Wednesday, September 08, 2021

Joe Manchin Versus Public Investment: Argument by Cliche

by Neil H. Buchanan

Last week, I heard that West Virginia's senior U.S. Senator, Joe Manchin (D, who apparently thinks that it is good form to headline at fundraisers for Republicans in other states) had written an op-ed announcing that he was going to oppose what is now widely known as the Democrats' $3.5 trillion infrastructure budget bill.  No surprise there.  I came across a bit of much-deserved snark at Manchin's call for his colleagues to "take a strategic pause," which was just a few nutrition-free morsels of word salad, but I did not think much more about it.

Yesterday, however, a colleague asked me what I thought about the op-ed, which had been published last week on The Wall Street Journal's infamous op-ed page.  (I am not providing a link to the piece, because it is behind a paywall.  Rupert Murdoch is rich enough.)  After cursing my colleague for putting me in the position where I would force myself to read what Manchin had written, I dove in.

What an unexpected treat!  While Manchin's defenses of the filibuster have been embarrassing efforts that would earn at best a B-minus in any undergraduate course, his pose as a sober centrist on fiscal matters is terrible in a slightly different way.  Yes, when he tries to make arguments, they are full of holes.  Worse, however, is that he relies almost entirely on stale cliches about deficits and supposedly responsible stewardship of the country's economic policy.  (Not that his defenses of the filibuster are cliche-free, now that I think about it.)  This is so bad that it is fun, at least until one remembers the stakes involved.
 
Because most of the readers of this blog are interested in constitutional law issues (as am I), I hereby offer what I hope is a helpful analogy.  What Manchin wrote (and says) about fiscal policy is the equivalent of saying: "You know, the word 'privacy' doesn't appear even once in the Constitution."  In other words, it is not merely tripe; it is laughable, mocked-for-decades tripe.  How would we take a senator -- or anyone -- seriously after he offers the constitutional equivalent of bringing a snowball into the well of the Senate to prove that global warming is a hoax?

Similarly, how do we take Joe Manchin seriously after his open confession of economic illiteracy?  We cannot.  I will dive into the gory details in due course, but some background will be helpful at the start.

As it happens, my colleague contacted me shortly after Verdict had published my latest column: "Dear Young People: You WANT Congress to Kick the Can Down the Road on Social Security."  There, I responded to a New York Times news article that had hackishly summarized the results of the Social Security Trustees' 2021 annual report.  I say "hackishly," rather than "dishonestly," because the reporters were merely replicating the form of nearly every news article ever written about Trustees' reports: focus on the date that the Social Security Trust Fund is forecast to reach a zero balance, call that "insolvency," note quietly that even after that date the system will continue to pay at least three-quarters of "full benefits," and finally suggest or say explicitly that this is all very important and that Congress is courting disaster by doing nothing now.

Other than that last step, the hackish approach has the advantage of easily passing a fact-check.  All one needs to do is find the two key forecasts in a given year's report -- the "depletion date" and the amount by which future benefits would be cut if that forecast turns out to be true -- substitute those into last year's news article about the annual report, and submit the piece to the news editor.
 
And if, as happened this year, the predicted depletion date is earlier than in the previous year's report (2033 in this year's report, 2034 in last year's), then a hack reporter can accurately report said difference as evidence that things are getting worse while Congress does nothing.

In other words, while factually accurate, the tone of these things is anything but neutral, and context is nowhere to be found.  It is all presented as just so obvious that we are courting disaster by waiting to "fix" Social Security, which means that Congress must be crazy not to raise taxes (unlikely) or cut future benefits ("sadly necessary") to protect the retirement program -- all for the good of future generations.

The purpose of my Verdict piece was to provide the context and analysis that are lacking elsewhere.  I noted, for example, that given how bad the past year was for the U.S. economy, it is actually amazing -- dancing in the streets amazing -- that this year's forecast of the depletion date showed such a minimal effect from the COVID recession.  I also noted that the Trustees' alternative forecast scenarios -- they produce three forecasts every year, but only the "intermediate" forecast is ever discussed, because we all know that the middle of the road is the best place to be -- showed depletion dates of 2031 and 2061.  This means that the worst-case scenario is barely different from the intermediate forecast, but the best-case scenario -- which is not based on "rosy" forecasts, by any means -- would have the supposed problem pushed out by three decades.
 
Most importantly, I pointed out that, if the trust fund ever is depleted, Congress can (and almost certainly will) guarantee full benefits going forward.  This is why I argued that young people should not want Congress to take whacks at Social Security prematurely, because doing so would guarantee that young people will pay higher payroll taxes and receive lower benefits -- an outcome that will surely never be reversed, even if the pessimistic forecasts turn out to be wrong.

