Moody's Analytics team to discuss fiscal policy, debt and deficits. We also discuss this weeks data, including inflation, lumber prices, tax refunds and the CNN/Moody's Analytics back-to-normal index. 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.

This is Mark Sandy. Welcome to Inside Economics. Thank you for joining us today. I'm also joined by a few of my colleagues. Of course, Ryan Sweet, director of real-time economics and Chris DeReedy's Deputy Chief Economist. And we have another one of our colleagues who's going to participate in the conversation, Bernard Yaros. Bernard, say hello. Hi, guys. Hi, Mark. Hi, hi, Chris. And Ryan, happy to be here. So, so Bernard, how long have you been at Moody's Analytics? How long have you been working with us? About six and a half years, closing it on seven. Wow. I didn't realize it was not long. You know, I bet you guys don't know about Bernard.

Bernard is a, well, he's one of these guys who knows everything, pretty much everything. I think he knows like 10 languages. Am I wrong, Bernard? How many languages do you know? About, I'd say I'm fluent in three, but I'm, I'm, I can hold my own in about a couple others. And one of them, I think, is Arabic, right? Yeah, Arabic, yeah.

Oh, wow. Which is pretty tough language to know. Yeah. And you spent some time kind of just wandering the Middle East or something. Yeah, I lived, yeah, after college, I lived a year in Yemen. So I got to experience, you know, the Arab Spring back that, you know, that was occurring at the time. And then I worked for a year or so as a journalist in Tunisia, which was actually the birthplace. of all the, you know, the Arab Spring revolutions at the time. And then, you know, I went back,

you know, to grad school, did economics and then joined right away at, uh, at Moody's. Where in Yemen were you? Were you in, were you in the capital? Yeah, in the capital. Yeah, in the capital. Oh. So this must be very disturbing to see what's happened there in since you last. Yeah, it's, it's very, it's very sad what's happened. I, I, I left really before the conflict got out of out of control, but it was already, you know, you could already see, you know, the, the writing on the wall. You know, there was basically civil strife. It wasn't until a couple years later that really the Saudis intervened. And that's really when the human toll really took a turn for the wars.

Yeah. You know, your internet just cut out a little bit just so the listener knows. There was just a gap there. You were talking about the meaning of life and you were going to tell us what the meaning was and you just cut out at the last minute. But just so the listener knows. Also, you're like a squash pottage or something. Like, I remember this because I used to play a fair amount of squash, and you were legendary in the squash courts of Philadelphia, as I recall. Is that right?

You still play squash? I don't. I tore my Achilles when I started at Moody's, actually. I was in a cast for several months. So after that, I never, you know, after that, I've never played. Yeah. Hey, you know, did you know this, Bernard about Chris? He was about ready to turn pro and bought you.

ball. Did you know that? I heard the last episode. Yeah. Like I mean, I don't, Chris, why didn't you turn professional? I missed out on the scholarship, right? Oh, that was it. Scholarship. Damn. So you would have been like, I mean, if you go pro and Botchy Bowl, is that like a big deal in, you can make a lot of money doing that? Oh, certain circles, yes. So that means if you had gotten that scholarship, you would not have been an economist. You would have ended up being. I would have never had to pay for a coffee again. Very good, very good. Well, we've got a very talented group.

And, oh, I should say, yeah, Bernard is with us because Bernard is critical to our analysis of federal fiscal policy. So every time a new proposal is put out there, you know, everything from the CARES Act a year ago to the $900 billion COVID package at the end of last year, the American Rescue Plan, the Biden bill back to better agenda. Bernard goes into hyperdrive and helps us evaluate what the macroeconomic consequences of those policies are. So we're going to talk about fiscal policy. And we'll come back to that in a few minutes. But as you know, because you are regular listeners to this podcast, it has three parts, part one. We go over the key statistics of the week. You know, we're here talking to you Friday afternoon.

So we've got a whole week worth of data. So we're going to talk a little bit about that. And I just want to add a little twist here. I'm going to ask everyone to identify one or two statistics that they think listeners should be following regularly to gauge something important about the economy. And we'll come back to that. And part two is the big topic. And this, because Bernard's with us, it's going to be about federal fiscal policy. So there's a lot to talk about there.

And we'll dive into that. And then finally, part three, I'll pull it all together for everyone and give you a sense of based on the conversation where we landed. So that's the script moving forward. So the data. I usually start with Ryan, but let's mix it up a little bit. Oh, and I should ask, Bernard, do you want in on this part of the conversation too or do you want to wait to the fiscal? I've got my, I've got one. Yeah.

Oh, you got one. Okay. All right. Okay, baby. All right. So we're coming back to you. but I'm just, you know, because, you know, these other guys have been doing it for a while. They're going to show you how it's done, you know.

All right. All right. Chris, what's your statistic of the week? All right. $1,453. Dollars. $1,453. $1,0453. You guys know what that is?

Bernard, Ryan. No. That's a tough one. Can you give us a hint, Chris? Or are you going to give it away if you give us a hint? That's housing related. Yeah. He goes to that well.

I know he's a housing guy. I knew it was housing related, but I don't know, Chris. What is that? Oh. No. Ryan's got it. He always comes to him. Come through.

I don't know this one. But we got existing home sales. We got housing starts. But none of those, I can't think of anything in those reports this week that go to 1,400. Oh, can I say? Is it the, average or median monthly mortgage payment.

Oh, that's a nice guess, but it's not right. Oh, really? It could be right. Because you don't know. It's right or wrong. Damn, it's got to be pretty close to $1,000. I'm going to look it up. I'll look it up.

The average mortgage payment, I defy you, someone out there. Bernard, while you're waiting, look it up, because Bernard gets to the statistic. Look up the, just Google. say, I think it's more like the average as opposed to the median, but, you know, average or median. Okay. So what is it? It is the price per 1,000 board feet of lumber. I should have known that one.

And that is down 15% from the peak, which was just two weeks ago. Really? Peak with 16.7. Yeah. So lumber prices have been coming down. But they've been very volatile, right? There's still lots of volatility. Do you see they have peak, though?

Are we on the other side of this surge in lumber prices, or is this just data, just the volatility in the data? I think we're going to, we might have peaked, but I think we're going to remain at this elevated level for a while. So we'll probably bounce around for a while. But I think a key point is that we, that commodity prices certainly can and do adjust very rapidly, right? This is 15% down in two weeks. There's been a lot of inflation talk, certainly. And I think that's valid, but commodities have a way of adjusting very, very rapidly. So if it's not the peak, I do foresee that we will see some correction later on this summer, certainly as things continue to settle down.

