Biden-Powell Duo’s Macro Policy Revolution

pay for it. He celebrated his first hundred days in office this week with yet another massive spending package, this one squarely aimed at taxing the rich to give money to everyone else. Or told, he's proposed nearly six trillion dollars in new spending since taking office, paid for by at least four trillion dollars worth of higher tax revenues now as it happens. The US central Bank, the Federal Reserve,

also met this week to consider its next move. Its policymakers looked at the ocean of new government spending coming down the track, the booming stock market, and the rapidly recovering US economy, and decided interest rate should stay at rock bottom and that the bank should continue to push money into the economy at a rate of a hundred and twenty billion dollars a month. All in all, it seemed like a good time to consider whether we really are seeing a revolution in US economic policy under the

man that Donald Trump used to call Sleepy Joe. A little later, will also hear why Americans rich and Paul are retiring earlier these days thanks to the pandemic. And that's the opposite of what we were told was going to happen with the population aging and most of us

expecting to work a lot longer. But first, let's have that talk about Biden's first hundred days and there's big new plan for American families with two of Bloomberg's smartest analyst of US economic policy, Federal Reserve reporter Rich Miller and White House reporter Nancy Cook. Rich Nancy, thank you very much for doing this in what I know has

been a very busy week. Nancy, maybe just kicking off with you, can I ask you quickly just to tell me about the plan for American families and how it fits in with the president's other massive spending plans since becoming president. Well, Stephanie, I think that's the key operative word, massive spending plans. This latest bill that he's talking about is a one point eight trillion dollar plan that includes one trillion dollars of government spending and another eight hundred

billion dollars and tax cuts and credits for families. It's a very sweeping plan that would try to expand preschool access, access to community car college, set up a national paid family leave program, expand and extend the child tax credit

through It's really a liberals wish list. And it comes on top of the other two major plans that Biden has proposed, the one point nine trillion dollar COVID relief bill, which has past Congress, and then the infrastructure package, which is two point to five trillion dollars, which Congress hasn't even taken up yet. So basically, he is proposing about six trillion dollars in spending um in a very short period.

And if you add and as you suggest, you know, if you add the one point I tried in for this package, and then about to each for the short term stimulus and infrastructure, I mean you're talking real money. I mean rich is it? Is it remotely realistic that all of that spending is really going to come through? I mean, where are the deficit hawks that we used to hear from. Well, first of all, you got to

remember the different time frame from these bills. The first one that Nancy was referring to is, you know, getting going to get spent very quickly. We already have, you know, the checks are in people's bank accounts and are being spent the judging by what we've seen with the trade deficit shooting up. Um. But the other other two packages are more longer term. The first one, the infrastructure one, is more of an eight year plan and the families one is more of a ten year plan. So it's

not all coming all at once. And as far as the deficit hawks, um, you can't see them in the markets. Uh. The treasury yields went up a little bit, but now I've come back down. You can't really. I mean, the Republicans are grousing a little bit about this, but with interest costs so low, Treasury Secretary Janet and Yellen is saying, now is the time to go big and we don't have to worry about the deficits. Well, and it's interesting

you say that. I mean, philosophically, we are that we remember that the Volca Reagan paradigm we had in the eighties. You know, not only the sort of tax cuts, small small government philosophy of Ronald Reagan, but also Paul Veoker coming in as a very muscular anti inflation central bank governor, and the two of them kind of defined an era for you. I guess Richard would be fair to say, you don't quite go back to the Vulcar fed but you certainly have. You've been around the block for for

a while. You know this is this is It is not overstating it to say this is overturning a very long time paradigm, but not just the role of the government but also the central bank. Yeah, I think, I mean, I think it's right Vulcar and and Reagan together. You know, there was a tremendous change in in the way in the economy went from the government to the markets. The emphasis was on efficiency not equality, and and the power also went from a labor to the owners at capital.

