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Larry Summers speaks: Pass the social spending bill

As we all know, Larry Summers has been warning for some time about the risk of high inflation. Given the enormous federal spending of the past 18 months this is a perfectly defensible concern, and yesterday's inflation numbers suggest he may have been right.

But if you're a fan of Summers, you need to pay attention to everything he says:

Summers attributes the persistent inflation to Biden’s COVID relief package, but said he supports the infrastructure and social spending bills. “Together, they are smaller over 10 years than this past year’s stimulus was over a single year, and in addition they are substantially paid for,” Summers said.

The social spending bill, in its current form, amounts to about $200 billion per year and doesn't affect the federal deficit at all. In other words, it will have no effect on inflation. Capiche?

30 thoughts on “Larry Summers speaks: Pass the social spending bill

  1. sfbay1949

    I saw that interview too. Taking everything he says into account, I think Biden should listen to him. Best to get Summers on your side and out there helping sell the BBB bill.

    Unfortunately, Manchin will use the October inflation figures as the excuse he needs to tank the bill. Have I told you just how much I hate the man?

  2. George Salt

    OT: Today is Veterans Day.

    Personally, I hate the smarmy "Thank you for your service" that I often hear, but on this day, if you know a vet, please take the time to see how they are doing.

    1. MontyTheClipArtMongoose

      Already dreading the number of Trump Won, Fuck Joe Biden &/or Let's Go Brandon, & Trump 2024 flags I'll see when I drive into Vancouver, WA, to go to the gym & have to fight my way thru the Veterans Day Parade.

  3. clawback

    What "persistent inflation?" I guess inflation that has been a focus of the media for a full news cycle constitutes persistent to these people.

  4. rational thought

    The build back better bill costs way more than 200 billion a year although I have yet to see a good estimate of what the true cost is per year for the upcoming years. They really mostly managed to bring it down from 3.5 trillion to 1.75 trillion by adding clearly fake sunsets to programs intended to be permanent. It would make zero public policy sense to actually institute things like universal govt paid pre k, govt paid community College , adding govt paid dental to Medicare, etc. And then simply stop after a few years .

    The actual plan is to increase spending much more significantly each year. But then , by pretending they will stop that spending ( for no rational reason) after z years, they can claim ten year spending is less. That itself is fundamentally misleading and intended to be so. But, as kevin does, to then say it is 200 billion a year is more , it is basically lying.

    200 billion a year for ten years would have one sort of economic impact. 500 billion a year for 4 years and zero per year for the next 6 would obviously have a more significant impact on those first years . And even more when everyone realizes the real plan is to just keep spending that 500 billion.

    Note I just made up that 500 billion- have not seen anything clear so not sure if higher or lower ..

    And this is paired with the same sort of fake gimmicks on the tax side where the big tax cut restoring salt is supposed to expire. Not sure if there is actually any net tax increase to pay for anything in first years.

    1. Jerry O'Brien

      The Democrats don't have to pretend they'll stop that spending. That will be taken care of by Republicans when they control the House in 2023.

      If inflation does persist at higher than 4 percent, then even a Democratic-controlled Congress may be compelled to do some deficit reduction. I wouldn't blame the BBB bill for any inflation yet.

  5. rational thought

    And also, even assuming it was really 200 billion a year, the reasoning used to justify it is ridiculous and immature. An argument a 4 year old would use.

    We spend a huge amount during covid , hugely expanding the deficit and increasing national debt , and potentially endangering the economy , and them spending even more is OK because it is less than you spent before?

    So , if I break my household budget by buying a new car that really cannot afford and just putting it on the credit card, that makes buying an expensive flat screen TV next year OK because it costs less than the car ?

    1. Joel

      Sorry, but anyone who makes an analogy between federal spending and a household budget disqualifies themselves from serious discussion.

      1. MontyTheClipArtMongoose

        Maybe it's just foreshadowing of the reelevation of El Jefe & conversion of the USA into a familial dynasty like Nicaragua under the Somozas, or Zaire under the Kabilas, or the Lukashenkos's Belarus & Kims's Democratic People's Republic of Korea.

        Once America is a nation-state AND a household, the federal budget as family budget analogy will be true.

      2. HokieAnnie

        Thank you. It's high time we put those asinine GOP talking points to bed. Government Accounting is an entirely different animal than household finance.

    2. Jerry O'Brien

      I don't mind the household finances analogy, but to be fair you ought to stipulate that the household has young money-earners who are embarked securely on careers that are very likely to yield increasing income for decades to come, and they're buying things that will be beneficial to the household for years to come, like a reliable up-to-date automobile, a home, major appliances, and quality education. Oh, and they are getting credit at great rates. Then, heck yeah, take out that mortgage and use that credit card!

      1. rational thought

        Again, my analogy here was on the reasoning, not whether it can be justified and comparing budgets .

        The analogy you make there is valid, if you can justify it being the same concept on the federal level. Of course it makes sense to borrow for an investment that will generate enough extra income to fully and more pay off that debt .

        This sort of analogy fits better with the " hard " parts of the infrastructure bill , like repairing highways and power systems.

