Moody's Talks - Inside Economics - Lumber and Labor Force

Episode Date: April 30, 2021

The economy is booming, should President Biden get the credit? ...and what about his newly unveiled American Families plan? Mark Zandi and the Moody's Analytics team discuss.    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.

Hello, this is Mark Sandy, Chief Economist of Moody's Analytics. Welcome to Inside Economics. I'm joined by my trusted colleagues, Ryan Sweet. Ryan is the director of real-time economics. And Ryan, you nailed it last week. Didn't you say your statistic was personal income up? I believe you said 21% on the nose. And that's what we got today. Is that right? 21.5. That was my forecast. I was okay. A hair. A hair. Very good. Excellent. We'll come back to that in a minute. And also joining us is Chris DeReedy's Deputy Chief Economist. Hello, Chris. Hey, Mark. Good to see you. And welcome to our podcast. As regular listeners now know, there are three parts to the podcast.

Part one, we're going to go over some of the indicators over the past week, maybe in the coming week, give you a sense of how things are going and where we're headed. And then part two, the big topic this week, we're going to tackle the American Families Plan. And of course, that is what President Biden, excuse me, unveiled earlier this week in the State of the Union. I don't think he called it a State of the Union, though. I don't think they called it that this time for some reason. But it's the second part of the Build Back Better agenda focused on families, and we're going to dissect that. And then part three, I'll just kind of bring it all together for everybody, give you a sense of where we landed.

So with that, let's begin with the indicators. So yeah, kudos, Ryan. You know, before we go on, people, I think I mentioned this before, but I just want to mention it again. You are among the very best at forecasting these real-time indicators. You're always in a pitched battle with the – who's the fellow you're in a pitch battle with always for number one in terms of the best forecaster?

Oh, Jim O'Sullivan. Jim O'Sullivan, yeah. Oh, yeah, he's very good. It's time for him to retire. Oh, is that right? I'm kidding. I'm kidding. Oh, you're kidding.

Too bad. So give us the, can you give us a little bit of your secret? What is it that makes you so accurate? Why are you so accurate? What do you do that makes your predictions of these indicators so good? Well, I have a bunch of models, but, you know, when you're forecasting these high-frequency indicators, the model only gets you into the ballpark. You really need to know what you're forecasting.

like the ins and outs and all the little nuances with personal income, you know, seasonality issues with employment. So, you know, just diving deeper and really getting to know all the intricacies of each data point. So all of these different data sources have their idiosyncratic features, seasonality,

measurement issues, survey issues, timing of the month when the survey occurs. Correct. All these things. And so you, if you pay really close attention to the things, really begin to understand them, then that makes all the difference in terms of the forecast accuracy.

Yeah, and I don't want to give away all the ingredients to the secrets. No, no. You really shouldn't. A lot of it's relied on models and it's trial and error. Every forecast is a learning experience when I'm wrong. And I'd go back and try to figure out why I was wrong and make sure I don't do it again. You know, there was a time when there were these so-called macro hedge funds. They make a living on predicting the monthly indicators and the closer you were.

obviously the more money you can make in markets. That's gotten a lot harder to do in recent years. Some people who do it, our good friend, Haseeb Ahmed, who used to be one of our colleagues, went off to a hedge fund, I think still does this and does it quite well. But it's not what it used to be. So just think about that for a second. You could have been, you could have been a billionaire by now if it was, you know, you had this talent. If you were around 20 years ago when this was really. Well, we can revive it. We'll just take some of Chris's crypto money and start our own head. I'm all for that. Yeah, we should always look at that.

I was looking for justification. Yeah, exactly. So what's your indicator for the week? What is your, what do you want to highlight this week? So there's a lot of things that came out this week, but, you know, I picked one where it should ease some of the concerns about this one part of the economy that's starting to cool. Yeah. The number is 8.9%.

