with Brent D. Griffiths

Congressional Republicans are resuming their handwringing over the debt after a four-year break. But Democratic economic heavyweights have reached a very different consensus: The federal government isn’t spending nearly enough. 

The shift in thinking goes beyond prioritizing emergency relief to help businesses and workers survive the pandemic’s winter spike and new shutdowns. Two allies of President-elect Joe Biden, Lawrence Summers and Jason Furman, are calling for a “revolution” in assessing how the government taxes, borrows and spends – a wholesale reevaluation of how much red ink the government can safely pile up. They advocate for massive new investments in infrastructure and more as long as real interest rates remain low. 

The paper could be ammunition for how the incoming Biden administrations aims to counter new calls from congressional Republicans for a return to austerity, after the rising tide of debt they authorized under President Trump.

President-elect Joe Biden formally introduced his economic team on Dec. 1, vowing to make economic recovery from the coronavirus accessible for everyone. (The Washington Post)

Biden won on a pledge to rebuild the economy with multitrillion-dollar proposals for infrastructure, clean energy projects, and social safety net expansions. 

Centrist economists from Summers, a treasury secretary in the Clinton administration, to former Federal Reserve Chair Ben Bernanke, who was appointed by President George W. Bush and kept on by President Obama, endorsed more spending during a virtual panel cohosted by the Brookings Institution and the Peterson Institute for International Economics. 

“Nobody on the panel is going to say we should be balancing the budget any time soon,” Bernanke said, recommending instead that the U.S. plow money into addressing climate change, inequality, health care and infrastructure — investments he said would yield longterm returns for the country.

It's clear the consensus on how to measure what's safe to spend has drastically shifted.

Summers pointed to the 2010 Simpson-Bowles commission’s call for throttling federal spending in order to balance the budget.

At the time, “virtually everyone was in agreement that having something like Simpson Bowles, and having the fiscal policy path that went with Simpson Bowles, would be a good thing,” Summers said. "There was no appreciable argument at the time about the goal. And if that goal had been achieved, and if that goal been maintained, the consequences would have been catastrophic.” That’s because economists agree in retrospect the country needed more spending from Washington, not less, to help claw out of the ditch of the Great Recession.

Now, Summers and Furman, who chaired Obama's Council of Economic Advisers, are going further. In a new paper, they are calling for policymakers to abandon debt-to-GDP as a guiding measure of how much spending the government can sustain.

Furman, while acknowledging he has used the metric “hundreds and hundreds of times” himself, called it “misleading and problematic.”

Recent history offers an insight into why the growing debt continues to be the dog that doesn’t bite.

“The government’s borrowing spree since the 2008 financial crisis has not had the effects — rising bond yields or higher inflation — that traditional economics would have predicted,” David J. Lynch writes. “Private businesses have not been ‘crowded out’ of bond markets by government agencies or faced higher borrowing costs. Consumers expect inflation even a decade from now to be a tame 1.4 percent, according to the Federal Reserve Bank of Cleveland.”

Meanwhile, Lynch continues, the “$21.2 trillion national debt – up from $14.4 trillion on the day Trump was inaugurated – is now slightly larger than the U.S. economy, a nominal milestone that hasn’t been reached since World War Two and yet seems to have little real-world impact.”

The upshot is that the Biden administration will take power “with the government able to borrow for 10 years at just 0.8 percent compared with roughly 4 percent in late 2008. That explains why even as the federal government is expected to rack up an additional $10 trillion in debt from 2021 to 2028, Washington will pay less each year in interest charges than it paid in 2019, according to CBO’s latest projections.”

Summers and Furman argue the big worry for the U.S., and other similarly situated countries, "is doing too little to expand the debt, not doing too much.” Instead of focusing on debt-to-GDP, they propose a focus on “supporting economic growth while preventing real debt service from being projected to rise quickly or to rise above 2 percent of GDP over the forthcoming decade.”

Biden's team appears to buy the logic, at least in the immediate term.

Even formerly deficit-focused members of the president-elect's economic braintrust agree the administration and Congress need to spend big now to stave off a potential disaster. 