Yeah, and we talked about this a couple of weeks ago, maybe several weeks ago. And there's a bunch of things going on here. But as I recall, the key thing is a lot of sawmills shut down during the pandemic. and there's just taking a bit of time to get those sawmills back up and running. Is that, do I have that right? Well, what I've heard is that the sawmills are running at capacity, but there's very little desire to expand capacity at this point, right? Because if the sawmill owner thinks that this is a relatively short-lived,

the demand is really strong now, but it could taper off later this year. Then they're not going to make a big investment. They're happy to collect the dollars that they can now and wait, right? So I think we have a little bit of a cat and mouse game, right? Got it. They need a clearer signal that this is here to stay or that, you know, these prices are going to remain elevated. It isn't just speculation that's going on as well.

But presumably they can still make a boatload of money, even if the price of lumber was cut by a significant amount, they could still make a lot of money here. Yeah. They could. They could. But it's not, you know, putting out another sawmill, this takes some time. It's not a costless endeavor, right? Yeah.

While we're on housing, housing statistics did come out. The housing starts numbers, and that was a bit on the soft side for single-family housing starts. And home sales, also existing home sales, they're strong. Don't get me wrong, but they're down. You know, they were 5.85 million, I believe, which is well below where they've been in the last six, nine, 12 months. They were well over six million units per annum. do you think we're seeing now a more of a moderation in housing activity? Is this, again, just data, statistical noise,

or do you think we're starting to see some coming back to earth of the single-family housing market based on this data? I think we are starting to push up against the limits, and lumber plays into this as well. So some of the decline in lumber prices might be builders responding as well. that they're just not going to build or they're not going to accept that price, right? So I think we will see some moderation, but I do expect the rest of the summer for demand to remain quite high. So I don't think this is going away or that we'll see a sudden correction, but I wouldn't be surprised if we're at the top here.

We might just bounce around at this level and then gradually come back into equilibrium later this year. So lumber is definitely impacting the new housing market. The existing side, it's lean inventories. So in April, homes were on the market 17 days, which is ridiculously low. This time last year it was 27 days. So housing turnover is just extremely, extremely low. And I think existing home sales are going to go a little bit further, lower before we bottom out. So, Chris, you got to look at your existing home sales forecast.

It looks a little optimistic. Oh, it does it? For the end of the year. So in our baseline, we have 6.2 million annualized housing, existing home sales. I think it's going to come in closer to five and a half. So we're saying that the kind of moderation and construction and sales is more a function of supply constraints, inventory constraints, than it is any weakening and kind of underlying demand for housing. And some payback was due. I mean, existing home sales went parabolic in the second half of last year. So, you know, we're still, like you said, we're still running at a very strong clip of existing home sales. It's just, you know, we're coming off that off the boil. Yep. Got it. And I should, this is an advertisement say next week, our podcast is going to be on housing and housing finance. And we're going to get Jim Parrott to come in and speak. Jim is a good friend. And, um, uh, uh, I've written a lot of papers with him on, most recently on the housing supply shortage,

but of course we've been the last decade writing a lot of papers on housing, finance, GSE reform, that kind of thing. And it'll be really good to have him. I hear he's pretty funny. So that, you know, that'll liven things up. Okay, Bernard. I mean, before I go to Ryan, because Ryan is the pro at this data. But I'm going to turn to you.

So what's your, what's your statistic? So my number of the week is 2,800. Oh, we just lost him. Can you believe that? Internet connection in Boston. Yeah, damn Boston. $56. Yeah. You got to repeat it, Bernard.

You froze again. So my number, yeah, so my number is $2,856. I got that one. $2,800. You do. Okay, go ahead, Ryan. What is it? Tax refunds.

Average tax refund. Yep. You're reading, because that's, you read everything Bernard writes for the, economic new website. No, exactly. Yeah. And it's a timely statistic because obviously this past Monday was the extended deadline. Right.

So our, well, we'll come back to refunds when we get to the big topic, you know, the fiscal situation. But just to give some context, is that a, is that a large refund or is that typical? Or, you know, how would you think about that? It's, it's about three to five percent higher than in past years compared to, you know, the average refund at comparable points of past years. And it just shows that in general, this tax season has been shaping up to be quite good for the taxpayer, in the aggregate, at least.

Okay. And the number of people getting refunds, is that up as well? So the aggregate number of refunds, if you look year to date, that's also tracking slightly above, not much above, but slightly above past, you know, the past pace in prior years. And obviously it's going to get even better. and we can talk about this more because of the American Rescue Plan. You know, starting in mid-summer, you're going to start having these child tax, these monthly child payments that are also going to come in the form of refunds.

And that's, you know, that's going to hit as soon as July and going all the way through the end of the year. And that's, you know, we're talking about another 50 billion in refunds that are going to be in advance on what would normally occur. Is that, you said 50 billion? Is that 50 billion over what period of time? 50 billion between July and the end and December. Got it.

Right. Good. Okay. We'll come back to that. Okay, Ryan, what's your statistic of the week? 76.8. It's a diffusion index. A diffusion index?

76.8. You guys, 70 cents of that one? 76.8. I don't know. What is that? 76.8. It's in the Philly Fed survey. The Price is Paid Index.

Oh, you are really going down into the bowels of this report. Like if you told me, it correct me if I'm wrong, but I think the top line Philly Fed Index was like 31.5. Is that right? That's correct. Yeah. Okay. And now you're telling me I got to now.

You got to dig deep. I mean, the big topic is, you know, the hot topic over the last several weeks has been inflation. And this, the Price is paid index is at its highest sense. the early 1980s. And it's not a leading indicator for inflation. It's more coincident. It tracks, you know, commodity prices very, very closely. But when you look at the gap between prices paid and prices received, that gap's getting really wide. So one thing I was going to, you know, bounce off you and Chris and Bernard is, I wonder if business's pricing power, you know, is not as strong

as people are anticipating, therefore we're not going to get as much inflation, consumer inflation over the next six, nine months as people are worried about. Right. Well, we know that businesses don't pass through a lot of their higher commodity input costs, right? So they eat a lot of it. Right. Or they work really hard to navigate around it by substituting out one input for another input, that kind of thing. And if they think it's temporary, you know, if they think it's a couple, three months, more likely they'll probably eat it. I mean, I think if they thought this is going to go on for a year or two, then you probably have no choice but to pass more of it along. Yeah, that was my hunch, because if you look at the gap, again, between prices paid and prices received, it gets this wide

when you get oil price spikes. And usually that's transitory and they look through it. So, yeah, I mean, you got to dig deep. You can't just look at the headline number. There's a lot of important information. I hear you. I hear you. I think the other thing you do is you kind of put these different diffusion indices we get from different Federal Reserve districts from across the country onto a kind of an I so-called ISM basis. So you can compare apples to apples. ISM is correct. Yeah. And on an ISM basis, what was the Philly Fed? Was it? 64. It did not come down. No, exactly. So there's a big drop in the headline business conditions index, that's its own separate question that more often reflects business confidence. And also the way they ask the question is, how are business conditions

relative to the prior month? I mean, things were booming in the prior month. So it's not surprising that, you know, the headline index came down. But on an ISM composite basis, it was still very, very elevated. Similar with the Empire State Survey. Got it. Got it. So what's kind of the broader message here, I guess from the, it's that we've still had these supply issues and it is because of the improvement and the continued strong demand, we are getting continued price spikes. And it's about as the spikes are about as large as they've been since, well, the last time inflation was really, really high back in the early 80s. That's kind of.