And it was monetary policy that was premier, not fiscal policy. And all of that we're seeing, you know, turned on its head. You know, Volker wanted to get inflation down, power wants to get inflation up. I mean, and Nancy, we just heard there about raising efficiency. If you look at these packages together, particularly, I guess the Infrastructure and the Families Act, you know how much of it is about raising the growth rate, making the economy stronger, and

how much is just classic redistributive big government. I think that the first plan, the COVID Relief Plan, was really about raising the growth rate and making sure that the economy could crawl out of the whole from COVID nineteen. I think these next two packages, the Family's Plan and the Infrastructure Plan, are really huge government programs that are trying to reshape, ape and re orient the economy in

a completely different way. They're trying to redistribute some of the wealth that we saw, you know, rich people gain during the pandemic. They are trying to give money to communities like African American communities that have typically had more of a wealth gap. They're trying to create new jobs in clean energy, raise the wages of workers for things

like home health care aids and childcare workers. And so it really is a massive government program to try to reshape the economy for what the Biden White House argues is sort of the things we need to do to prepare for climate change and to make sure that there's

a stable middle class. Of course, Republicans are very against these ideas, and the two parties are interestingly sort of going back to their most extreme positions, where you know, Democrats are really proposing some of the most sweeping redistributive policies that we've seen in decades, whereas Republicans are going back to many of their all arguments, not about the deficit, as you and Rich have talked about, but about the need for small government, um, you know, keeping tax cuts

in place. Um. It just shows how polarized the politics are on the future of the economy, but about the politics of this though. I noticed with the infrastructure Bill that you know, a lot of it's paid for in theory by raising taxes on companies and business, and that seemed to be quite popular with the broader public. Is this can the same be said of some of these

efforts to increase taxes on the very wealthy. If you're just fixing on how much people can inherit who are in the really the highest bit of the income scale and sort of closing loopholes for the super wealthy, I mean,

isn't that quite politically popular? That's also politically popular? There has been a raft of polling done in the last several months that show that, you know, raising taxes on rich people, raising taxes on capital gains, these are things that gains so much political traction during the presidential campaign.

And one thing that the Biden White House really has going for them is they are proposing dramatic chat tax changes, but those tax changes are not as dramatic as the ideas that let's say, Senator Elizabeth Warren put out during the campaign or Senator Bernie Sanders. And the White House feels like they do have some political cover because they can say to more moderate Democrats and Republicans, look, we're not going as far as some wings of the party wanted.

And they're trying to make the argument that wealthy people gain so much during the pandemic, you know it's time to make them pay their fair share. How much of this actually has any chance of becoming law, Well, I think that that's the key question. People that I talked to think that these two bills are huge, and uh

they're they're such big asks of Congress. Most people I speak to think that ultimately these two packages will be condensed into one package, and a lot of the things will be taken out, particularly things from the American Family's Plan, like potentially the paid leave aspect or um you know, universal preschool. I think the there's a lot of bipartisan interest in doing things like infrastructure, rebuilding roads and bridges

in the US and spending money that way. I think some of the components of the Family's Plan or will be a much tougher left politically and rich. Just thinking about the economics of this, I mean, there's some bits of the US tax code which to outsiders seem extraordinary.

I mean, the fact that when people die, when you know, someone very rich dies and there as inherit, you know, hundreds of millions of dollars, all of the capital gains or those get kind of counted in the inheritance and you can sort of start scratch if you're the person inheriting it. The fact that people would just never pay any tax on any of that or those capital gains seems crazy to outsiders, even countries that have relatively lower tax rates. I mean, do there is an economic case

for some of these changes? Oh, there's definitely an economic

case for some some of these changes. Um, not so much on the inheritance tax, which of course, the Republicans tried to rebrand as the death tax, and and actually probably succeeded in doing But on some of the change changes, like increasing educational opportunities, expanding childcare, all of that is aimed at both increasing the size of the labor force but also increasing the skills of the labor force, and that's aimed at lifting this sort of long term potential

growth rate economy. Likewise, with the public infrastructure, it's it's you know, improving roads, improving broadband so that you improve productivity and therefore improve the potential growth rate accounty. So while Nancy was right in saying, you know, a lot of this focus is on redistribution, there is an argument they're making, sort of a little more sot voce that this is going to lift the long term potential growth