Janet Yellen, Bernanke’s successor as Fed chair now in line to join Biden’s cabinet as treasury secretary, said at an event with Biden on Tuesday that the crisis has exposed “deeper structural problems” in the economy, including racial disparities and wage gaps. “It’s an American tragedy, and it’s essential that we move with urgency,” she said. “Inaction will produce a self-reinforcing downturn causing yet more devastation.”

And Neera Tanden, Biden’s pick to lead the Office of Management and Budget, has drawn criticism from some on the left for her onetime openness to Social Security and Medicare cuts. This year, though, she criticized the Simpson-Bowles recommendations as “dumb” and called for setting aside deficit concerns in backing major relief measures.

Broad agreement from the center to the left doesn’t look likely to move Republicans.

If the GOP maintains control of the Senate by winning at least one of two runoff races in Georgia on Jan. 5, the Biden team will have to trim its ambitions considerably.

Bernanke called out that reality. The constraints on spending “are going to be political, obviously,” he said during the Tuesday discussion. “There’s nothing that they could get through the Congress in the next couple of years that could threaten any debt criteria.”

The debate is playing out in real-time as the outgoing Trump administration and lawmakers renew talks over a lame-duck emergency relief package (more on that below). The economics aside, Biden tells New York Times columnist Tom Friedman he believes the politics of deficit spending have shifted against Republicans. If they “let all this go down the drain,” he said, it “may have an impact on the prospect of Republicans running for re-election in 2022.” 

Latest on the federal pandemic response

Asked about a new bipartisan coronavirus relief proposal on Dec. 1, Senate Majority Leader Mitch McConnell (R-Ky.) said “We just don’t have time to waste time." (The Washington Post)
A flurry of action but no breakthroughs on more relief.

McConnell quickly shot down the efforts of a bipartisan group of lawmakers: “The new plan came amid congressional jostling about the shape of economic relief, with House Democrats assembling a new proposal, Senate Majority Leader Mitch McConnell creating a new plan and Biden calling for a massive government response. The growing calls for action have not led to a unified approach, prompting political leaders to forge ahead in different directions," Seung Min Kim, Jeff Stein and Mike DeBonis report.

“Still, the new actions and statements Tuesday may reflect movement toward some level of pandemic relief for millions of Americans.”

McConnell's plan: “Senate Republican leaders circulated a slimmed-down plan that would probably be fiercely opposed by Democrats. The measure includes a liability shield for businesses and more small-business assistance. It would provide short-term, limited jobless aid but no additional funding for state and local governments or help for cash-strapped transit agencies,” my colleagues write.

  • There is one major conservative turn in the details: “In September, McConnell pushed for a federal supplement of unemployment benefits of $300 per week. The latest proposal from his office would extend base unemployment benefits and a program for gig workers and independent contractors for about one month but would otherwise not provide supplemental federal unemployment benefits — a reversal in Republicans’ positions.”
  • The meal deduction is back: “The bill also reintroduces a Republican plan to allow diners to claim a tax deduction on their meal expenditures, a provision pushed by the business lobby but viewed skeptically by economists and some Republicans.”

The bipartisan plan clocks in at $908 billion. “By contrast, the plan circulated by the bipartisan group of senators is light on details but seeks to reach a middle ground on numerous contentious economic issues,” my colleagues write.

  • Senators behind the proposal: Bill Cassidy (R-La.), Susan Collins (R-Maine), Angus King (I-Maine), Joe Manchin III (D-W.Va.), Mitt Romney (R-Utah) and Mark R. Warner (D-Va.)
  • The main problem: Few Republicans out of those involved in crafting the plan voiced support for the proposal. “Obviously it requires bipartisan support to get through Congress, but it requires a presidential signature,” McConnell told reporters. "The place to start is: Are we making a law or are we just making a point?”

Details:

  • Pandemic unemployment assistance is back but reduced: The proposal calls for an extra $300 a week, less than the $600 Democrats wanted.
  • Aid for state and local governments: $160 billion for an area most Republicans have staunchly opposed for months
  • Other areas: “$288 billion in funding for small businesses, including through the Paycheck Protection Program and other aid. It also includes $45 billion for transportation agencies, $82 billion for education, $26 billion in nutrition assistance and $16 billion in health care, including to help with coronavirus testing and tracing, and vaccine distribution.”