        Note one problem with that analogy re govt spending is that most of the benefits flow through to the private economy and only part of that is income to govt through taxes . Still net overall benefit, but then for govt to repay they need to raise taxes. But not just to offset that private gain , because higher taxes also reduce economic activity some and reduce taxes. A 10% increase in tax rates will produce less than a 10% increase in taxes. ( I do believe in the Laffer curve which is self evidently true, but do not think like some on the right that we are at the point where tax revenue actually goes down with tax increase except for rare cases) .

        So, in order to justify infrastructure spending of 1 trillion by govt, might need it to benefit private economy by 2 trillion.

        Sort of like if the household couple bought a fruit tree that produced enough fruit to pay for itself. But neighbors steal the fruit and have to sue to recoup ..so , to offset legal costs fruit tree needs to produce twice as much fruit to pay off ( very left wing analogy as I just equated theft with not being taxed ).

        Look, I was not even saying that build back better cannot be justified in an analogous way like you use for the family. I would argue that , in general, most cannot. But that had nothing to do with my point.

        All I was saying was that the reasoning that it was OK just because it is less than some prior high spending is very flawed . That itself is zero justification that we can afford it.

        And , re your family analogy, the idea is you borrow to buy that appliance or car and now you are in debt . But it saves you expenses or increases income later so then , during that later period, you spend LESS than your income so you can pay down what you borrowed.

        The whole point of the household analogy is that spending over income today is offset by spending less than income in the future.

        But , no matter that this sort of justification is used for additional spending by democrats, and tax cuts by Republicans, we never seem to ever get to that next step with us budget ..

          1. rational thought

            It is the world's reserve currency.

            Until it isn't because you have deflated the value do much because of the spending.

            Essentially you are making a ponzi scheme argument. That we can always spend and go into debt because we can borrow in our own currency. That depends on other nations being willing to have the dollar as a reserve currency . If confidence in the future worth of dollars is undermined, why would anyone want it as the reserve currency .

            Being the reserve currency is a clear asset but abuse it and lose it.

            1. Spadesofgrey

              Until it isn't is a lame response. Growth has structurally slowed in 1974 and 2001. It's very possible by 2050 all non-credit based growth will be gone. If the government and private sector can't run large debt levels, we will see large contraction and stoppage of growth.

        1. Jerry O'Brien

          But the reasoning isn't what you're analogizing it to. You're the one who thinks the covid-relief spending was spending that the U.S. cannot afford. Other people don't think that. Plenty of people think it was affordable and well worth it. Whether some new spending amount is less or more than some previous amount may be a weak justification for a new spending bill, but it's not saying that wasting money is fine. They don't think it's being wasted.

          A second thought for you, and this is where the household analogy breaks down, a household that is tied to one or two individuals' lifespans necessitates a plan for paying down debt eventually. A country doesn't have an obvious bound on its lifespan. So yes, it can plan to keep growing indefinitely. More spending every year. More revenue every year. More debt every year. It doesn't have to come down to zero ever.

          There are good arguments to be made over what patterns of spending/taxing/borrowing are going to be sustainable, but I don't think you've made them.

  6. rational thought

    Seems like you do not understand an analogy. And to be precise, I made an analogy between the REASONING used re federal spending and the same REASONING used for a household budget . That is not the same as an analogy comparing federal spending and a household budget itself. I would defend the latter in some contexts but do not have to here as that is not what I did .

    1. rational thought

      It definitely does not prove that the policy is bad because a bad argument is used to try to justify it..

      But it still might be some sort of evidence that it is more likely.

      If a smart logical person supports something and has a ten reasons why , and you can demonstrate that one of them is illogical, that might not show much at all if the other nine make sense. Very often, even intelligent people get overinvested emotionally in supporting something for good reasons that they just without thinking accept any stupid reasoning why it is a good idea . And you see this all the time on highly partisan issues on both sides .

      And , when a person who is just incapable of thinking logically makes a bad argument for something they support, it also says very little, as most of their arguments are going to be bad regardless.

      But, when people who are generally quite capable of making a good logical argument supporting something if they exist , comes up with one flawed argument after another in its favor, that is usually a good sign that they cannot find an actual good argument and the position is , in reality, wrong.

      Like when Kevin just kept coming up with post after post saying that the Afghanistan evacuation was going great but his arguments were just laughable..

      On build back better, why compare the spending to last year which is a stupid justification if you can actually make a reasoned case that the spending will pay off long term ?

  7. spatrick

    I'd rather have a little inflation with unemployment under five percent than deflation and 20 percent unemployment or worse due to a pandemic, which is what was happening last year. That people saved their money, bought a lot of junk from China sitting on a boat right now, oil companies won't even drill for oil with the leases they don't even use, that's Joe Biden fault? Screw 'em!

  8. KenSchulz

    This is President Biden’s program, and every time I have heard him speak about Build Back Better, he talks about the benefits, and what it will mean for our future. Have you heard different?

  9. Pingback: Inflation doesn't mean the Biden agenda is impossible. It means it's not free. – Investing Ideas Daily

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