rate of the economy. And you have Janet Yelling there, who was at the FED and is now Treasury Secretary. Um she used to have to worry about inflation in theory. The Treasury Secretary doesn't worry so much about inflation. But this this surely has to be a concern if you're looking at all of that spending and borrowing going down the track Rich. Yeah. I mean the White House has has gone out of its way to make clear that

that this is something they're watching very very carefully. The the Council and Economic Advisors took the unusual step of putting out a blog sort of post, sort of taking apart the the arguments of people like Larry Summers are about inflation. But I think in the end, you know, if we do get inflation, Janet Yellen recognizes as a former FED it's going to be up to the Fed

to control it. Fiscal policy is not nimble enough, and and all these fiscal depending on how much it gets done, all these fiscal policies will be in train, all the spending will be in train. And if we get inflation and there's there's needs to be something done about it, it's going to be the Fed and j. Powell or wherever his successor, is a job to make sure it

doesn't get out of control. And we did have we had the novel backdrop for the State of the Union of two women sitting behind the President, the Leader of the House, Nancy Pelosi, and the Vice President. And you've got a lot of chairs changing at the FED in the next year or so, including the potentially the reappointment or not of J. Pow as the the chairman. Do you think do you think President Biden is going to want to make the US Central Bank look different as well,

put in some different faces, maybe different color phases. Thanks for putting me on the spot set for me, um, I don't know. I did. On the one hand, it's hard to conceive of a more dubbish Central Bank chairman than we have now and J. Powell that argues for

for for keeping him in place. Uh. On the other hand, there there's the big there's a progressive wring of the Democratic Party which is going to be pushing hard for someone as you say, maybe maybe you know a woman or maybe African American or so that would be the first the first black chairman of the FEN for sure,

for sure. And while Powell has you know, probably more than exceeded Democrats wishes when it comes to monetary policy, he's been he's been more friendly, I would say, to some changes on the loosening the regulations on the banks. And you know, you have people like Senator Elizabeth Warren who really want to keep their thumbs on the banks and maybe do even more and attack private equity, etcetera. So that when I'd argue to for replacing him, But I mean, it's probably gonna be come down to a

decision later this year. If the economy is going swimmingly well as a lot of people expect, it might be easier to replace him. So just stepping back. Finally, you know, we always focus, rightly or wrongly on the first hundred days relative to your expectations. You've both been in Washington a long time. How would how would you rate President Biden's first first hundred days. You certainly spend a lot of money, or try to spend a lot of money, but any surprises, Nancy, I think that his first one

hundred days have gone well. I think that even his critics would say that that they have gone well because he basically did two of the key things that he needed to do, which is, um, you know, inject a bunch of money into the economy to try to improve growth, to try to improve unemployment, to make sure that you know, families have stable financial footing. And then he's done a

good job. He and his team have done a good job of getting the pandemic under control, ramping up the vaccine nation rate, and so the first one hundred days have really been dealing with these crises. I think what has a prize me and many other political reporters is just how progressive and revolutionary his agenda has been. President Biden has always been seen as a real centrist, a

creature of the Senate, and institutionalist. He did not run a campaign that anyone saw as hugely progressive, that all that attention went to Senator Elizabeth Warren or Bernie Sanders. And yet once he has gotten into the White House, he has pursued policies that have shocked progressives and delighted them. And it's just much more of an ambitious, sweeping agenda in line with really the most progressive wing of the party then I think Democrats thought was possible just before

we get to rich. I just wanted it is interesting that and that's obviously it's been striking to a lot of people. I guess that you could argue that if it's not going to if most of it's not going to get past in this Senate, that this is you know that he's not he doesn't really believe this, and this is all gesturing, this is all just sort of getting the left off his back. I think that that

is there's some truth to that. With the American Family's Plan, this most recent plan, I don't think that I've been told that his heart is not as in this plan as it is with infrastructure. But I do think that he feels very strongly about the infrastructure package. I think that he feels very strongly that they needed to pass the one point nine trilliant dollar COVID relief plan, the

Family's Plan. They unveiled the third because it is the last priority for the White House, and I think that plan is much more of one that has less support in the West wing or a bit more of a divided support among his top advisors and even from the President, and that is seen as something to get progressives office back and rich Bella, what do you think of the first hundred days and anything? Have you been surprised by by Button's radicalism or or anything else. I mean, I

think I've been a bit surprised by his radicalism. But if you go back to the actual proposals that he laid out during the campaign, he is following along with many of them. I mean, if you go back and read the literature, what that was. You know, he was putting out at the time, even though he came across as as Nancy said, compared to War and and uh Sanders as a centrist, his his his proposals were pretty radical.