This is the one part of the economy that's starting to cool. Mm-hmm. It's positive 8.9%? Positive. Geez, I don't know. Do you know, Chris? No. I didn't know there was any part of the economy

that was cooling. That's why I'm stuck. Housing related. So housing. So you're starting to see home sales cool a little bit. Construction activity is strong, but it's the demand side that has shown signs of softening,

pending home sales. Oh, I see. So all that stuff is starting to soften. Yeah, but you're really stretching. I mean, really stretching, right? Because new home sales were a million, close to a million. I mean, that's like, you guys were really giving me a lot of grief a year or two ago saying we'd never see these kind of sales. And now we're saying, well, this is why I'm picking this number. It actually supports your overly optimistic housing forecast. Well, it's coming to pass. No, it's coming to pass. Yeah, it's coming to pass. So what's 8.9%? What is that? It's the percent of consumers that's planned to buy a home in the next six months, which is a record high, the highest since the 1970, late, late 1978. Oh, very cool.

And the average in the last expansion was a little bit over 5%. And I think a lot of this is demographic driven. So we have 39 million people between the age of 26 to 34. That's about 13% of the total population. So these people are moving into their prime first time home buying age. That's very cool. You know, we've got a bunch of really cool housing statistics. Chris, one of the guys that we work with, Todd Metcalf, pulled some data calculating the percent

of home sales that are flips. Do you remember that data? Yeah. How does he calculate that again? And what's the number? Oh, I don't know that I can answer either. One of those. I thought it was like he looks at transactions

and then he says, what is the percentage of transactions that are arm's length that occurred within the last year of the previous transaction? So if it's within one year, that was his definition of a flip. That's right. That's right. Yeah. And do you remember the numbers? I don't remember the numbers.

Oh, boy, I got you. He got me. It's low. It's still low. It's very low. It's very higher, but it's like less than 10% of sales. And of course, sales, home sales are very high. Less than 10, I think it's closer to 7 or 8% are flips by his definition. And if you go back into the housing bubble pre-financial crisis, I think it was, you know, 20, 20, 25%, something like Yeah, even higher than that point. Yeah, I remember those trends. But yeah. So they also gives me some solas, right?

I mean, yeah. Yeah. These sales are for real. They're not just people out there. It's not a bubble, you know, they're not even sense of speculation at this point. Yeah. Hey, I got, before I go to you, Chris,

because Ryan picked the housing statistic, I got one too. So I'm giving you a hint. You ready? $36,000. $36,000. Oh, I got this one. Oh, you do. Okay, go ahead.

the added cost to new home sales from higher lumber prices. Exactly. Way to go. That is exactly right. And that's data from the National Association of Home Builders who are, you know, just goes to the strong housing market, in this case, housing construction. And lumber prices are up a lot. In fact, they've more than doubled over the past year.

A lot of things going on there. in addition to strong demand, driving up new housing activity. But we've got the tariffs that were put in place with Canada back under Trump. They're still playing some havoc. And supply chains have been disrupted. And I think the biggest factor is a lot of Canadian sawmills shut down during the tariffs. And it's taking a long time to get them back up and running again. And it's not really the lumber, the physical trees.

I think we got plenty of trees. Although there are some issues there with with weevil, not bow weavels, that's cotton. Pine beetles, pine beetles up in Canada because it's been so warm that these pine beetles are starting to, they're not getting killed off by the Canadian winters and they're starting to chew up a lot of the lumber. But that's not really what's going on here. It's really the sawmills, I think. Yeah. But it's not just lumber, right?

You see copper prices, gypsum prices. it's kind of across the board. Cross the board. Yeah. Right. Okay, here's another quiz question for you. And you can see I prepare for this all week long. We don't share.

In fact, now I'm getting to the place where, oh, I got a bone up on this for this podcast because I could ask me a question. I don't know about the data. $350,000. What's $350,000? Oh, Chris has got this one. 350. It's not median home price.

Yeah, median new house price. Median, new house price. Yep, exactly. So, and it's, this for context, right before the financial crisis in the bubble, the median new house price was $250,000. So it's up $100K. That's a lot, you know, over that period of time. Yeah.

Just a little over a decade. Yeah. Okay, Chris, what's your statistic? What's your data point? Negative. 0.6%. Negative negative

0.6%. Hmm. Can you give us a hint? Well, you know, I'm always I'm always In Japanese CPI? No, no. He's overseas all the time.

I'm in tune with the audience, right? We have a lot of foreign listeners, so. Eurozone GDP. Oh, you got it. And that is why Ryan is the champion of real-time forecasting. Very good.