How does Joe Manchin fit into this story?  When I was criticizing/mocking the article in The Times, I allowed that nearly every other news source had surely published something very similar, meaning that those two reporters were simply peddling the conventional wisdom.  The good news, I suggested, was that there were so many other problems going on in the world that it seemed unlikely that anyone would even pay attention to the Trustees' report.  But I was wrong.

In his WSJ op-ed, after sounding the warning bells about Democrats' surely-too-big-to-take-seriously proposal, Manchin offered this:
I, for one, won't support a $3.5 trillion bill, or anywhere near that level of additional spending, without greater clarity about why Congress chooses to ignore the serious effects inflation and debt have on existing government programs. This is even more important now as the Social Security and Medicare Trustees have sounded the alarm that these life-saving programs will be insolvent and benefits could start to be reduced as soon as 2026 for Medicare and 2033, a year earlier than previously projected, for Social Security.
As an initial point, note that the two sentences in that paragraph have nothing to do with each other.  The first says that Congress needs "greater clarity" (which Manchin would surely never quite manage to see) about inflation and the effects of debt on existing programs.  He then says that "this" (a need for greater clarity, apparently) is made more urgent by the one-year change in the forecast depletion date.  But there is nothing about the (non-serious) possibility of inflation or the effects of debt on "existing government programs" that in any way implicates Social Security (or Medicare).  Social Security is inflation-adjusted, and the entire point of the Trustees' report is to show that Social Security's dedicated funding mechanism (payroll taxes) is insulated from the overall debt levels of the federal government.

But the "Trustees have sounded the alarm bell," have they not?  Oh, right, but they have been sounding the same alarm bell every year, and the intermediate-scenario forecast's depletion date has bounced around for years between 2033 and 2035.  But Manchin tells us that the latest news about these life-saving programs (at least he was right about one thing) give us an important additional reason not to spend money to invest in the future productivity of the economy.

All right, I have delayed long enough.  Cliche alert!  "The nation faces an unprecedented array of challenges"; "...some in Congress have a strange belief there is an infinite supply of money ... and that spending trillions upon trillions will have no negative consequence for the future."  "At $28.7 trillion and growing, the nation's debt has reached record levels."  (Side note: Every time debt rises, it is a new record.  Every day, I am older than I have ever been -- a record!)  "Democratic congressional leaders propose to pass the largest single spending bill in history with no regard to ... crippling debt."  And of course: "Ignoring the fiscal consequences of our policy choices will create a disastrous future for the next generation of Americans."
 
That is an incomplete list, drawn from only the first two out of twelve paragraphs in the op-ed.  It is all there: the insinuations that "some" people, who want to pass "the largest single spending bill in our history" (query whether it would satisfy Manchin if we broke this into two smaller bills?), are irresponsibly ignoring the sobering catastrophe of adding trillions upon trillions of dollars in debt.  And of course, it is all about the “next generation."  (To his minimal credit, Manchin did leave one juicy cliche on the table, saying nothing about "our children and grandchildren.")  Why try to provide substance when unfair innuendos and empty phrases are so much easier?

The most important substantive problem with this kind of panic-mongering about debt is that Manchin is talking about "spending" without distinguishing among types of spending.  He merely says that Democrats want to pass "new government programs and additional stimulus funding," not even understanding that this bill is not about stimulus at all but about long-term public investment.  Even more than the so-called "hard infrastructure" bill that Manchin supported, this bill includes essential spending on programs that have been demonstrated to have very high rates of economic return -- higher returns than those provided by highway and bridge repairs (as essential as those are).  Spending money on pre-K, early childhood nutrition, support for caregivers, environmental preservation and remediation, and everything else in the bill is exactly what we need.  Indeed, we have been under-investing in those things for decades, which is why we need to go big now.

The closest Manchin comes to acknowledging anything close to this is when he says that "[w]e must allow for a complete reporting and analysis of the implications a multitrillion-dollar bill will have for this generation and the next."  That at least teases the possibility that, if we took the time and presented to Congress all of the careful economic studies that have been published about these programs, Manchin would say: "Huh, what do you know?  Spending borrowed money can more than pay for itself.  Whoda thunk?'

In fact, however, that is not what he is suggesting.  He claims that his Democratic colleagues merely chose a big number (in the trillions) before "reverse-engineering the partisan social priorities that should be funded."  So none of these things are, in Manchin's mind, public investments whose rates of return should be determined by careful policy analysis.  They are simply "partisan social priorities."  You know: soft stuff.  And in case we missed it, in the very next paragraph he asserts that it is "clear that the purpose of the proposed $3.5 trillion in new spending isn't to solve urgent problems, but to re-envision America's social policies."
 
But re-envisioning America's social policies is exactly what we need to do; and even if a senator does not care about, you know, people -- making their lives better, full stop -- the nuts-and-bolts economic reality about these public investments is that they are in fact investments.

This is why I wrote above that Manchin is guilty of recycling some of the oldest tropes in the deficit-panic game.  He treats all government spending as if it is current consumption (or worse, pure waste), without acknowledging the point that at least the more honest conservative economists have been forced to acknowledge: government spending, planned and executed even reasonably well (that is, not everything has to pay off as richly as the federal dollars that led to the creation of the internet), has a positive economic rate of return.

This in turn brings us back to one of the only times that it is appropriate to draw an analogy between running a government and running a business.  A business that fails to borrow money to finance promising investments (even knowing that not all of them will pay off) is being grossly mismanaged.  Manchin puts the words "historic investments" in scare quotes and innocently argues that "[i]f we want to invest in America, a goal I support, then let's take the time to get it right and determine what is absolutely necessary."
 
Get it?  Only what is "absolutely necessary."  At the very least, Manchin is arguing for paralysis by analysis.  Again, a business that uses such a cramped approach to spending will fall behind, at the very least.  No government, and certainly not one that can borrow in its own currency at negative real rates of interest, should ever be so foolish.

After wandering back into Cliche City -- "elected leaders are sent to Washington to make tough decisions and not simply go along to get along" -- Manchin offers this oddball claim: "I hope [my critics] heed the powerful words of Adm. Mike Mullen, a former chairman of the Joint Chiefs of Staff, who called debt the biggest threat to national security. His comments echoed the fear and concern I've heard from many economic experts I've personally met with."  What?  Why not say that some general has called, say, lack of prayer in schools a national security priority?  I have no doubt that there are right-wing economists who have "personally" told Manchin what he wants to hear, but this is argument from authority at its silliest.

Earlier in his op-ed, Manchin asked: "How will America respond to [future] crises if we needlessly spend trillions of dollars today?"  Answer: "How will America respond to future crises if we reflexively refuse to make the trillions of dollars in investments that will enable us to respond to future crises?"  To re-quote Manchin himself: "Ignoring the fiscal consequences of our policy choices will create a disastrous future for the next generation of Americans."  Precisely.  We do future generations no favors by refusing to invest in the economy that they will inherit from us.

18 comments:

Unknown said...

It may be 100% true that Social Security is under no immediate threat; I personally don’t know enough about it and will take your word for it.

Anyone who has purchased (or attempted to purchase) a house, a car, gasoline, or groceries in the last 8 months can tell you that inflation is a serious problem, and that perhaps $3.5 trillion of additional liquidity being pushed into the economy will exacerbate the problem.

egarber said...

Unless I'm missing something, Democrats are at least nominally trying to "pay for" all these investments via targeted tax cuts at the top. So the case sort of falls apart even on its own terms: granting that deficits are bad for the sake of argument, the plan is to avoid them via revenue increases.

egarber said...

Re inflation, I"m no economist, but it seems pretty clear that supply bottlenecks amid covid are a big part of it. That's likely not a long-term systemic issue. Over indexing on it now might be like swinging at a phantom.

Unknown said...

Possibly so. I am also not an economist but commodities, real estate, and crypto currencies are all going way way up. Those things are not subject to supply bottlenecks.

Unknown said...

Ultimately a $3.5 trillion Democratic “infrastructure” spending bill paid for chiefly by new borrowing is an inflationary wealth transfer, from Republican constituencies to Democratic constituencies.

Given the demographics of West Virginia, the “infrastructure” bill will certainly be a net negative for that state. Manchin would have to a) not have further political ambitions in that state and b) not care if he makes his constituents, on average, relatively worse off.

His reasoning might be confusing, but his result is utterly predictable.

egarber said...

Well, one thing I would never use to gauge the overall economy is crypto... A bunch of hackers buying up graphics cards to mine bitcoin aren't a barometer of anything really - except wasteful use of electricity.

The ironic part there is that the stated enemy of crypto purists - the banks and financial institutions - are entities that are making a lot of progress with the underlying blockchain technology.

Anyway, if you can't tell, I'm a bit of a crytpo skeptic overall. Though I do think it could have a lot of utility empowering people in oppressed societies - e.g., women in Afghanistan who aren't allowed to work mainstream can be paid in bitcoin. In this space, crypto could be a major disruptor, in the good sense...

Neil: "what in the hell does this have to do with Manchin???" ha.

egarber said...

<<is an inflationary wealth transfer,

Maybe, or maybe not. Whether it actually adds to inflation depends on many factors*. And remember, the cost will be spread out over years; it's not like they'll be dropping 3.5 on us in one day.

*For example, if a lot of it is borrowed, that'll flood the market with treasuries, likely driving down prices. If that happens, interest rates go up some - which is a check on inflation. And we'd also have to view any actual inflation in the context of wage growth resulting from all these investments. If inflation goes up X, but wages increase X+1, that's a good thing.

PQuincy said...

"real estate, [is] not subject to supply bottlenecks."

Um, actually, a good part of the rise of real estate prices is EXACTLY because of supply bottlenecks... little things like "zoning" and "they aren't making more beach", etc. etc. etc. Yes, the available liquidity across the financial system may also raise real estate prices, but the overall real estate inflation (which is, oddly, most pronounced in such hellholes as coastal California, Seattle, and lately Idaho... who knew!) is exactly because real estate supply is both constrained and very very illiquid. The surge of people moving to Boise can't be supplied with new houses in a few days, which means (surprise!) the price of houses goes up because of... SUPPLY BOTTLENECKS! Meanwhile, decades of zoning and Nimbyism, not to mention high construction costs from regulation (whatever you think of it) have driven coastal California real estate prices into the stratosphere.

Ugh. What is the point of economic debate when one side completely disregards very basic principles (and IANAE, just a moderately attentive layperson).

PQuincy said...

" crypto currencies are ... not subject to supply bottlenecks."

Um, actually, have you paid the slightest attention to how Bitcoin in mined. Not only is Bitcoin subject to supply bottlenecks, but those bottlenecks (by design) get higher and higher until they reach infinity and every last possible Bitcoin has been mined, a known and finite number.

Ugh. What is the point of economic debate when one side completely disregards very basic principles, AND disregards reality???

Unknown said...

Yes, obviously crypto currencies and real estate are of limited supply. I took egarber’s reference to “supply bottlenecks” to mean COVID-related disruption of supply chains.

I can’t even understand how I’m being accused of ignoring reality when you are pretending their isn’t inflation going on right now.

In some neighborhoods real estate has doubled in the last year. Was their less nimbyism and more land in Boise a year ago than there is today? If not, then doesn’t something else have to account for the dramatic rise in prices?

egarber said...

Another thing about bottlenecks driving up real estate. In Atlanta for example, in a normal market you’ll typically see homes closer into town rise in price during a bubble - and builders react by constructing new homes in the outer burbs. So you end up with a good bit of slack in the housing supply the further out you go from the city. And that tends to keep prices at bay.

But during COVID, builders don’t have reliable suppliers and homes are NOT being built at the normal pace. The result is housing supply scarcity everywhere, not just in the city.

Once basic supply chains become more reliable, and building returns to a normal clip, that’ll put downward pressure on real estate prices overall. So the inflation problem here isn’t an over heated economy or anything that justifies raising interest rates at the Fed.

Unknown said...

New housing starts recovered to pre-COVID levels more than a year ago, and have only gone up since:

https://www.census.gov/construction/nrc/pdf/newresconst.pdf

egarber said...

Thanks Unknown.

Yeah, I’ve seen that too. But it has been uneven. And “start” might mean we have the lot but we can’t get moving - or it takes longer right now to complete the average new home. Hopefully it’ll get cranking.

Unknown said...

The curve for finishes appears even less disrupted by COVID than the curve for starts though. The impact of COVID on housing finishes appears almost negligible, and again, that dip occurred over a year ago. Housing finishes are decently higher than the pre-COVID peak.

It won’t get cranking soon—it already is!

In short, COVID-related supply bottlenecks are not driving housing prices.

egarber said...

Are you saying there isn’t a scarcity of supply in housing? No realtor would agree with that.

egarber said...

And from what I’ve seen, it’s not scarcity because demand is at historic highs.

Unknown said...

Obviously, prices going up means there is a scarcity of supply at current prices. (Similarly there is currently a scarcity of labor at current wages).

I’m just saying that the scarcity of supply isn’t being driven COVID-related supply bottlenecks, because new houses are being built at higher rates than before COVID. Rather, prices are being driven by inflation.

egarber said...

No worries. Good conversation.

Two quick points:

1) There is a lot of reporting on the covid related bottlenecks I’ve brought up. Good to examine some of that.

2) Saying something is driven by inflation has the dynamic backward. Inflation isn’t the starting point. Inflation arises because of various activities writ large. That’s why there are different flavors of it, each with different mitigation approaches. For example, see demand-pull vs cost-push inflation. My contention is that we’re in some form of the latter, largely because of supply chain disruptions. Same thing is happening with computer chips.