I think maybe one thing that he might have learned from President Trump is if you promise something, try to deliver it. And I think that's what he's trying to do. And that's Uh. Whether as as you and Nancy pointed out, whether you know, especially with the second two packages, it turns out to be more aspirational than than actual, you know, remains to be seen. But I think he did. He did campaign with a pretty progressive platform. Maybe the rhetoric wasn't.

The rhetoric was more I'm, you know, gonna cooperate with Republicans, etcetera. But if you if you, if you actually read the proposals, there was a hell of a lot of spending he would he was, he was putting out there interesting. Well, in a hundred days, maybe we'll come back and see how much more money he's tried to spend in the meantime. Nancy Cook, Richmond, thank you very much, Thank you, thanks

so much. And now I wanted to bring you a different take on the recovery from US economy reporter Mike Sasso in Atlanta, who, together with his colleague Alex Tanzi, has been taking a look at why so many people at different ends of the US labor market are deciding

one is a good time to retire. Economists speak for K shaped recovery in the United States, so named because many Americans with office jobs fared well during the COVID nineteen recession, and their fates resembled the upward slope of the letter K. Many others in the travel and restaurant industries have faired poorly, though, and occupy the downward slope

that same dynamic as occurring in retirement. The pandemic has sparked a retirement russia sorts in the US, at least among those fortunate enough to have built up their savings and investments. A soaring stock market has boosted their retirement accounts, while the pandemic caused many to reevaluate their priorities in life. In Massachusetts, Melissa Martini put away her business outfits for

good at the end of March. She's retiring five years earlier than she expected from her job as an administrator for the agency that oversees the Massachusetts Parks. I'm fifty eight right now, and I had it not been for the stresses of the pandemic and the cuts and my staff, I probably would have stayed in my position another five years. But I was looking at retiring, probably at sixty two or sixty three. I've seen so many people who have

decided to wait too long to retire. And you know, many of my colleagues or older family members, and they get one year of retirement and then they get sick and they pass on, and it's just I don't want that for myself. Traditionally, Americans have waited to retire until they at least reached their mid sixties. That's when most are eligible for full retirement benefits from the Social Security Administration. The pandemic, however, has upended that thinking for the fortunate ones.

After the global financial crisis of two thousand seven, the US stock market took more than five years to recover its losses. In this pandemic recession, it took only seven months. Many are getting out while it's getting still good. While the pandemic caused some Americans to delay applying for their Social Security retirement benefits, overall, it cost a net increase of one point seven million applications, according to the US

Census Bureau. Some of those people retired willingly. Others lost their jobs and see little hope of getting a new one. Martini chose to retire after the state in Massachusetts kept cutting her subordinates during the pandemic, leaving her with too much work into little time. It's just there's too much stress, too much responsibility to UM to really handle without the resources.

So my husband and I looked at our investments and our finances and UM, and we decided, you know what, I can survive on my state pension of my pay for the rest of my life because our investments were such that we could afford for me to do that. Six years ago, she and her husband bought a forty two foot sailboat. He's also retiring early, and they plan

to put it to good use. And UM, we're hoping that at some point in the future, when we're not worried about aging parents, UM, we won't be able to sail to the Caribbean in the intertime and live on the boat or females a venture in the Virgin Islands. Probably to be sure, economists will spend years researching this most unusual recession and its case shaped recovery. While some recent national surveys suggest people are retiring early, others are

being left behind. A recent survey from the Employee Benefits Research Institute suggests the pandemic in net terms, prompted more US workers to delay retirement than to speed it up. It's cited job losses in other stresses. Ultimately, the pandemic helps to shed more light on the gap between America's