Excellent. Here's something that really bothered me. It bothered me when I saw. You know, New York Times, U.S. GDP came out, of course, which none of us picked at as a statistic because I'm sure everyone has read about it, up 6.4% of the first quarter, boom-like kind of growth. But the New York Times, when they reported it, they didn't report it annualized or reported it as a quarter-to-quarter change.

Like, you know, why are you doing that? I mean, they only do that in, well, I don't. I guess we're the only country in the planet that analyzes. Why are you screwing with that? You know, why are you changing that? You know, that really, I don't know if that was intentional or, you know. Yeah, it was intentional. They started doing that, I believe, it wasn't just them, other news agencies when

during the pandemic, when you've got this enormous big swings in annualized GDP. And they really want to try to reflect, like, you know, what actually happened. Yeah. Well, I'm annoyed by it. Makes no sense. Yeah. really really bug bug me yeah i because i first thing i read it i go oh my gosh how could ryan be so wrong because you predicted your modeling said 7.1 how could it be you know what was it 1.6 or something

that was the quarter to quarter change before it was annualized and i had a heart i was my heart stopped i go oh my gosh what the heck what what happened um but you know it turns out um anyway so uh just summing up the data of course how would you characterize the data or the last week over the last few weeks. What is it saying about the economy? Yeah, just everything. What's it saying about the economy? Yeah, well, so it's a second consecutive quarter negative GDP growth, right?

So that's problematic or no, no, no. I mean, here, forget about Europe. Oh, forget about Europe. Sorry. Oh, come on. Listeners. That was the whole point. That was the whole point.

Okay. What's it saying about Europe? Go ahead. Worrisome, right? You would think. But there are a lot of asterisks here, right? Vaccine rollout has been slow, but is projected to advance here. You have the supply chain issues affecting automotive aeronautics industry.

But, you know, there again, we think things are going to improve. So I'm not overly concerned, but certainly that's something to keep on the radar. And we have to worry about the globe as we're thinking about the U.S. outlook as well. There were a lot of lockdowns in Q1 in Europe. Yep. So. Yeah. Yeah.

Absolutely. Well, you know, it's interesting. I mean, in the case of Europe, I'm not overly worried because, you know, they are vaccinating. They are slow, but they're moving in the right direction. And it feels like if the, you know, the UK is already opening up and it feels like that economy's coming right back to life. I'm not all that worried about it. I mean, it's obviously not great, but I think they'll turn it around here pretty quickly. I really worry about the emerging markets, though. You know, Brazil, India are kind of really struggling here. And, you know, and. there, it's not clear that they're going to get those vaccines out there very quickly. So that could be more of an issue, more of a problem. And then we have a lot of colleagues in those parts of the world and, you know, really feel for them and thinking about them. So, you know, it's a tough situation. But coming back here to the United States, so if you add up all the data, Ryan, what do you think? How would you characterize things?

Booming. Booming. Yeah, I mean, it's really strong across the board. I mean, so we got personal income to it this morning? And that was that 21.1% increase. Yeah, the one you got. Yeah. So I estimated our excess savings in the U.S.

It's $2.3 trillion. Yeah, $2.3. That's what I saw. It's enormous. Yeah. Yeah, consumer spending is doing really well. I mean, across the point. And excess saving is defined as for folks out there.

How would you, how would you define excess saving? Well, it's the amount of X, and you can add on to the definition, But I always think about it as the counterfactual, like if we didn't have, like, what's the excess amount of savings that people are doing because of the fiscal stimulus, because of the inability to spend on consumer services and other things. So it's the saving above which they would have done if there was no pandemic. Correct. Right. Very good. So it's booming.

So let me ask you a question and try not to be too political, but, you know, see how to handle us. who gets the credit for this? Is it President Trump or is it President Biden? None of the above. But what do you say? What do you think? I mean, I got my view. I'm curious in your view.

I give it to Congress. You do? You give it to Congress? I mean, they were the ones that passed, you know, even under, I mean, under Trump, we got a lot of fiscal stimulus. Then they came in right away and passed more stimulus under Biden. It was targeted. I mean, there was problems.

with a few programs, like the PPP, the Paycheck Protection Program. You know, in hindsight, you might want to tweak it a little bit better to make it simpler for people to file. But all in all, I think you got to tip your hat to them with the fiscal policy response. Okay, so let me ask you, if President Trump was reelected, would we have gotten the American Rescue Plan? Yes. Oh, yeah, right.