Correct. But we're not going back to 1980 style inflation for the U.S. for consumer prices. So I still think the inflationists are still crying wolf. Like it's not, you know, we're not going to embark on, you know, double-digit inflation in the U.S. All right. Hey, I got, you want to hear my statistic?

Yeah. You ready? What I got? 89.9%. 89.9%. Any ideas? I'm not thinking that either. I mean, it's pretty much in your face kind of a statistic, especially you, Ryan.

Yeah. 89.9%. Take, tick, tick, tick. Give us a clue. Okay. Well, if I give you this clue, you'll know, but it's okay. Because I'm going to put you out of your misery. 99.8% is the state of Florida. The state of Florida is at 99.8%.

Oh, you're still not going to get it. I'm surprised. I thought that. Vaccinations. No. No. No, it's not, we're never near that. Oh, I'm surprised. Like, I stumped you. Yeah. Hey, it's the back to normal index. Oh, yeah. Uh, your go-to. Oh, wow. Yeah, my go-to. Because it's moving up very quickly. I mean, I think when we started these podcasts a couple months ago, it was a little above 80%. Oh,

I should say to the, to the listener, we construct this so-called back-to-normal index, which looks at a raft of different statistics. government statistics, third party statistics, to gauge where the economy is compared to its pre-pandemic level. So, you know, when I said 89.9 percent, it means that the economy by this measure is 89.9% back to normal. It's still got about 10% more to go to get back to pre-pandemic levels. And that, it's rising now very, very rapidly opening up. The Florida is, there's no state that is completely back to normal, but Florida is on the cusp. As I said, you know, very, very close. And do you know the state that is at the bottom of the list, big state that is the bottom of the list?

You probably know this, right? New York. New York? Yeah, New York. Yeah, New York. It's just below 80%. So, but it's, I suspect now that New York is opening, reopening officially, that'll start rising very rapidly.

So I, so to me, that this index. has done a very good job of kind of capturing all of the economic data and kind of putting it into one statistic that you can get your mind around. And it's saying, yeah, we're coming back. By the way, the bottom, the Nader back a year ago in the teeth of the shutdowns was 60%. So the economy was 60% of its pre-pendemic cold. So we've gone from 60% back up to almost 90%. So we've made a lot of progress here.

And we're getting back really very, very quickly, back to normal. I did want to ask you, I think I mentioned this. Is there a statistic or two that you think the listeners should be watching on a regular basis? And we'll come back to, if not every week, you know, every couple, three weeks to just remind people of the statistic and what it's saying that people should be looking at. And I'll give you an example, just to give you a sense of what I mean. So, you know, of course, inflation is top of mind. Everyone's nervous that this accelerating, this spiking in commodity, industrial prices is going to result in broad-based, persistent inflation that's uncomfortably high.

And one statistic that I think would be useful to look like, kind of like a poster child for all of this, is copper prices. I think I mentioned this in one of the other podcasts. But copper prices, the economists call copper doctor. copper because it's a very sensitive price. It gives you, it's global, gives you a really good sense of, you know, what's going on globally on a real-time basis. And right now, I look today, it's at $4.50. That's indicative of, you know, a lot of inflationary pressures. Anything over $4 is, you know, inflation. So if it comes back below for it, that means we're kind of moving in the right direction. $3 per pound.

that would be kind of typical. That's what you'd see on average through the business cycle. And closer to two, which is where we were a year ago in the pandemic, middle of the pandemic, that's bad. That's the economy's really struggling. So we're $4.50. So we'll come back to that statistic, I think, you know, maybe every week get people a sense of where it is. And then that gives them some context of, you know, where we are with regard to these inflationary pressures. So something interesting with copper? Something interesting with copper. There was a strike at a Chilean mine. So I think that's put some temporary upward pressure on on copper prices. So we have this daily industrial metals price index. So I was looking through to see what's

driving this big increase. It's up 20% this year. And it's copper, it's oil, it's lumber, nothing really surprising. But a lot of these are experiencing some sort of supply constraint. So I think that's a huge issue that is likely going to plague commodity markets through the rest this year. Yeah, I mean, I think copper was, if I go back a few days ago, I think it was like a $4.90. And then I may go to your Chilean strike. It seems to be coming back down a little bit. Well, do you have a statistic you think we should be watching on a regular basis for the listener? Chris or Ryan or Bernard.

Any thoughts there? So I'd say on a weekly basis, UI claims, unemployment insurance claims. Okay. You know, come out every Thursday. I eagerly await Ryan's write-up. So, you know, it gives a good sense of what's going on on a higher frequency basis than the monthly employment report. So clearly is something you want to watch. And you can see the downward trends over the last couple of weeks.

And where are we now on UI claims? So this week we're at $44,000. Yep. And what would be typical? What would be, you know, we're back to normal. Well, pre-pandemic, we're at $215,000. That was a pretty tight labor market. That was, yeah, that might have been below average. So $250, I think. Yeah, $250 or $300 would be, you know, typical. Things would be better. Yeah, closer back to normal. Okay, let's watch that one on a regular basis. Ryan, do you have one we should be watching? I'll give you two since you usually don't like. you don't like mine give some options i mean i agree what you said last week and i think i would pay

very close attention to the 10 year treasury yield i mean i've been a little surprised i've been a little surprised that it hasn't moved much higher since you got all these inflation concerns but the 10 year actually i think it's down recently so i was curious what what's what's pushing it lower the data the economic data has come in you know weaker than the consensus has as expected. So there's a city economic surprise index, and it kind of closely tracks changes in the 10-year treasure yield. So we're at one point, I think today, 6-5, and the bottom was last August, and we hit, I think, almost 50 basis points, 0.5. So we're up 110 basis points or 1.1 percentage points. So if it starts rising, you would, what's your interpretation of that?

the economy's normalizing that we're getting back to something more typical. And in the long run, what should the 10-year treasury yield be? I know this may be a matter or some debate. Wow. Yeah. We don't want to go down this road. Oh, we really don't. Yeah. No, I mean, I think rates will rise and there's not necessarily a level that, you know, is really going to start to hamper the housing market for the next, you know, six to 12 months. It's the pace of the increase in the 10-year treasure yield. Because before, when we had this big run up earlier this year. I mean, the Fed was, we know rates should be rising,

but the bond market was going too quickly, and they could kind of like job, job boned them down. But the other stat, which I'm watching, because we have all this excess savings, we're trying to time when we're going to get this big release of pent up demand for consumer services, the number of people going through TSA checkpoints. Yeah.

1.7 million yesterday. 1.7 million. And in 2019, about the same time, time of year, it was three million, give or take. Okay. So we're still a million, million and a half below every per day, below where we should be. If you look at the time, if you squint, you're starting to see, you know, it's improving. Yeah.

But that may take some time to get back. The economy, you might deem it to be back to normal before that gets back to pre-pandemic, right? Because there's going to be a lot of domestic tourism, but I suspect global travel will be impaired for a while and business travel for, quite some time. We read about all these anecdotes of, and you can see it in the CPI data, you know, lodging away from home prices are rising. Rental car prices are rising very quickly. So I'm using this kind of gauge when people are going to release their demand for

consumer services like vacations and things like that. Yeah, got it. Okay, so we're going to watch copper prices. We're going to watch UI claims. We're going to watch the 10-year treasury yield. And we're going to watch TSA. And there are people go through TSA checkpoints every month and see what they're telling us. Okay.

All right. Good. Oh, Bernard. I failed to ask you, was there any statistic that you think we should be following on a regular basis? So on the topic of inflation, I usually like to look at what they call sticky price components of CPI. So the Atlanta flood disaggregates the consumer price index into flexible prices and sticky. prices. And sticky prices are essentially, you know, there are prices that form, you know, the basket of goods and services that, you know, these are prices that don't change frequently. So if, if price

setters, you know, can only change these prices like for shelter, education and health care only, you know, at very infrequent intervals, they're going to have a lot of, you know, they're going to have inflation expectations in mind. So, and this, you know, these sticky prices are a good indicator of where inflation will be going, you know, 12 to 12 to 24 months down the road. So that, that, that, you know, so that's where I, you know, in the CPI, not all, not all of its components are as forward-looking as others. And just these ones tend to be quite forward-looking just because there's a lot of inflation expectations embedded in them.

Got it. Is that the, you said the Atlanta Fed? You said these, because there's a number of them. Your favorite is the Atlanta Fed. Yeah. Yeah. Yeah. Okay.

That's a good one. Yeah. We'll be watching that as well. Good. So, Bernard, before we kind of dive into the big topic, which is fiscal policy and lots of talk about there, anything else you want to tell the audience about yourself? I mean, you speak 10 languages, your squash prodigy. I know you moved to Boston. That's why there's no internet connectivity there.

Anything else we should. Oh, the other thing, you're married to a former colleague of ours, too, right? That's important thing. Yes, yes, yes. Yeah. How she's doing it? She's doing well. She just finished her first year of law school.

And then just finished a grueling week of this right-on competition to get into law review. So she finally has, you know, a few weeks of a break before she goes back into the internship. And, you know. She's a force. She's a real force. I mean, she was. Yeah, she did a lot of. of an interesting fact is during the vice presidential debates, both of our

research, you know, both of our white papers that we did got cited by Kamala Harris. So she did a couple years ago, she did a trade war paper with you and Jesse Rogers, which was cited. And then, you know, our paper on, you know, on the candidate proposals was also cited. Yeah, that was pretty something. President Biden and Vice President Harris used our, cited us pretty regularly, didn't they? Yeah, yeah. Wall Street Economist. Oh, yeah. No, no, no, no. It was it said, uh, Moody's the Wall Street firm, you know,

didn't they say that? They said Wall Street economy? I think it's exactly Wall Street for, yeah. Yeah. So, and not, not just once or twice, but like a lot of times. Yeah. Yeah, it's pretty, pretty amazing. He obviously liked our study, yeah, in the work. Yeah, which is good. Okay. So let's turn to fiscal policy. So the American Rescue Plan, That's the $1.9 trillion package of support, COVID support that was passed back. It feels like ages ago, but now it's only a couple months ago in March. A lot of that money's already gotten out. Is that right, Bernard?

Exactly. Most of that has, especially in the form of stimulus checks, you know, I'd say the vast majority of the stimulus checks have already gone out right now. And also the UI benefits, that's starting to diminish. And it's going to diminish over time, especially as more states begin to opt out of the federal UI pandemic programs. And then even the White House under pressure is going to start to institute across all states' work search requirements. So all of this, you know, these two sources of, you know, government income support are going to diminish over time. Where you're actually going to see some impulse, you know, some fiscal impulse is going to come from state and local government funding.

So after a long, you know, after a long period of dormancy, we're starting to see in the daily, you know, in the daily Treasury statement that Congress is starting, or that the Treasury is starting to issue a lot of the coronavirus relief funds to state and local governments. And obviously, these are just disbursements. This doesn't really affect the economy right now because it takes time for that to get spent. But at least that money is going out the door. It's going into the pockets of state and local governments. And our assumption is that, you know, over the next three to four years, it's going to be gradually spent out. And it's just going to be a steady dose of fiscal support, especially by staying local governments. And also –

Hey, Ron, hey, this is a conversation, not a lecture. Yeah. So, okay. We talk here on inside economics. We probe and we, you know, we try to digest it. I mean, you know, we got to break it up. You got to let us get in, you know, into the kind of. Yeah.

Maria is rubbing off on them. Is what's going on? The lawyer speak is rubbing off on Bernard. Maria's his wife, by the way. Right. Oh, you're sorry. Yeah. Yeah.

Can you imagine their dinners? Like, one talks for a half hour, then the other one talks for a half hour. And then the next one talks for a half hour. Yeah. Like in my household, I don't speak at all. I say nothing. Well, we know Bernard's not going to win any argument ever. No, I said he's a force.

He's a force. Christian, in your house, I can't imagine you do the talking. I used to. I used to, Dominique, but not my son, four years old. He's the commander-in-chief. Hey, by the way, are you teaching him Italian? Yeah, for sure. Yeah, for sure.