haves and its have not. So I'm delighted to talk now to Alex Tanzi, a senior editor for the Real Economy Team in Washington who worked with Mike pulling together some data to go with the story, but has also been thinking about broader quest of generational inequality. We tend to think that the last few years have not been great to young people relative too old, and it was sort of symbolized in that piece by the fact that you have older Americans actually able to retire sooner than

they thought because of how well the stock market has done. Alex, do you have a sense that the pandemic has worsened generational inequality? The pandemic is um across the board, has created this case shaped recovery. So there's millennials and younger people that are doing exceptionally well, people that had a job and kept their job. Um. But at the same time, many people on that age cohort you know, I had service sector jobs and lost their jobs. So it's it's

a it's a mixed picture. Um, it's very nuanced. But you did you did find some interesting data that suggested that the wealth gap might even be closing in some parts of the labor market. That's right. So the St. Louis Federal Reserve did the report, and they're showing that the the wealth gap for millennials is getting a little bit better. At one point they were calling it the Lost generation, but now they're showing that Um, while they're still less wealthy than they were expected to be at

this age, they're closing the gap. And the oldest millennials are you know, they're approaching forty, so they're not exactly, um, super young anymore, but they are gaining wealth and they are um purchasing real estate, and the real estate markets don't exceptionally well in the US this year, so they have received equity gains and their real estate holdings and also, um,

the stock market obviously has done um quite well. If I analyze the last three quarters of twenty twenty, people under the age of forty saw their biggest wealth gained ever of any cohort at any time. So they had a sevent annualized increase in the last three quarters, which um it was better than any other group has done it any other time. Just sort of thing through the logic of that, because obviously, if they have less money, it's more that they were they were able to have

the biggest percentage increase. But in absolute terms, the older generations are still really the ones who are sitting on a big chunk of the wealth. Surely that's a that's exactly right. Millennials did see their assets well to over ten trillion dollars, but at the same time, you know, for example, of baby boomers have seven times that much. So millennials also hold quite a bit of debt, and the type of debt they hold isn't exactly the so

called good debt. They are purchasing more real estate, which you know, what's good debt. Remind me what good is? Usually it's mortgage. Debt is considered good because it's appreciating asset most of the time. But millennials tend to hold quite a bit of consumer debt, which is credit card debt. So for example, UM, you know, like I just mentioned, baby boomers have seven times the assets as millennials, but baby boomers have less debt. So millennials have more debt

than baby boomers. And you know, one type of that debt that's been making the news quite a bit is student loans, which is just um gone up by astronomical amounts in the last decade or so. And we've were earlier in the program, we've been touching on the potential for inflation. UM, if you're if there's a younger generation, as you point out, the younger generation isn't necessarily millennials anymore, but it's below younger than that, UM that's sitting on

a lot of debt which is not tied to rising assets. Um, what does what does inflation mean for them? I mean, we tend to think that inflation is not so bad for debt is because it sort of inflates away the value of the debt. But I guess they'd also be paying higher interest rates, definitely be paying higher interest rates, and that's probably one of the biggest reasons for pessimism

because wage gains really haven't been there. So if the other side of the the coin starts to increase a lot, if their debt payments are debt service costs increases rapidly, it's gonna put quite a bind on their disposable income. One problem, you know, in the past, people have always said, you know, a college education is needed and you can't really succeed without it. But at the same time, more and more people are receiving a degree, so that the value of a college degree is going down while the

prices are going up. So they've gone into quite a bit of debt to acquire a college to agreed that appreciates and value. Well, it's one of those things that raises the stakes if and when interest rates do go up, because you're going to have this very disparate effects on different bits of the population. Alex Tangi, that's fascinating. Thank you very much, Thank you very much. So that's it for this episode of Stephanomics. I'll be back next week

with more from around the world. In the meantime, please if you can take the time to rate the show, it would help us broaden our reach. For more news and analysis from Bloomberg Economics during the week, follow as Economics on Twitter. This episode was produced, as ever by Magnus Hendrickson, with special thanks to Mike Sasso, Alex Tanzy, Rich Miller, and Nancy Cook. Lucy Meekin is the executive producer of Stephanomics and the head of Bloomberg Podcast This, Francesca Levi