Yeah. Okay. No, they would have done something. Yeah, yeah. It would have been as big. We would have gotten something. Let me, let me have a whole, well, before I give you my view, and you can already, Tell what I'm thinking about.

What do you think, Chris? So I agree with Ryan that Congress certainly deserves a lot of the credit, but actually I would give it to Pfizer and Moderna. Without the vaccines, we wouldn't be anywhere near where we are today. Yeah. Okay. I think that's clear. And the second, I also think Powell, central banks in general, we can't discount them. The quick action, the speedy action, I think that was critical.

You know what or who I give it to? You know, since we're not going to answer the question. So I'm going to give it to the Georgia Senate races. Really? Because if the Georgia Senate races had not been close, if the Republicans thought they would win them hands down, I don't think we would have gotten that $900 billion COVID relief package in the lame duck in late 2019, December of 2019.

And I don't think on the other side, you know, if the Republicans held on to the Senate, we would have gotten another fiscal package. I mean, maybe with push comes to shove, but only if the economy started going south. And by the way, the economy was going south. Remember back in December, we lost jobs. And if you go back and look at Ryan's calculates this monthly GDP statistic, it's basically gone nowhere from October, October all the way through. It goes up and down a little bit month to month.

But if you look through it, it's basically flat. you know, over that period. And we, and that's even with all that support. So in my view, the fact that those Georgia Senate races were so close, that lit a fire under Congress and the Trump administration saying, you know, I got to get, I got to pass something to try to win those elections. And they didn't. And then, of course, the Democrats got control of government. And then now we're off and running. And I don't, I don't, I have a very different view. I think if the, if we had a different outcome with the Georgia Senate races or the presidential election, I, I think, we'd be in a very different place. And I think actually the rollout of the vaccinations,

you know, who knows, you know, if President Trump would have been as effective as Biden, hard to know. But we do know Biden's administration was very effective. And given, you know, how the Trump administration handled the rest of the pandemic, which was pretty vexed at best, you know, it doesn't take a genius to think that the roll out of the vaccine might not have been all that well. So I give it to the Biden administration. I think, They deserve, you know, I give it to Congress. You're right. I think that you're right about that.

I do think central banks deserve a lot of credit here as well. But at the end of the day, I give it to the Biden administration. But debate to be continued, we're going to have this debate for a long time. Okay, let's get to the big topic of the day and the American Family Plan. And, you know, just to frame it, the American Family Plan, of course, is the second part of the build back better agenda, the first part was the infrastructure plan, the so-called American Jobs Plan. And it's big.

It's another $2 trillion or so in additional spending and tax credits. This plan is focused on, as it's titled, Families. So it's really mostly about kind of child care and family leave, medical leave, education. you know, early childhood education. So there'd be a universal pre-K. And if you're up for it, two years of community college for free, a little bit more money for Pell grants. And some additional money for health care,

the ACA, the Obamacare, the Affordable Care Act, and a little bit of money for the IRS. Because the way this program is paid for, at least in the, in the, on paper, it's higher taxes on high-income individuals, wealthy households. You know, it's rolling back the Trump tax cuts for high-income individuals. It's taking capital gains, dividend rates up to regular income for people who make over a million dollars.

And really, interestingly enough, the biggest line item in terms of revenue is having the IRS crack down on wealthy households in terms of how much they pay in taxes. There's a lot of studies that come out showing that they're not, you know, it's, you know, a lot going on with some of the very wealthy taxpayers and they're not paying their fair share. So they crack down on that. So a lot going on in on that. And we can talk about sort of the economic logic behind this and some of the other reasons why they're doing this. But broadly speaking, how do you feel about the package? Chris, you want to go first?