Yeah, that's a smart thing to do. Yeah. You know, diversify. Yeah. Okay, Bernard, back to you. So the PPP money, that's the small business program, that's gone, right? That's pretty much. Yeah, there's only about, you know, according to the reports I'm saying, there's only about, you know, 8 billion left.

And these are loans specifically for underserved communities. So, and these are being managed by what they call community financial institutions, which, you know, tend to serve minorities, women, and just other disadvantaged communities. you know i'm the lead director of the largest cdf or pretty close to the largest cdfi in the country did you know that yeah no i didn't find it yeah absolutely um so yeah very happy about that that's very helpful to um so the so okay so the stimulus checks are out uh the ppb money is gone uh the ui is you know starting to wind down and it'll be completely gone by september uh there's rental assistance and i think a lot of that that is already out there.

It's finding its way to renters. The airlines have gotten their assistance, right? That was part of the packet. Yeah. Yep. So there's only, I guess there's two things left that is yet to get out there in the economy. One of which you mentioned was the big things, I should say. One is the state and local government aid, and that's a lot, right?

That's 350 billion, I believe. Okay. Yeah. And then you have another 170 for education. So it's going to public K through 12, higher ed. Yeah. And that's going to be spent over an even longer period of time all the way through, you know, 2027. Okay.

And then there's a child tax credit you mentioned as well because that was also got. Yeah. So that's some more funds that are going to be distributed. But the, it feels like the, correct me if I'm wrong, but it feels like the largest benefit to the economy, the real boost to the economy from the ARP has happened. You know, it's in the economy. It's happened over the last couple of months. Is that right?

Exactly. Yeah, it's really the stimulus checks and the UI benefits. And, yeah, I mean, that's really, yeah, that really wasn't, the rest of it is very other, is very slow moving. It takes, it'll take a lot of time to, to really, you know, to really help the economy. But it's, it's going to come in a lot of small waves. It's not going to be all at once, like a stimulus checks. Right.

So the economy is getting this real fiscal boost in this current quarter, Q2, get something of a boost in Q3. And then it starts to fade pretty fast, right? I mean, in terms of the boost. Exactly. Yeah. Yeah. Okay.

Right. Do you think the timing was a mistake with the economic payments? Do you think they should have waited until, like, now is when they first should have gone out when the economy is reopening, more people are vaccinated. I think we may have gotten a bigger. boost to consumption if it was hitting paychecks now or checking accounts now that people are going out and doing things more freely rather than ending up in savings accounts. What do you think?

I don't think the timing. I mean, I think if people who are going to save it or spend it, you know, they're going to save or spend it regardless of the timing. And I think if they had waited to send them out, it also causes more trouble for, I guess it could, yeah, it could just be another headache for the IRS. especially at a time when they're also going to be dealing with child payments and other, in other works. So I don't think it really, it really, I don't think timing is the issue.

Because, I mean, if you're going to be spending it no matter what, if you're going to save it, you're going to save it, you know, whenever it comes. But I don't know, it could, it might have come to a little bit too soon, but I don't think it's really a big issue. That big a deal. What about the argument that it's created a disincentive to work? the UI Or all

even the stimulus check, right? Oh, okay. Yeah. What do you think of that? Yeah. So with UI, you know, I'll give some UI some credit because it's one of the most effective forms of stimulus.

You know, we've done some past work on multipliers. So, you know, $1 spent on UI will, over the next year, we'll generate about $1.7 dollars in extra GDP. And it's just, you know, it's an extremely effective form of stimulus. And, you know, you really see how the economy started to level off or, you know, slow down in the second half of last year once a lot of those UI enhancements, you know, expired. That said, you know, I don't think the UI benefits are, you know, in and of themselves,

this incentivizing didn't work. I think there's a lot of, it's not mutually exclusive. So you might have a lot of people who, you know, are afraid of the virus. You have a lot of people who have, you know, child care issues. And, you know, because of the UI benefits, they're able to, you know,

maybe wait a bit longer before they really jump back into the workforce. So it's not either or. And then plus, you know, these are, you know, it's temporary. Everyone knows that it's going to, you know, these UI benefits are going to expire after September. So it's not something they can count on forever.

So if their right opportunity does come, you know, I think the closer we get to September, it's, you know, people aren't going to wait just an extra couple weeks or an extra month until they really start working. I have to say, you know, I'm sympathetic to what you're saying, but I have never received so many emails from people, you know, business people, generally small business people, but people saying you don't know what you're talking about, that, you know, I'm on the ground here and I'm telling you, people. are not coming to work because they're getting that UI benefit that gives them a benefit that's higher than their current salary. So how would you, if you were getting those emails, how would you respond to them? I think there's, you know, there's definitely true to that. And one statistic that I did see that sort of, you know, really caught my eyes. If the New York Fed, they do a survey of consumer expectations. And, you know, one of the things they're looking at is the average,

you know, the reservation wage by demographic. And if you look at the reservation wage for, so the reservation wage is the minimum wage that, you know, workers would be willing to accept in order to, you know, to jump back into the workforce. And for workers, for adults who are without a college degree, you've seen a sharp increase in their reservation wage during the pandemic, which is surprising, you know, given that, you know, there's a lot of slack in the economy. look at the labor, you know, the unemployment rate. And, you know, I think part of that is really the

the UI benefits. I think UI benefits have, you know, made workers reassess, you know, how much they're worth or how much they should be getting paid. And it'll be interesting to see how sticky that increase in the reservation wage is, because at some point, you know, if it sticks, at some point, businesses are going to have to raise their, you know, raise the wages that they're, the entry level wages that they're going to be offering. But it could also, you know, be due to, can I say, Bernard,

on the reservation wage, could it also be, though, that people are just nervous about going back and they've got family responsibilities and therefore it's going to take

more money to get me back to work at this point in time, right? Exactly. And I think people have seen the cost, you know, of child care. They've really also internalize,

you know, a greater risk, especially people in high contact industries. I think they've really reassessed, you know, the risk, the health risks of,

you know, in constant contact with clients, you know, whether it's, you know, the coronavirus or just, you know, the regular influenza or whatever, you know, there's just the greater realization of some of the risks associated that, which, you know, could also push up the reservation wage. Chris, you were going to say something? Yeah, so whether it was intentional or not, is this a mechanism to get to a $15 minimum wage, right? effectively the extended UI is equivalent to that $15 wage, right? And so that has produced the floor, the reservation wage. Yeah, it could be. I mean, I don't know if it's going to create pockets where, or especially in big

companies when you look at McDonald's or other, you know, they're going to have to, you know, I think that's going to put pressure or permanent pressure on, on the wages, at least, you know, over the next year. So it is. It maybe doesn't get up to 15%, but it's $15, but it definitely will increase it from, you know, from where it's been. I think supporting Chris's argument is that you see a lot of businesses, even just around where we are in Westchester, Pennsylvania, saying that, you know, we're offering $15, $20 an hour. It was even listening to the radio the other day, and there was an ad for hiring at Wawa, which I have never heard before. and, you know, they're, you know, they're spinning it to make it more attractive for people to work there, including a free subway or a Wawa sub, or Wawa sub each shift.