Where Democrats are right now: They aren't saying. “McConnell disclosed that senior Republicans received a new coronavirus relief offer from House Speaker Nancy Pelosi (D-Calif.) and Senate Minority Leader Charles E. Schumer (D-N.Y.) on Monday night. Democratic aides declined to disclose details of their offer, and Schumer called it a ‘private proposal to help us move the ball forward.’”

Market movers

Stocks jump to start off the month.

The Dow closed up just shy of 200 points: “The Dow Jones Industrial Average climbed 185.28 points, or 0.6 percent, to 29,823.92. The 30-stock gauge jumped more than 400 points at its session high to a new intraday record. The S&P 500 rose 1.1 percent, or 40.82 points, to 3,662.45, marking a fresh record closing high. The tech-heavy Nasdaq Composite gained 1.3 percent, or 156.37 points, to 12,355.11, also notching a record close,” CNBC's Fred Imbert reports.

“Apple popped 3.1 percent to lead the 30-stock Dow higher. Communication services and financials were the best-performing sectors in the S&P 500, rising at least 1.6 percent each.”

Jay Powell warns of pandemic surge: “The Fed Chair cautioned lawmakers that the U.S. economy remains in a damaged and uncertain state despite progress made in the development of covid-19 vaccines,” Bloomberg News's Christopher Condon reports of Powell's Tuesday testimony before the Senate Banking Committee.

“Powell gave no immediate indication how the central bank may respond to those worries when it conducts its next policy meeting scheduled for Dec. 15-16, though he reiterated that it would use all of its tools to help the economy recover.”

The transition

BlackRock emerges as the key Wall Street player.

Goldman Sachs is ceding some of its traditional West Wing power: “A former Goldman executive held the Treasury secretary post in three of the last four administrations, but the firm is absent so far from the White House this time. Instead, two executives who have worked at asset-management giant BlackRock will be the senior Wall Street representatives,” the Wall Street Journal's Dawn Lim and Gregory Zuckerman report.

“Some progressives and investor advocates worry that the naming of any finance executives could result in looser regulatory scrutiny on big money managers. But broadly, BlackRock may not draw the kind of anger that traditional Wall Street banks like Goldman tend to generate. BlackRock is in the business of investing money for individuals and institutions like endowments, and much of its growth comes from funds that track market indexes.”

  • An alum of the world's largest asset manager will be the No. 2 at Treasury: “Like many of Biden’s hires so far, Adewale Adeyemo, who goes by Wally, brings a mainstream policy perspective with a background that breaks barriers. Adeyemo would be part of a history-making duo at Treasury: He would be the first Black deputy at the Treasury," the New York Times's Alan Rappeport reports. “In 2017, after the Trump administration took over, Adeyemo went to work for BlackRock as a senior adviser and interim chief of staff to Larry Fink, its chief executive. He left last year to become president of the Obama Foundation, where he managed day-to-day operations and carried out its strategic plan.”
Other transition news:
  • Biden says he won't lift tariffs on China immediately: “He first wants to conduct a full review of the existing agreement with China and consult with our traditional allies in Asia and Europe, he said, ‘so we can develop a coherent strategy,'" the Times's Tom Friedman writes.
  • Some civil rights groups are saying Biden is not naming enough Black nominees: “Biden has rolled out a diverse set of appointments but reserved the initial marquee slots in the Cabinet and White House for White candidates, prompting worry that Biden is failing to make good on his promises to promote Black leaders to prominent jobs,” Annie Linskey and Matt Viser report.

