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Build Back Better... Than Ever-- Without Mayo Pete's Bad Consulting Class Instincts



Tomorrow Biden will be in Pittsburgh to announce his signature Build Back Better infrastructure and jobs plan. Press reports have it at $4 trillion today, up from their estimate of $3 trillion last week. According the AP's team of Jonathan Lemire, Lisa Mascaro and Josh Boak it will be not just "ambitious," but "sweeping in scope" and "make generational investments in infrastructure, revive domestic manufacturing, combat climate change and keep the United States competitive with China." And somehow the very rich are going to have to understand they'll be paying for this, or at least $3 trillion worth.

The White House spin-- patently absurd-- is that they expect the Republicans to work with them on perfecting and passing the mega-package and the means to pay for it. No-can-do conservatives are sharpening their knives for the fight, while the White House says they will have some Republican support for their plans and "plan significant outreach on Capitol Hill."


As the committees in Congress begin to tackle individual provisions-- including those on transportation, China and others-- the White House will encourage those efforts. Then it will work through the tax increases separately, according to officials.
Administration officials are sending signals that the White House will listen to suggestions and criticism alike from both parties and that significant changes could occur during the legislative process.
At the same time, congressional leaders are preparing a go-it-alone strategy, much as was done in the virus aid package, in case Congress hits a wall of GOP opposition.
“If they share a goal of building our infrastructure for the future, but don’t like the way he’s going to propose to pay for it, we’re happy to look at their proposals,” Psaki said. “If they don’t want to pay for it, I guess they can propose that, too. Maybe they don’t support infrastructure spending.”
Infrastructure marks the unique opportunity for Biden to succeed on an issue where both his predecessors-- Barack Obama and Donald Trump-- made big promises that never came to fruition.
The physical infrastructure part of the package is not just about updating roads, bridges, rail, public transit and airports. It also is expected to include broadband, electric vehicle charging stations and investments in clean energy and domestic manufacturing, making it far more expansive than what Republicans usually discuss.
Sometime next month, a second package will be unveiled that focuses on universal pre-K, paid family leave and free community college.
The multitrillion-dollar price tag means that any package will eventually need to be paired with tax hikes, drawing Republican opposition to any infrastructure plans that unwind Trump’s 2017 corporate tax rate cuts. Biden has vowed not to raise taxes on households earning less than $400,000 a year.
Senate Minority Leader Mitch McConnell said Monday at a stop in his home state of Kentucky that if the Biden administration wants to do an infrastructure bill, “Let’s do an infrastructure bill. Let’s not turn it into a massive effort to raise taxes on businesses and individuals.”
Beyond tax increases, the Biden administration could also attempt to free up cash by changing how Medicare can negotiate the price of pharmaceutical drugs. It could also step up IRS audits of wealthier Americans as a recent study estimated that the richest taxpayers avoid paying $175 billion annually.

Mayo Pete was sent out with a trial balloon-- quickly shot down-- that went hand in hand with Joe Manchin's plans calling for taxes on working people through VATs (sales taxes) and user's fees to pay for the package. Yesterday, Buttigieg was forced to go back out in front of the media (Jake Tapper) and say Oops... my bad. There is no gas tax and no mileage tax coming. Instead, he was forced to shed his McKinsey cap and reiterate Biden's campaign pledge that there will be no new taxes on anyone making less than $400,000 a year.

"But paying for the proposals with new revenues," wrote Lemire and his team at AP, "would also set up the administration to have to persuade Congress to pass a package of tax increases on wealthy Americans and companies that combined would represent the largest hike in generations. Republicans are objecting to the scope of the enormous package and the potential tax increases that would be needed to pay for it. With the Senate evenly split, 50-50, Democrats could very well be once again forced to rely on their own votes for passage."


McConnell is in a unique position of having conservative Democrats from the Republican wing of the Democratic Party-- certainly Sinema and Manchin, but also the 3 pairs of Democrats from New Hampshire, Delaware and Virginia, as well as Frackenlooper (CO) and Kelly (AZ)-- who will negotiate from the GOP perspective without having to offer any Republican votes for passage. What a deal!


In an OpEd for Bloomberg News yesterday, Noah Smith noted that the White House plan is more than just infrastructure-- it's reimagining the U.S. economy for the 21st Century. We either do it or we settle into shrinking into a second-rate nation... like Britain did. Smith calls it "industrial policy... Usually when we think of infrastructure bills, we're talking about repairing all the old stuff: roads and bridges. This bill will definitely include that, but it will also build lots of new infrastructure : a modernized electrical grid, electric vehicle charging stations and public transit. In addition, Biden wants to build lots of things not normally counted as infrastructure-- housing to relieve the nationwide housing shortage, schools and other education facilities, various resources for Native American tribes, and so on. And he wants to retrofit many existing buildings and transportation systems to be more energy-efficient and to run on renewable energy. And on top of all that, the bill is expected to contain provisions to alter the shape of the U.S. economy. That includes a big boost in research spending, free community college tuition, and massively increased spending on child care. The idea is to upgrade both the high-tech competitive parts of the economy while also boosting the labor-intensive industries that provide mass employment."


photo by Robert ParkeHarrison

In other words, Biden’s second legislative effort will be far more transformative than his first. It amounts to a serious and sweeping redirection of the entire U.S. economy. There are many reasons Biden is choosing, rightly, to do this now, when his Democratic predecessors were so much more cautious and incremental. The competitive and military threat from China, the nation’s demand for a burst of growth after the disaster of Covid-19, and the increasingly dire threat from climate change all figure into it. But the biggest reason is that the nation has come to a collective realization that the old industrial policy, fashioned in the late 1970s and 1980s, is no longer working.
We don’t often think of the Jimmy Carter and Ronald Reagan presidential years as a time of sweeping industrial policy, but it was. The deregulations that began under Carter and continued under Reagan, the tax cuts and tax reforms of the 1980s, and the more pro-business touch applied to labor and other regulations were all part of a package of policies designed to put more of the U.S. industrial destiny in the hands of the market.
As Brad DeLong and Stephen S. Cohen write in their book Concrete Economics: The Hamilton Approach to Economic Growth and Policy, letting the market decide what gets produced actually constitutes an industrial policy itself. And all too often, the industry that benefits is finance. From the 1970s through the 2010s, finance roughly doubled its share of total value added relative to nonfinancial businesses.
In other words, in the era of deregulation and laissez-faire, the U.S. spent ever more of its economic resources selling pieces of the rest of its economy back and forth to each other (and to foreigners). In theory that could have made productivity go up, as resources were funneled to the most productive enterprises. But if there was such a boost, it petered out in the mid-2000s, even before troubles in the financial sector crashed the economy.
As for international competitiveness, the U.S. did seem to do better versus Europe and Japan in the 1990s and 2000s than it had in the 70s and 80s. But against China, the U.S. has performed less impressively. Large numbers of Americans lost their jobs to Chinese competition in the 2000s, and the U.S. has been soundly outcompeted in many high-tech export markets:


Meanwhile, wage growth was only moderate in the age of deregulation and laissez-faire, while inequality increased substantially.
...[Biden's] infrastructure bill represents a complete swerve from the let-the-market-handle-it approach, instead hearkening back to the massive government investments of the New Deal and the Dwight D. Eisenhower administration. In those decades, the U.S. extended its electrical grid, created the interstate highway system, built the suburbs, upgraded and expanded universities and spent much more money on research. Biden’s bill basically looks like a repeat of that effort, but with more of a focus on climate change and racial inclusion.
This is a big risk, of course, as sweeping changes in industrial policy always are. But it’s not as big a risk as the first time the U.S. tried this approach, because we have the results of that earlier effort to guide us. Better transportation, more housing, cheaper energy, more research and more education were all successes during the Cold War. Biden isn't so much charting a course into the unknown as tweaking a tried-and-true approach.
Anyone who opposes Biden’s approach should present an alternative that doesn’t involve simply stumbling along with more of the same.