Worth a lot. That's worth a lot. Hey, and a $500 signing bonus. Yeah, Wawa, you know, for people who don't know, is amazing. It's like a convenience store, I guess that's the right word, that does, knows how to, provide what they do conveniently. It's really great. In fact, there's a,

have you seen this mayor of Easton show and it's set in Philadelphia town? And Wawa is a part of the town, of the culture of the town. It's really a very important place. So if Wawa is doing this, then, you know, it's got to be happening. Hey, I do want to move on and talk about the future. So the President Biden, you know, American ARP is, you know, in train. It past a couple months ago and is in train. It's going to start winding down here in terms of the support to the economy pretty soon.

The next thing up, though, is the build back better agenda, which is the American jobs plan, which is the infrastructure plan and the American Families Plan, which is various social programs and tax credits, health care, education, childcare, that kind of thing. in total 4.5 trillion over 10 years and increased spending and tax credits. And of course, tax increases as well on corporations in very high income, well-to-do households to help pay for that. And it does pay for it on paper, at least over the 15-year period. So there's a lot there, and you did a lot of work on this. Really, when I say a lot of work, I mean, a lot of work on this, you know, down into the bowels of the of the proposal.

I know this may be an unfair question, but I'm going to do it anyway. What is your favorite part of all the things that he proposed? I mean, if you had to pick one thing, you say, I really like this, you know, from a picture of criteria, macroeconomic perspective, income, wealth, inequality perspective, you know, however you want to think about it. What would that be? I would definitely say the child care the child care spending to make it more affordable for for low-income households

because, you know, again, there's several reasons why labor supply is lacking, but I still think that child care is a big issue. If you look at the household survey, the Pulse Survey that the Census Bureau has been conducting most weeks since the pandemic, you know, we're looking at,

you know, at about six million adults who are not working, you know, have regularly not been working, you know, during the pandemic because of children who are not in daycare or, you know, or in school. So I think that's a, you know, I think that's a big thing to address. And I think that's, you know, a lot of people have been saying, oh, the American family's portion of the, you know, the build back better is going to be tougher to pass. But I think that's one thing that should be a slam dunk, especially if we're so concerned now about apply. And, you know, I think, you know, looking at how fast rising relative to just

all prices of goods and services, it just, I think it's a good thing to do to sort of, to sort of reverse or at least halt a lot of the, you know, the prohibitive cost of child care. I think, I think if anything, the pandemic has made this, you know, a very salient issue that should be addressed. And there's a couple of things going on here with regard to childcare. You mentioned the child care. You mentioned the child tax credit, and that's part of it. But the other thing you're talking about is for families that spend more than 7%, I believe, of their income of child care, they will be able to get this benefit to help pay for child care.

That's what you're talking about. Exactly. Exactly. Yes. Yeah. Yeah. And that's an idea that's been kind of out there for quite some time that we actually did. Sophia Korpechke, one of our other colleagues, and I did a paper when Elizabeth Warren,

Senator Warren during her campaign, came out with a very similar kind of plan. So that paper is out that people are interested in taking away. Okay. So that's what you like the most. And I think that's because you guys aren't expecting any children, are you? Or, okay. Well, we'd be the first to know. Not down. Inside economics, much be the first to know, if that ever had. Yeah, at least not know while she's in law school. Okay, got it. That actually makes a lot of sense. Okay.

Well, here's a really tough question. Of all of the things that are proposed in the build back by origin, what is the thing you least like that you, if you're a king for the day, you probably wouldn't have included in the package? Oh, look, he's taking his time. He's taking, hey, do you guys have something in the package? You don't like what you can, I'll ask you guys, too, after Bernard weighs in.

Go ahead. So, yeah, I like this proposal, but I think it's going to be, I think it's going to be tough is the community, the free community college, just because you have such a wide range of community college costs across the country, so it can be as high as, you know, $8,000 in, I think it's Vermont, but then it's, it's lower than, you know, $2,000 in California just because California really does a good job in subsidizing the cost. And we still have to see how they structure it, but it seems like the way the Biden

campaign or the Biden administration has structured, it's not going to be as favorable for a lot of these high tuition states. And, you know, they're going to have to bear much more of the cost. And it's, you could end up with just the patchwork of states that, you know, some, some, you know, participate in many others don't so it ends up being less effective you know than it otherwise would be but in order to really make it a very effective to get a lot of buy-in from all these states it's going to require a much greater you know cost to the federal government than you know than what is being contemplated right now yeah got it so you're not against the idea of free community college you're just saying

implementing that might be pretty difficult given yeah implement yeah employment yeah employment will that be difficult also on the tax compliance side so there they're making the assumption that putting in some extra $80 billion in, you know, towards IRS, towards the IRS's budget is going to generate $700 billion in additional revenue from wealthy, high-income earners who, you know, who, you know, many studies show I may not be paying their fair share. That also seems a bit high. And given that this is what, that is the largest source of revenue that's being complicated contemplated in the american families plan you know if that comes ends up being less than what they're suggesting you know that means more that you know more

deficits uh over the course of the next 10 years than you know that would be expected um because based on the cbo's research you know they they assume that you know probably for every dollar that you spend on uh IRS uh enforcement you probably get three dollars in additional uh in additional uh in additional revenue. So that suggests, you know, probably closer to, you know, 200 billion to 300 billion would be, you know, additional revenue would be generated rather than the 700 billion that the White House is assuming. Got it, got it. Hey, Chris Ryan, do you guys have any aspect of the build back better agenda you want to call out? Either something you really like or something you really don't like? In terms of what I really like, I actually agree with Bernard. I think the most attractive piece is the early childhood education. In addition to the child care, I think that's the responsibility of government to my eye. And that also sets us up for long-term economic growth,

productivity growth that otherwise would not be met by the market left to its own devices. Got it. Ryan, anything you want to? I agree with Bernard and Chris. I think most economists across the board are going to pinpoint this is the key one. Did you see that the infrastructure part is coming down? Seems like the White House and the Republicans are going back and forth. It's down to 1.7.

So. It was originally two, what was it, Bernard, two five, two three. So it was two, it was two point two trillion. But again, a lot of that, a lot of that, part of that $2.2 trillion included elder care, so increased Medicare, Medicaid services, as well as made in America investments in, the so-called made in American investments in R&D and manufacturing. supply change, which I don't think is part of the physical infrastructure talk that Republicans and Democrats are talking about now.

So if you just look at the physical infrastructure spending, so, you know, roads, bridges, highways, broadband, that's more, you know, that's closer to about $1.3 trillion. So it seems like they're closer. They're closer to where, you know, where Republicans are. I hope the broadband investment, that's. The broadband investment in Boston needs to be a top right. Yeah. Yeah.

Yeah. Yeah. I think it's dead on arrival, though, still, right? Because as long as you have taxes in there, tax increases. You don't think they can get it through on reconciliation? Oh, yeah. Sure. That for sure.

Oh, you mean a compromise? A grand bargain. No. Yeah. I doubt that. You know, even one. They couldn't even agree on a commission to investigate January 6th. How are they going to agree on anything?

on that. Hey, I did want to ask one question about the process. I do want to talk about deficits in debt, and I'm going to get to that in a second. But before I get to that, can you give us, Bernard, a sense of how you make the sausage here? Because, you know, this package comes out. You know, there's a...

The Biden administration is actually pretty good in providing detail in the back sheets that they provide, much better than, you know, other administrations. So we get, you know, some information, but how do you go from what's provided publicly to saying to, hey, Mark, this is what we need to do to drive our models? Can you just give us a sense of that? And by the way, you do this very, very quickly. I mean, it's shockingly quickly.

So I'm wondering if you've hired anyone to help you that I don't know about. No, so in general, Well, on the spending side, usually they'll say we'll spend this amount of money. So, you know, there I have the top line cost. And when it comes to the, you know, the next big issue is really, you know, how do I allocate this over, you know, over the next 10 years? And that, you know, I use past experience, you know, for infrastructure spending, we'll use the, you know, we'll use the pattern of outlays during the 2009 Recovery Act.

So that's been a good, useful rule of thumb for how I distribute that over 10 years. Then also, you know, I always am looking at the Congressional Budget Office. They score a lot of all sorts of legislation, most of which never see the light of day, you know, on the floor of the, you know, on the floor of Congress. But they also give, you know, a pattern of distribution over, you know, over a 10-year period. So that informs how, you know, how, you know, it informs, you know, the ebb and flow of a lot of these spending policies, you know, over a 10-year period. Also, during the Obama administration with each budget proposal, there would also be a series of revenue proposals that his Treasury Department put forth with a lot of, you know, tax policies and, you know, tax reforms. And obviously, you know, a lot of what Biden has been proposing is very similar to what Obama has, you know, proposed earlier on. So, yeah, I'm able to also leverage that, you know, those scores, you know, those, you know, those revenue estimates when I'm estimating, you know, especially on the tax side, some of these proposals that Biden has put forth.

Yeah, you make it sound so simple, but it is really incredible what you do and how well you do it, how accurate you are. because we can't make a mistake. Otherwise, you know, we've got a problem pretty quickly. People who are looking at either very closely. And I'm just going to say, I thank you for, you know, all the hard work you do here. You're welcome. You're really very good. Okay.

I want to finally turn to deficits in debt. You know, clearly we've had a lot to the debt load. just to get people context. Now, I'll give you a little bit of history here. I mean, if you go back before the financial crisis, from, say, World War II to the financial crisis, or soon after World War II, the financial crisis, the nation's publicly traded debt to GDP ratio was no more than 40%, give or take. It had some cyclical elements to it, varied over the business cycle by about 40%. it jumped, it doubled during the financial crisis because just how bad that crisis was and how it hit the economy. And of course, there was some deficit finance fiscal support then as well.

So we went from 40% to 80%. And now, given the pandemic, it's jumped to over 100%. I think last I looked were like 100, 304%. And that doesn't yet include all the deficit spending related to the ARP. So when that kind of all gets into the data, we're probably going to be about 110%. 110%. And the highest it's ever been is 105, 6%, immediately after World War II for obvious reasons. So that's just context. So given that, you know, people are kind of, you know, I get a lot of emails about the UI program. I also get second most emails about our deficits in debt.

shouldn't we be worried about that? So question to the group, should we be worried about deficits and debt? I mean, you know, there's I guess some folks that say no, but, you know, what do you think? Bernard, I'll start with you. Yeah, so I, when you talk to a lot of people about the federal budget, you know, I think people, people make the mistake of equating it with a household budget, and the two of them are very different. So, you know, the federal government is, you know, it's an infinite lived entity. You know, it doesn't have to retire its debt at any point.

You know, it can borrow with the expectation that future generations will, you know, will pay it off or service, you know, these obligations. Whereas, you know, when you think of a household, you know, they have to retire their debts at some point. You can't go to a bank, ask for a loan and, you know, say, you know, my grandchildren are going to pay it off, you know, all these decades later. So, you know, that's one point, you know, which makes me think, you know, it's not as pressing a concern. And also, you know, we're the standard measure of, you know, the debt burden is obviously debt to GDP ratio. And I think that this can also overstate, you know, the burden of debt because you're comparing a stock to a flow.

So the numerator is, you know, the stock of all debt that we've accumulated thus far, whereas GDP is really just the income that the economy is producing in a given year. So, you know, the economy is going to continue to produce, you know, GDP income, you know, year and year going forward. So if you compare the debt to, you know, the amount of GDP and income that's going to be created over a longer term horizon, you know, it doesn't, you know, the ratio doesn't look as scary, you know, as it would if you're just, you know, doing the standard measure of debt to, you know, to current your GDP. But I do think, you know, at some point, debt and deficits, you know, have to matter, you know, will matter. But I would say it's more the momentum in the debt that matters not so much the level. So if we were to somehow hit 200% debt to GDP ratio, but as long as that stays, that ratio sort of stays stable, I don't think investors are going to worry so much because it'll show, you know, the stability and that ratio will just show that the government is doing something, whether it's immigration reform, entitlement reform or tax reform to keep that, you know, that ratio stable. Whereas if, you know, if you see the debt-to-GDP ratio rising by a few percentage points each year, you know, year after year without any signs of stopping or slowing, then that's when you, I think we really get to sort of a breaking point where you could get sort of a crisis of confidence. And investors start to ask for, you know, higher interest to compensate for the risk of not getting paid back.

And then you really, you know, interest payments spiral out of control and something in president, yeah. You're saying it's high, but as long as it's. high and stable, we can navigate through no big deal. But if it continues to move higher, at some point, I'm going to say, oh, I can draw a line based on these data points. And the line is taking me to a place where I really don't want to go. Exactly. Yeah. Okay. Got it. What do you guys think? What is your view? Are you a saying when is Mr. Yaros is here on deficits in debt? Yeah, I'm not worried about the deficit in the near term. I think we've discussed, like, the interest payment as a share of GDP is still really, really low.

So even in a rising interest rate environment, as long as rates don't spike, you know, we're going to be fine. But as every Fed share would say, you know, we're on an unsustainable path and we've got to address this at some point. But we're more like Japan when it comes to deficits in debt than we are with, than we are like Greece. So we're not going to have a sovereign debt crisis in the U.S. anytime soon. That's interesting to think about it. Chris, you take a different position on this? Too bad we don't have our colleague Dan White here. I think he might take a different position.

What do you think, Bernard? Would Dan be, you know, too bad he had to take the day off or something? Yeah, I know. He would. Yeah. Yeah. Because, you know, in our baseline forecast, for example, we, you know, we're assuming that sometime in 20, in the 20, 2030s, legislators are going to have a wake-up call and they're going to do a mix of all

types of reform, you know, immigration tax and entitlement. And really the bang for the buck when it comes to, you know, keeping the debt under control as entitlement of reform. But obviously that's politically, you know, treacherous territory. But I think a potential, a potential wake-up call will be when, you know, the insolvency facing social security really becomes very close. And that's supposed to be, you know, in early 2030s. So, you know, given how failing, you know, social security is for, you know, for the general public, you know, I think that will be, you know, that will be a call to action for, you know, for Congress to do something. And I think, you know, despite how partisan we have been, you know, how partisan, you know, Congress has become,

you know, still, if you look back at last year, Congress rose to the occasion. We did a tremendous amount of stimulus. When it met when push came to shove, we still, you know, the Congress delivered. And I think the same can be assumed, you know, going forward when it comes to, you know, the debt. I like that. That's, that's a, that's a, Chris, do you have a, I cut you off. Yeah, I'm not nearly as optimistic, unfortunately. Okay. He knew it. He's Italian. So, I mean, he's being biased, right, his experience in Italy. That's a good, yeah. I think, I think the problem is, sure, debt is not a problem today, deficit is not a problem today, but when they become a problem, when suddenly it is an issue, then you have no room to maneuver, right? So the time

to act, the time to think about it is now when things are relatively stable. But like climate change, right, at some point, things can get away from you. And at that point, you have no more, you have no more options, right? You have to enact austerity or take very aggressive actions that would be very punishing, very damaging. So I think we need to put the focus back on debt and deficits at this point. And yeah, I would also put everything on the table. No, right, there's no sacred cows here. The defense budget, everything should be fair game in terms of trying to get back to a more balanced situation. Way to end the podcast. It's really going to be. It's an encouraging note. Well, we're not done yet. I got my three. He's got his

Two minutes. I'm going to lecture. Yeah. Hey, and we are getting late, and this is turning out to be a pretty long podcast. So, Bernard, I know you got more to say, but I'm going to cut you off, sorry. And we are going to wind it down here. I want to say a few things. First, I agree with Bernard that lawmakers, the Trump administration, now the Biden administration, and the two congresses have done a very good job responding to the pandemic. that they provided a substantial amount of support. By my calculation, about $5 trillion worth of deficit finance support, about 25% of GDP. And that saved the day. And I think that if they had not done that, the economy would have been substantially weaker and are fiscal problems substantially worse

because of the tougher economy? Unemployment would be higher, and thus government spending higher, because of the automatic stabilizers in the budget. Revenues would be a lot lower. Of course, stock market would be a lot. You know, everything would have caused our fiscal situation to be a lot better. So I think we really didn't have a choice,

at least not a good economic choice. And fortunately, policymakers, lawmakers did the right thing. I will say, though, it took a little bit of pressure for that to happen. Here, I'm going to say something that may be a little controversial. I'm not so sure we would have gotten all of the support, if not for the Georgia Senate races, right? Because you remember the Georgia Senate races? They, Georgia, they were under Republican control. We had the November election.

The margin of victory for the republic wasn't wide enough, so there had to be a runoff. And as soon as it became clear that those races were competitive, that's when Congress and the Trump administration came. together at the end of December and passed a piece of legislation to support the economy. And by the way, if they hadn't had done that, I think there's a pretty good chance that the economy would have gone back into recession. You remember back in December, we lost jobs. And the pandemic was raging. It wasn't clear when we are going to get vaccines.

It was a pretty dark time. And because of that COVID package, that $900 billion package, it turns things around. And then, of course, the Georgia Senate seats flipped to the Democrats. and you got the American Rescue Plan and now we're off and running. So, you know, the history of all this may have ended up being very different. And our assessment of what lawmakers did may not be as glowing if, in fact, you know, that might have been a different turn of events. Second thing I say is I agree with Chris.

It's now time to really start thinking about our deficits in debt. That does not mean that we can't have a – aggressive, build back better agenda. You know, we need infrastructure spending. We need to provide for child care and health care and education. These are things that are investments in the economy's ability to grow. In terms of infrastructure, it's about productivity, mostly about productivity growth in terms of the social programs, as we talked about, mostly about labor force participation, getting people back in. If we want a stronger, long-term economy, we need to do those things, but we need to pay for them.

And that means we, you know, if we're going to do this, we do need to raise taxes. It makes sense to raise taxes on large corporations and on the well-to-do and high-income households because they're the ones that got the big tax cuts back a couple of years ago, and their effective tax rates are about as low as they've ever been historically. So normalizing them, to me, makes a lot of sense. But I don't think we should pass legislation. that now doesn't pay for itself. By the way, that that's both in a long-term sense because I do think we need to be worried about our debt load and what that means for future interest rates, but also in a

near-term sense because with the American Rescue Plan and all the other things going on in the economy, we are going to get back to full employment. So if you have deficit-financed fiscal support with an economy at full employment becomes very counterproductive very quickly. You have inflation, higher interest rates, you overheat and you can go back in a recession, which nobody wants. So, I mean, even if you don't even, you're not buying into the need for, you know, fiscal restraint long run, in the near term, I think there's a logical argument to be made. So I do think the bill back better agenda that the president has proposed is a good one, but in significant part because it's paid for. But, you know, there's a lot of ground to be covered here, a lot of script to be written. Bernard, we're going to have you back and help us digest all of it.

And the next time we're going to get Mr. White in on this conversation, I think he would spice things up a little bit, more than a little bit, I think. He's got a different perspective on things. So with that, we're going to call this a podcast. Everyone, thank you for attending. And we'll talk to you next week.