{"id":27961,"date":"2021-12-20T06:54:00","date_gmt":"2021-12-20T06:54:00","guid":{"rendered":"https:\/\/www.lifeandnews.com\/articles\/?p=27961"},"modified":"2021-12-26T14:18:17","modified_gmt":"2021-12-26T14:18:17","slug":"manchin-killed-build-back-better-over-inflation-concerns-an-economist-explains-why-the-2-trillion-bill-would-be-unlikely-to-drive-up-prices","status":"publish","type":"post","link":"https:\/\/www.lifeandnews.com\/articles\/manchin-killed-build-back-better-over-inflation-concerns-an-economist-explains-why-the-2-trillion-bill-would-be-unlikely-to-drive-up-prices\/","title":{"rendered":"Manchin killed Build Back Better over inflation concerns \u2013 an economist explains why the $2 trillion bill would be unlikely to drive up prices"},"content":{"rendered":"\n<p><a href=\"https:\/\/theconversation.com\/profiles\/michael-klein-324741\">Michael Klein<\/a>, <em><a href=\"https:\/\/theconversation.com\/institutions\/tufts-university-1024\">Tufts University<\/a><\/em><\/p>\n\n\n\n<p><a href=\"https:\/\/www.wsj.com\/articles\/manchin-rejected-biden-bill-over-inflation-debt-concerns-how-founded-are-those-worries-11639958265\">One of Sen. Joe Manchin\u2019s main concerns<\/a> in deciding to pull his support for President Joe Biden\u2019s Build Back Better plan is that it would drive up inflation, which <a href=\"https:\/\/theconversation.com\/why-is-inflation-so-high-is-it-bad-an-economist-answers-3-questions-about-soaring-consumer-prices-173572\">is currently rising at the fastest pace in four decades<\/a>.<\/p>\n\n\n\n<p>On Dec. 19, 2021, the West Virginia Democrat <a href=\"https:\/\/video.foxnews.com\/v\/6287645097001#sp=show-clips\">said in an interview<\/a> that he couldn\u2019t support the bill in its current form because of the impact he says it would have on increasing consumer prices and the national debt. The decision effectively killed one of Biden\u2019s top economic priorities.<\/p>\n\n\n\n<p>The Senate had been considering the <a href=\"https:\/\/apnews.com\/article\/climate-immigration-joe-biden-health-lifestyle-bff841da156cb12cd47a564f9e0267eb\">roughly US$2 trillion bill<\/a> <a href=\"https:\/\/www.congress.gov\/bill\/117th-congress\/house-bill\/5376\">passed by the House<\/a> that would spend money on health care, education, fighting climate change and much else over the next decade. Senate Majority Leader Chuck Schumer says he <a href=\"https:\/\/www.washingtonpost.com\/politics\/schumer-vote-despite-manchin\/2021\/12\/20\/dcdd202c-6186-11ec-bf70-58003351c627_story.html\">still plans to bring it to the floor for a vote<\/a>.<\/p>\n\n\n\n<p>Manchin and Republicans <a href=\"https:\/\/www.bloomberg.com\/news\/articles\/2021-11-17\/top-economists-see-biden-s-spending-plan-adding-to-inflation\">have argued<\/a> the risk that <a href=\"https:\/\/www.marketwatch.com\/story\/manchin-says-inflation-unknown-is-bigger-problem-than-the-need-for-bidens-build-back-better-plan-11638918421\">more spending could push inflation even higher is too great<\/a>.<\/p>\n\n\n\n<p>As <a href=\"https:\/\/scholar.google.com\/citations?user=rlbLcnEAAAAJ&amp;hl=en&amp;oi=ao\">an economist<\/a>, I believe Manchin\u2019s concerns are misguided. Here\u2019s why.<\/p>\n\n\n\n<h2>Putting $2 trillion in context<\/h2>\n\n\n\n<p>High inflation <a href=\"https:\/\/econofact.org\/rising-inflation\">is clearly a problem at the moment<\/a> \u2013 as the Federal Reserve\u2019s Dec. 15, 2021, <a href=\"https:\/\/www.federalreserve.gov\/newsevents\/pressreleases\/monetary20211215a.htm\">decision to accelerate its withdrawal<\/a> of economic stimulus signals.<\/p>\n\n\n\n<p>The most recent statistics show inflation, as measured by the annual increase in the Consumer Price Index, <a href=\"https:\/\/www.bls.gov\/news.release\/cpi.nr0.htm\">was 6.8% in November 2021<\/a>. This is the highest level since 1982 \u2013 yet still a long way from the double-digit inflation experienced back then.<\/p>\n\n\n\n<figure class=\"wp-block-embed is-type-wp-embed is-provider-datawrapper wp-block-embed-datawrapper\"><div class=\"wp-block-embed__wrapper\">\n<iframe class=\"wp-embedded-content\" sandbox=\"allow-scripts\" security=\"restricted\" title=\"Highest inflation since the 1980s\" src=\"https:\/\/datawrapper.dwcdn.net\/6wzps\/3\/#?secret=mlUtsyRoF1\" data-secret=\"mlUtsyRoF1\" scrolling=\"no\" frameborder=\"0\" height=\"400\"><\/iframe>\n<\/div><\/figure>\n\n\n\n<p>The question, then, is: Could an additional large spending increase cause inflation to accelerate further?<\/p>\n\n\n\n<p>To answer this, it\u2019s useful to put the numbers in some context.<\/p>\n\n\n\n<p>The price tag of the Build Back Better plan passed by the House of Representatives <a href=\"https:\/\/apnews.com\/article\/climate-joe-biden-business-health-congress-44c43fab00aa95a268a2cba420713d22\">is about $2 trillion<\/a>, to be spent over a 10-year period. If the spending is spread out evenly, that would amount to about $200 billion a year. That\u2019s only about 3% of <a href=\"https:\/\/datalab.usaspending.gov\/americas-finance-guide\/spending\/\">how much the government planned to spend in 2021<\/a>.<\/p>\n\n\n\n<p>Another comparison is to <a href=\"https:\/\/www.investopedia.com\/terms\/g\/gdp.asp\">gross domestic product<\/a>, which is the value of all goods and services produced in a country. U.S. GDP is <a href=\"https:\/\/www.bloomberg.com\/news\/articles\/2021-12-04\/goldman-cuts-u-s-gdp-forecast-saying-omicron-is-drag-on-growth\">projected to be<\/a> $22.3 trillion in 2022. This means that the first year of the bill\u2019s spending would be about 0.8% of the GDP.<\/p>\n\n\n\n<p>While that doesn\u2019t sound like much either, it\u2019s not insignificant. Goldman Sachs <a href=\"https:\/\/www.bloomberg.com\/news\/articles\/2021-12-04\/goldman-cuts-u-s-gdp-forecast-saying-omicron-is-drag-on-growth\">had estimated U.S. economic growth at 3.8%<\/a> in 2022. If the increased spending translated into economic activity on a dollar-for-dollar basis, that could lift growth by over one-fifth.<\/p>\n\n\n\n<p>But what really matters here is how much the bill would spend in excess of any taxes raised to pay for the program. The <a href=\"https:\/\/taxfoundation.org\/build-back-better-plan-reconciliation-bill-tax\/\">higher taxes on the wealthy and corporations that the House version of the bill calls for<\/a> would reduce economic activity \u2013 by taking money out of the economy \u2013 offsetting some of the impact of the spending that would stimulate it.<\/p>\n\n\n\n<p>The <a href=\"https:\/\/www.cbo.gov\/publication\/57619\">Congressional Budget Office estimates<\/a> that the bill would increase the deficit by $150.7 billion over a decade, or about $15 billion a year. Again assuming this is spread evenly over the 10 years, it would amount to less than one-tenth of 1% of GDP. Even if elements of the bill are front-loaded, it does not seem that this increase in the government debt would contribute much to inflation.<\/p>\n\n\n\n<p>In other words, the proposed spending would make a barely noticeable macroeconomic effect even if it had an <a href=\"https:\/\/www.stlouisfed.org\/on-the-economy\/2017\/december\/government-spending-stimulate-economy\">unusually disproportionate impact on the economy<\/a>.<\/p>\n\n\n\n<h2>But it won\u2019t reduce inflation either<\/h2>\n\n\n\n<p>Some proponents of the bill \u2013 <a href=\"https:\/\/www.whitehouse.gov\/briefing-room\/press-briefings\/2021\/11\/15\/press-briefing-by-press-secretary-jen-psaki-november-15-2021\/\">including the White House<\/a> and <a href=\"https:\/\/www.newsweek.com\/56-economists-tout-benefits-bidens-build-back-better-act-despite-gop-inflation-concerns-1658224\">some economists<\/a> \u2013 have gone further. They have argued that the proposed spending package would actually reduce inflation by increasing the productive capacity of the economy \u2013 or its maximum potential output.<\/p>\n\n\n\n<p>This seems implausible to me, at least given the current level of inflation. Historical evidence shows <a href=\"https:\/\/www.stlouisfed.org\/publications\/regional-economist\/january-1998\/a-brave-new-economic-world-the-productivity-puzzle#5##5\">a more productive economy can grow more quickly<\/a> with relatively little upward pressure on prices. <a href=\"https:\/\/www.federalreserve.gov\/boarddocs\/speeches\/1997\/199710142.htm\">That\u2019s what happened in the U.S. in the 1990s<\/a>, when the economy grew strongly with little inflation. But it takes time for investments like those in the bill to translate into gains in productivity and economic growth \u2013 meaning many of these impacts will be slow to materialize.<\/p>\n\n\n\n<p>And current inflation is likely an acute problem <a href=\"https:\/\/theconversation.com\/why-are-prices-so-high-blame-the-supply-chain-and-thats-the-reason-inflation-is-here-to-stay-169441\">reflecting supply chain disruptions<\/a> and pent-up demand, challenges that won\u2019t be resolved by expanding the economy\u2019s productive capacity five or more years down the road.<\/p>\n\n\n\n<p>[<em>Over 140,000 readers rely on The Conversation\u2019s newsletters to understand the world.<\/em> <a href=\"https:\/\/memberservices.theconversation.com\/newsletters\/?source=inline-140ksignup\">Sign up today<\/a>.]<\/p>\n\n\n\n<p>At the same time, what\u2019s in the bill <a href=\"https:\/\/www.vox.com\/22744837\/house-senate-democrats-build-back-better-child-care\">would make a big difference<\/a> to improving the lives of average Americans by <a href=\"https:\/\/www.americanprogress.org\/article\/the-build-back-better-act-substantially-expands-child-care-assistance\/\">providing more of them with affordable child<\/a> and health care and reducing child poverty \u2013 areas where the U.S. <a href=\"https:\/\/econofact.org\/child-poverty-in-the-u-s\">seriously lags<\/a> <a href=\"https:\/\/www.pgpf.org\/blog\/2020\/07\/how-does-the-us-healthcare-system-compare-to-other-countries\">behind other rich countries<\/a>. And it <a href=\"https:\/\/www.nbcnews.com\/science\/environment\/climate-change-efforts-set-big-boost-build-back-better-bill-passes-rcna6471\">would help the U.S. fight<\/a> the ever-worsening effects of climate change.<\/p>\n\n\n\n<p>While the <a href=\"https:\/\/www.nytimes.com\/article\/build-back-better-explained.html\">$2 trillion in spending<\/a> would be unlikely to worsen inflation if it were to become law, I believe it could do a lot to materially address these challenges America faces.<\/p>\n\n\n\n<p><em>This is an updated version of an <a href=\"https:\/\/theconversation.com\/why-spending-2-trillion-on-child-care-health-care-and-fighting-climate-change-wont-make-inflation-any-worse-than-it-already-is-173372\">article published<\/a> on Dec. 16, 2021.<\/em><\/p>\n\n\n\n<p><a href=\"https:\/\/theconversation.com\/profiles\/michael-klein-324741\">Michael Klein<\/a>, Professor of International Economic Affairs at The Fletcher School, <em><a href=\"https:\/\/theconversation.com\/institutions\/tufts-university-1024\">Tufts University<\/a><\/em><\/p>\n\n\n\n<p>This article is republished from <a href=\"https:\/\/theconversation.com\">The Conversation<\/a> under a Creative Commons license. Read the <a href=\"https:\/\/theconversation.com\/manchin-killed-build-back-better-over-inflation-concerns-an-economist-explains-why-the-2-trillion-bill-would-be-unlikely-to-drive-up-prices-174093\">original article<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Michael Klein, Tufts University One of Sen. Joe Manchin\u2019s main concerns in deciding to pull his support for President Joe Biden\u2019s Build Back Better plan is that it would drive up inflation, which is currently rising at the fastest pace in four decades. On Dec. 19, 2021, the West Virginia Democrat said in an interview [&hellip;]<\/p>\n","protected":false},"author":44,"featured_media":27970,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[5,277],"tags":[10936,3560,6493,2458,151,11013,9507,1797,11014],"_links":{"self":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/27961"}],"collection":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/users\/44"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/comments?post=27961"}],"version-history":[{"count":2,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/27961\/revisions"}],"predecessor-version":[{"id":28019,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/27961\/revisions\/28019"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media\/27970"}],"wp:attachment":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media?parent=27961"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/categories?post=27961"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/tags?post=27961"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}