Sure. So I think it's a slam dunk economically. This is exactly the type of program that government is designed to address. These are all areas that, you know, I guess to put it this way. There are very few things that economists agree on, but primary education, the returns to primary education, universally known as, you know, high, very high return. So supporting childcare supporting primary education, those are, you know, things we should be doing anyway. So this is just a natural from that standpoint. We can argue about the size of these programs, perhaps, and I think this is the opening gamut, so there'll be some debate, but I can't see, I can't see the resistance here. This seems like a pretty clear cut. Casey's these are public goods. You're not going to get the private market, you know, providing these types of services. I see it as a slam dunk.

Oh, really? Interesting. When you say slam dunk, slam dunk economically or politically or both? Economically. Economically, okay. Politically, the issue here I see is that the gains from these plans are going to be far off in the future, right? We educate primary school children today, primary age school children today. We'll get the gains 10, 15, 20 years from now. So politically, that's perhaps an issue.

There will be some immediate gains from child care. I do think that will help with labor force participation in general, women's labor force participation in particular. So I think we will see some real benefits and results if this passes in the near term. But, yeah, a lot of those gains are going to be longer, far off in the future. Yeah, right. Difficult. Right.

Anything about the plan you're uncomfortable with? I mean, of course, there's a lot of pushback from opponents on the tax side saying that this would be very negative for economic activity and growth, you know, raising taxes on high income, high net worth households, that that would be a problem for the economy. What do you think of that argument? Or is there anything about the plane you don't like? You know, so the taxes, so as I said, I think this is the opening gambit. There'll be some negotiations here. I think the evidence is pretty weak that raising the taxes at the higher end of the income spectrum leads to deleterious economic effects. Regionally, perhaps you'll see some flight out of the higher tax areas to lower tax areas.

But overall, from a macro perspective, I think the benefits are going to outweigh the costs here. So I'm not terribly concerned. Again, I think there'll be some negotiation here that, you know, reduces the size of the plan and the tax effects as well. And I'm not concerned that the taxes are going to really lead to decline in investment or affect our long-term growth negatively. Got it, got it. Hey, so it sounds like we had a conversation a couple weeks ago around the American Jobs Plan, which was the infrastructure plan. And you weren't nearly as enthusiastic about that one, or at least that was my read on your comments, as you were on this one. Do I have that right?

So I think the programs are, even the other plan, I think the programs are well-intentioned. But when it comes to infrastructure, I think you have some other options. I think you do have a private sector that can step in or partner and provide those services. So there wasn't so much the, I'm certainly an advocate of more infrastructure. spending, certainly that our investment. Certainly there's a need for that, but it's the mechanics of how we can. I see what's the approach. I don't see the option. The private market is not going to step in and provide these types of services, right? This is the role of government to address these issues. Right, right, right. Makes sense. So are you, would you consider yourself a

progressive or like a O.O.C. Progressive? Bernie Sanders Progressive. A. Elizabeth Warren progressive. I'm just trying to get a peg on you. Yeah. I'm unpegable. You're unpegable. I'm a lifelong independent. Oh, okay.

You're not going to tell me. You're not going to tell me, are you? Registered independence is day one. Oh, you are registered independent. Yeah. Yeah. Well, you know, I thought since you're so wealthy, you know, you'd be a little bit more, you know, trying to protect your nut, you know, the, all of that.

Now, let me ask you a question. I don't know the answer to this, but you should know the answer since you own so much crypto, do you pay capital gains on crypto? You must, right? I get, right? If I buy a dollar of crypto and I sell it for a thousand bucks, like I know you've been doing regularly, are you paying full fare on that? And your capital gains, I guess, right? I don't know the answer. I should. The answer is yes. Yeah, okay. It's an asset. Yeah, okay. I should know the answer. And I think that's why you have these non-fungible tokens and other things cropping up because it's a try to divert those transactions.

I see. Once you convert into dollars, right? That's when you got to pay a tax? I believe so. So you're saying if I have a crypto coin and I buy a non-fungible token for a painting, right? In crypto? It's not a, it's not a... I don't believe that's a...

Oh, because it's currency into an asset? I see, I'm so confused. Someone should know the answer to this. We will investigate it or someone will tell us. I mean, but you're the crypto king. So what the heck? You don't know this stuff? How can you not know this?

Oh, see, buy and hold. It's just buy and hold. You're one of these guys, the IRS is coming after. Yeah, I can tell. As long as you don't sell, Mark. All right. Yeah, okay. Yeah, maybe you're right.

Ryan, so what do you think? What do you think of the American family plan? Are you a fan as well? Yeah, I'm a big fan. I agree with everything Chris said. I think it's a huge investment in the American people, and I think this is exactly what we should be doing. When it comes to the taxes, I was curious to see, you know,

are there economic costs to raising the capital gains tax? And really there isn't a lot of evidence of, you know, we have a small sample. There's only been two times, you know, since the 1980s that we raised the capital gains tax. And of course, like, you know, in the fourth quarter right before the tax hike goes into effect, to get a sell-off in the stock market, like a correction. But after that, stock prices resume rising. So there's no, doesn't seem from this small sample evidence that it's going to permanently

alter people's, you know, appetite towards equity markets. And as we talked about before, you know, increasing the corporate tax rate, I mean, it didn't boost the economy when we cut it and it's not going to hurt it when we reduce it. And the same likely holds when you increase the tax rates on, you know, the well-to-do households. Right. Just for the listener, the corporate tax rate hike is used to pay for the infrastructure in the American Jobs Plan. And you're saying, look, raising the corporate tax rate as the president has proposed to pay for infrastructure, yeah, on the margin may be negative, but no big deal. Because we've seen what there's been really a little benefit to a tax, corporate tax cut.

So why would we think there's going to be a significant hit to the economy from a corporate tax increase? I've never seen any, yeah, I've never seen any evidence that trickle-down economics works, but both of you may have a different assessment, but it just doesn't seem like going the opposite direction. I'm with you on that. So can I ask you, are you a, what kind of, you're, you seem like a very progressive Democrat, you know, AOC kind of Democrat or do I got you wrong? You're over, too, no. I'm over, oh, so are you an independent as well? No, I'm a registered Democrat. Oh, you are a registered Democrat.

But I'm a centrist. That's what they all say. That's what they all say. He's a Biden Democrat. I'll tell you a Biden story. I actually played golf behind him one time. What's say that again? I play golf behind, or, you know.

Oh, so you're one of these bourgeois guys too. You got money as well. No, no. Well, you're playing golf behind president. Biden. What am I supposed to think? He wasn't president. He was running for president. Oh, I see. Okay. And he asked, he's like, do you mind if we tee off in front of you? I was playing with my father-in-law. I was like, oh, yeah, of course. Bad, bad idea, because I think I hit into him once or twice. Oh, is that right? Was he a good golfer? Yeah, he's a very good golfer. Yeah. So you guys didn't ask me what I

thought of the American family's playing. I guess we already know your politics and we already know what you think. Yeah. You know my politics. Oh, so how would you characterize me since you know my politics so well? It's clear. Yeah, you've never found a tax hike you don't like. Oh, that's so rude. Never found a spending plan. Yeah. That's so rude. So rude. But I am a fan. I am a fan. You know, here's the thing. Let me tell you why I'm a fan. You know, for many of the reasons you gave as well. But, you know, to me, This is both the American Jobs Plan and the American Family Plan, the build back better agenda, is about long-term growth. It's about lifting the long-term growth of the economy.

The American Jobs Plan is mostly around trying to lift productivity growth, by raising the amount and quality of the public capital stock, the infrastructure, that's so necessary for the competitiveness of our businesses and their productivity. growth and gains, while the American Family Plan is really focused, not exclusively, because you mentioned education, obviously education is raising educational attainment, which improves productivity of the labor force, but it's really mostly more focused, at least more directly, most immediately on labor force participation. So, you know, child care, if you help people with their child care,

which, you know, kind of, you look at the numbers. I did a study, Sophia Kora Petschki, one of our other colleagues and I did a study back in the presidential campaign when Senator Warren came up with a universal child care program. And it's very similar to what is in the American Family Plan. You know, it's for lower income households. You get subsidies up to if you spend more than 7% of your income on child care. And you want to guess what the typical cost of sending a, taking care of a five-year-old kid is, you know, through child care, typical across the country. Just take a guess.

Annual, annual cost. What do you think that is? I don't want to say, because then people can glean what I pay for daycare. Which I do. You have any sense of that? 10K, $10,000 a year. And you know what it is in, I don't know what is in Pennsylvania, where you live, Ryan, and you and I live,

But in Massachusetts, it's the highest in the country. 50K, 50K. Yeah, kind of gives you a sense of things. So, you know, for many lower-income households, the median household income is 50K a year. Lower-income households, you know, this is very prohibitive. And if they can't afford childcare, it can't go to work.

And that's one of the reasons why female labor perverse participation is so low in the United States compared to many other countries. And obviously, you know, there's a lot of locked-up talent there that needs to be on lockdown. And I think that would go a long way. Paid family leave, paid medical leave. Also, you know, very similar that the burden of, you know, taking care of kids,

newborns and the elderly and the sick, you know, fallen generally on women. And another reason why female participation is so low. So in my view, this is about, you know, longer term growth. And, you know, it roughly, the other thing I like about it, and I think is really critical, is that it roughly pays for itself. You know, not in the 10-year budget horizon that, you know, we all use congressional budget office uses to score these programs, but over a 15-year period, because a lot of these, particularly for the infrastructure, it's a one-time expense and goes away after you spend

it, but the tax increases remain in place. So over a 10-year period, it adds to deficit in debt, but over a 15-year period, you know, it pays for itself. So I think that's critically important, you know, now with large, budget deficits and debt. And by the way, you know, that's not a very, that may not be a very progressive thing to say, right? So that, you know, that's my, you know, middle of the road. I think deficits in debt do matter. And particularly when an economy gets back to full employment, which it soon will over the next couple of years. So there's nothing in these,

in this plan, the American family plan you would change. No. Okay. You know, like I said, the amounts can, you know, it's hard to, it's really hard to judge as you're looking at the plans and understanding is this what is the appropriate amount here so I think there's room for negotiation there but in terms of the scope and what the plans are focusing on I there's nothing here that you know I would object to earning of tax credit I mean they're all things that make a lot of sense right the one thing I would add is like you know the three of us we've been assessing a lot of fiscal policies over our careers and as economists I mean maybe you guys do it differently, but I try to put blinders on. If, you know, someone put this

plan in front of me that was, if it was President Bush, we would be saying the same thing about it than if President Biden put it forward. So we look at history. We look at, you know, our, run this stuff through our models and the output's the output. You know, we don't try to, you know, influence at all. Yeah. The one thing I will say, I am coming out with a, you know, as you said, Ryan, we evaluate a lot of these fiscal policies. And we write our analysis. And we write our analysis. And we've done that for, we did it for the American Rescue Plan. We did it for the American Jobs Plan. And we're in the middle of doing it for the American Families Plan.

We'll probably release that on Monday. I'll work on it over the weekend. But the one interesting thing about it is that the benefits do take a long time to develop. Right. So, you know, we, I show a 10-year forecast horizon, budget horizon. And over that period, the economic benefits are pretty small. They're not large. But they, but they do, you know,

like, for example, early childhood education, you know, universal pre-K, you know, for kids that are three and four, that doesn't reap any real benefit, right, until 20 years from now, right? And we know from studies that the studies are pretty definitive that they make a big impact in childhood development and their future educational attainment and ultimately, you know, how productive they are to the economy, but we won't see the benefits of that for, you know, a long time well outside the budget horizon. So it makes it feel somehow, you know, when I do the study, just inadequate, right? Because I, you know, I'm doing it over that 10-year budget horizon and it just doesn't feel, you know, like I'm capturing everything that's going on.

Somehow we've got to change the way. If we're going to make these big investments that have big payoffs, but only over a long period of time, Somehow we got to think differently about how we do the accounting and the budgeting, right? Because, you know, you can't solve big problems even in 10 years. Here's the other thing about the plan. I'm curious what you think. This is sort of the way I think about it. It's working to help support longer-term economic growth, but then make sure that the benefits of that growth go to lower-income households.

That is also addressing the income and wealth distribution. issues that we have in the country, that they, you know, are much wider today than they have been to the past and they're still growing. And this is a way to help with long growth, long-term growth, but also make sure that, you know, the fruits of that really go to households who really need it, you know, sort of at the bottom of the income and wealth distribution. So I don't know if you have any views on that or any thoughts on that other than what I just added. I guess you are accruing the benefits towards the bottom of the income distribution, and you're also taxing more at the top of the income distribution, right?

So, yeah, if the objective is reducing income inequality, it's, yeah, direct on both ends. Pretty direct. Okay, so it doesn't feel like we have much of a disagreement here. I mean, we're going to, I guess we're going to have to get one of our other colleagues in here that might have a different perspective to push back a little bit. Or maybe it's, it's, well, it is what it is, right? It's good policy. So hopefully maybe it was just well done.

Just well done, right. And by the way, we are including, we're not adopting wholesale what's been proposed by the president, but we are incorporating a big part of his proposal, his build back better agenda, into our baseline forecast. So it is part of our long-term economic outlook. and we are a bit more optimistic now than we were, you know, a few months ago before all this happened. So it feels pretty good. Do you know how much it raises your potential GDP? Yeah. It raises in 2031, 10 years from now, both plans together. What we've assumed will be adopted and to be, you know, just to give a sense of it, the president has proposed four and a half trillion

in additional spending and tax credits, three and a half trillion of tax increases over a 10-year period. We're assuming three trillion of the spending and tax credits get passed in roughly $2 trillion, $2.5 trillion of what will be covered by tax increases in the first 10 years.

All of it's covered over a 15-year period, but over the first 10 years. So if that's it, if that's our forecast, then our long-run potential growth rate of the economy, EDP growth in year 2031 is 10 to 15 basis points higher than it was previously. So it lifts it by now you may say, oh, that doesn't sound like a lot, but you know, we're going from 1.9% to a little over 2% per annum. And that adds up to a lot of money over a period of a decade or two, certainly over a

generation or two. So that's a big deal. So that's kind of the numbers we're getting. But still feels a little bit inadequate. Okay. anything else on the build back better agenda you want to talk about or anything else you want to say about fiscal policy that we kind of missed you so you mentioned the how we're thinking about the the amounts you have any sense of the timing when did these things get past yeah so uh towards the end of the year it uh through reconciliation so this is the budget process that will allows the Democrat uh, uh, Democrats to pass this without any Republican support. So under reconciliation bill, you can pass with a 50-50 vote because you get, you know,

if you control the vice presidency, they can, she can break the vote in your favor. And you don't need to get 60 votes to break a filibuster. So we're assuming that, that this gets through on a reconciliation. We're kind of agnostic with regard to whether it's two reconciliation bill. You know, there's a thought that you might, because of the Senate rules, there might be another reconciliation bill in this fiscal year and then one early next fiscal year. As you know, the fiscal year ends in September. So both would be at the end of the year. Or it could be all, if they can't do another reconciliation bill this year because they did the American Rescue Plan under reconciliation

and there might be some limits on only doing one a year, if that ends up being the case, then they'll combine them and pass them is one reconciliation bill in. at the start of the next fiscal year, probably in October or November, something like that. And it would take effect January 22. So that's when it would start. That's our baseline. So no chance of cleaving off the infrastructure piece of it, passing something on a bipartisan basis. Yeah, I'm skeptical, though get any kind of thing done in a bipartisan way.

I mean, it's possible that the Republicans feel that politically they need to support some type of infrastructure plan so that, you know, maybe get a skinny infrastructure plan through. But at the end of the day, I think they'll come to the conclusion that that will just free up more for a big reconciliation package that the Democrats are going to pass anyway. And that might include more things than otherwise would have been the case that they don't are particularly fans of. So I'm skeptical that we're going to get a bipartisan. deal here on even on infrastructure, even though it is popular out there.

Possible, but that's not what I'm assuming. That's certainly not in our forecast. So, okay, very good. So we covered a lot of ground. You know, I think we came to the conclusion that, well, first of all, the economy is often running here, boom-like growth, the American Rescue Plan, along with the winding down of the pandemic. that this economy is off and running, certainly over the next 12, maybe even 18 months.

And I think we also concluded, you know, broadly speaking, that the build back better agenda, the American jobs plan, American family plan are good for long-term economic growth. And we'll also address some of the income and wealth inequalities that plague us today. So, and we do expect that the plan, some form of these plans will get through into law. and become effective beginning in 2022. So a lot to ground to cover here. But I think right now the ground looks pretty encouraging, pretty optimistic about the way things are going here.

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