Coronavirus fallout

The Advisory Committee on Immunization Practices voted on the recommendations for whom should be given the covid-19 vaccine first when it becomes available. (The Washington Post)
From the U.S.:
  • At least 13,702,000 cases have been reported; at least 269,000 have died.
  • CDC advisory group releases guidelines for who should get vaccines first: “The first doses of a coronavirus vaccine should be given to an estimated 21 million health-care workers and 3 million residents and staff of nursing homes and other long-term-care facilities, a federal advisory panel recommended,” Lena H. Sun and Isaac Stanley-Becker report.
  • Health care workers are facing a surge in patients: “If the number of cases and hospitalizations continues to swell, hospitals may be forced to offer less care to those with numerous co-morbidities in favor of treating others with a better chance of surviving, said Janis M. Orlowski, the chief health-care officer of the Association of American Medical Colleges,” Ariana Eunjung Cha, Lenny Bernstein, Lena H. Sun and Jose A. Del Real report.
From the corporate front:
  • Bank profits recover from early 2020 struggles: “The industry’s profits jumped 173 percent in the third quarter to $51.2 billion, after firms spent the first half of the year setting aside billions of dollars to offset expected pandemic-driven losses. But that amount is still 10.7 percent lower than 2019 levels, and roughly half of banks reported lower profits than a year prior,” Reuters's Pete Schroeder reports.
  • Black Friday-Cyber Monday sales disappoint: “Roughly 186 million shoppers purchased something online or in-store from Thanksgiving through Cyber Monday, down from 190 million a year ago, the National Retail Federation said. Shoppers spent an average of $312, a 14 percent drop from $362 in 2019,” Abha Bhattarai reports
  • AWS CEO predicts offices will become more like shared work spaces: “That possibility has changed how Amazon thinks about hiring, Andy Jassy said. Amazon is now less focused on hiring employees from locations where it has ‘critical mass,’ and can instead recruit workers from any location, as long as they’re able to collaborate with other teams, he said,” CNBC's Annie Palmer reports.
Around the world:
  • Britain became the first country to grant the Pfizer vaccine emergency use: “Britain has been racing to become the first Western country to approve a coronavirus vaccine, and its government has already ordered 40 million doses of the Pfizer/BioNTech vaccine. The first of those doses are expected to arrive in the coming days, the drugmakers said in a joint statement,” Antonia Noori Farzan reports.

Pocket change

Nasdaq pushes diversity requirements for company boards

The index said it made the move after reviewing multiple studies depicting the benefits of diverse boards: “Nasdaq has asked the Securities and Exchange Commission to approve new listing rules that would compel the companies on its stock exchange to regularly report on the diversity of their boards and require that they have at least one female director and a member of an underrepresented minority,” Hamza Shaban reports.

“Companies that don’t meet the criteria would have to explain why, according to the plan, or face possible delisting … If the policy is adopted, Nasdaq said in a news release, more than 3,000 listed members would have one year to publicly disclose their diversity statistics. Companies would have two years to partially meet the new inclusivity benchmarks, including ensuring at least one director identifies as a woman and one identifies as LGBTQ or as part of an underrepresented minority. Top-tier companies would be expected to meet the full requirements within four years.”

Former SDNY prosecutor Geoffrey S. Berman turns to private practice: “Berman, the former U.S. attorney for the Southern District of New York who was fired by Trump in June, has joined the law firm of Fried, Frank, Harris, Shriver & Jacobson, the firm said,” the New York Times's Benjamin Weiser reports. “Berman, 61, will head Fried Frank’s white collar defense, regulatory enforcement and investigations practice.”

Boeing's 737 Max gets more good news: “The Federal Aviation Administration (FAA) has issued its first airworthiness certificate for a Boeing 737 MAX built since March 2019, the agency said,” Reuters's David Shepardson and Tracy Rucinski report.

“The FAA separately last week approved an American Airlines training plan for pilots to resume 737 MAX flights, the agency and airline confirmed. That approval clears the way for American to resume MAX flights starting Dec. 29 once it completes required tests and software upgrades to parked planes.”

Daybook

Today:

Thursday:

  • The Labor Department reports the latest weekly jobless claims
  • Kroger, Dollar General, Ulta Beauty, Smith & Wesson, Lands End and Cracker Barrel Old Country Store are among the notable companies reporting their earnings

Friday:

  • The Labor Department releases the November jobs report
  • AT&T chief executive John Stankey speaks at a Post event about the future of broadband access

The funnies

Bull session

Good thing “popped collars” is easy to rhyme: