06 October 21
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Funding for government spending is secure for now, at least through early December — at which time Congress will pass another continuing resolution. (Remember: neither party wants to be seen as being responsible for a government shutdown.)
But expect more fear-mongering this week over failure to raise the nation’s debt ceiling. Mitch McConnell and the Republicans won’t budge. What will happen? Over the next few weeks, the Treasury will stave off a default until Senate Democrats pass a debt-ceiling increase on a 50-vote (plus Vice President) reconciliation bill that won’t require any Republican votes.
What about President Biden’s ambitious social and climate “Build Back Better” package? The media is full of “Democrats in disarray” stories, but that’s simplistic. Actually, almost everything is on track.
Last Thursday, Joe Manchin declared that he’ll agree to no more than $1.5 trillion of spending for it, less than half what Biden is seeking (which itself was half what he originally promised). But this is just his opening position, signaling the start of negotiations between Manchin and the White House — which begin this week. Biden and Manchin know each other well and are experienced negotiators. I expect the final figure to be between $2.3 trillion and $2.6 trillion.
The biggest fight will be over which initiatives in the package are pared back. The most vulnerable are drug-price controls, tax increases on the wealthy, and expansion of Medicare to include dental, hearing, and vision coverage. That’s because these measures are most despised by the corporate backers of conservative Democrats. (Note that they’re also the most popular with the public.)
Other possible casualties are expanded pre-K, community college, paid family leave, child tax credits, and clean energy. They’re also popular – and important.
But the public may never know any of these measures have been sacrificed because Democrats have several ways of keeping them in the bill while quietly paring them back: covering fewer years (4 instead of 10, for example), cutting back on who’s eligible (phasing out a benefit at $80,000 of yearly income rather than $120,000), and, on the revenue side, widening tax loopholes and carving out more exemptions.
If Manchin finally agrees to this, I believe Sinema will come around. After that, the whole package could get done quickly — possibly as soon as this week through a Senate reconciliation bill. Then it will move swiftly through the House, with progressives and conservative Democrats voting for the infrastructure bill as well. (Of course, Republicans will oppose both, but the Democrats have the votes to get them through.)
The biggest uncertainty is the economy.
This coming Friday, the Bureau of Labor Statistics will report on jobs and wages for September. The August jobs report was a disappointment, mainly because of the negative effects of the Delta COVID variant. I expect the September report to show slow job growth, too. But keep your eye on wage growth. If wages continue to rise as fast as they have been, workers will have more money to purchase all sorts of things — thereby getting the economy back on track.
You’ll also be hearing lots of scaremongering this week about inflation and “labor shortages.” Last Friday, the Fed reported that prices climbed in August at the fastest pace in 30 years. This – along with uncertainty about jobs and the Delta variant – has already rattled the stock market. (But as I’ve said a thousand times, the stock market is not the economy! The richest 1 percent of Americans own half of all stocks, the richest 10 percent own over 80 percent.)
The major reason for inflation is supply bottlenecks, both in the US and around the world, which are pushing up prices of everything from crude oil to semiconductor chips. These bottlenecks should ease over the year. In fact, so-called “core” inflation (which excludes food and fuel) has been slowing somewhat.
But this hasn’t stopped Republicans from claiming that the spending Biden and the Democrats want to do will spur more inflation. Rubbish. It will expand the capacity of the economy to produce goods and services, thereby relieving shortages and reducing inflation over time. (When more people have childcare, for example, they’re freer to work – reducing “labor shortages.”)
Republicans also claim that the stronger safety nets in the bill will make people more reluctant to join the labor force. Additional rubbish. America has the weakest safety nets of all rich countries. Giving Americans slightly more economic security will help the economy, by allowing them to get additional skills, change jobs, and get better pay.
In many ways, Biden’s plan will improve the lives of the bottom 90 percent of Americans – people who don’t have much wealth and own almost no shares of stock. This is something the corporate backers of Republicans and conservative Democrats don’t seem to care about, but they should.
What do you think?
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