Importantly, Zandi’s report concludes that concerns about inflation are “likely misplaced” and “overdone.”
In addition to giving the proposals a political lift, this will help us make sense of the deeper ideological argument of the moment — and demonstrate just how much is really at stake in getting this right.
The question is this: Will we seize what has plainly become a big and unexpected opportunity to set our country on a path toward dealing with multiple serious crises, from soaring inequality to our warming planet?
Or will we squander that opportunity, only to emerge on the other side of the pandemic with a sense of diminished possibilities and opportunity lost?
“It is a unique opportunity,” Zandi, the chief economist at Moody’s, told me. “The economic environment is ripe for game-changing policies that address long-running, pernicious problems that only government can address, because the scale of the problems is so large."
The report concludes that both infrastructure and jobs bills being debated in Congress are essential.
The Senate will vote Wednesday on whether to debate a bipartisan “hard” infrastructure bill with $579 billion in new spending, and Democrats are separately developing a $3.5 trillion “human” infrastructure plan to pass by the simple-majority reconciliation process.
The report concludes that the failure to pass both bills “would certainly diminish the economy’s prospects”:
The nation has long underinvested in both physical and human infrastructure and has been slow to respond to the threat posed by climate change, with mounting economic consequences. The bipartisan infrastructure deal and reconciliation package help address this.Greater investments in public infrastructure and social programs will lift productivity and labor force growth, and the attention on climate change will help forestall its increasingly corrosive economic effects. Moreover, the policies being considered would direct the benefits of the stronger growth to lower-income Americans and address the long-running skewing of the income and wealth distribution.
That’s a striking endorsement of a major argument for the package: that we have spent decades underinvesting in public programs of all kinds. Expenditures on both “hard” and “human” infrastructure will rectify this.
Spending on roads and bridges will boost the economy via increased efficiency and growing jobs. Spending on an extended child tax credit, expanded health-care subsidies, paid family and medical leave, universal pre-K and community college, funded by taxes on corporations and the wealthy, will boost labor force participation and spread the fruits of growth more broadly.
And the reconciliation bill’s climate change provisions — transitioning electricity to production via sustainable energy sources, and investing huge amounts in developing those sources — will begin to compensate for decades of lagging in addressing the threat, even as it grows more dire.
What about inflation? Zandi’s report argues we still have plenty of room to maneuver before big public expenditures overheat the economy, noting that unemployment is still near 6 percent and labor force participation is “well below where it was pre-pandemic.”
“The economy still has considerable slack,” the report says, adding that this amount of spending is “only sufficient to push the economy back to full employment.”
The great argument
This goes to the core of the big ideological dispute here. Inflation fears are grounded in the idea that too much public spending will mean too much money chasing too few goods, driving up prices and “overheating” the economy.
But as Mike Konczal and J.W. Mason argue, if those fears don’t control us, we can see increased demand as something that puts pressure on the economy to produce more, boosting workers’ bargaining power and wages, adding jobs and even disincentivizing racial discrimination in hiring.
In short, they argue, large public expenditures can have extensive beneficial social effects that ripple outwards and act as a salve on other social problems. In GOP orthodoxy, these are the benefits that tax cuts on the rich and corporations are supposed to produce via trickle-down investment. But they don’t.
Senate Majority Leader Chuck Schumer (D-N.Y.) is holding a cloture vote on the bipartisan bill Wednesday, which has Republicans grumbling that the bill isn’t finished yet. But Schumer’s move is plainly putting pressure on them to hurry it up.
That aside, this Zandi report probably won’t move most Senate Republicans, since many will see these benefits as arguments against supporting the package. And their warnings of inflation are not good-faith macroeconomic arguments; they’re intended to trigger vague fears of Big Government and suggest liberal governance is running the country off the rails.
But a confluence of factors has produced an opening for a real ideological shift. The pandemic and the economic crisis it triggered boosted the case for large-scale government action and revealed deep disparities that can no longer be ignored. And the economics profession is more attuned to the broad societal benefits of investments in people and their capacities.
“This is an inflection point,” Zandi told me. “This is a perfect confluence of need, of political tailwinds, and the right economic backdrop."
“I don’t know if it’s going to be around for very long," Zandi concluded. "Hopefully we take advantage of it.”