Back to Normal and Build Back Better

Episode Summary

Executive Summary: The episode opens with a review of key economic indicators, including trade deficits, jobless claims, consumer credit, and Moody’s “back to normal” index, before turning to President Biden’s infrastructure plan. The hosts broadly agree the U.S. needs major public investment, but debate what counts as infrastructure, how much productivity it creates, and whether corporate tax hikes are the right funding source. Mark Sandy strongly supports the plan’s long-run growth benefits, while Chris Dorides is more skeptical about productivity gains and categorization; Ryan Sweet is supportive but wants more attention to cybersecurity and the power grid.

Main Topics: High-frequency economic indicators and the state of the recovery (Priority: 5/5): The hosts discuss trade deficits, jobless claims, consumer credit, Bitcoin, and Moody’s back-to-normal index as snapshots of an economy recovering rapidly but unevenly from the pandemic. Trade deficit as a sign of strong domestic demand (Priority: 4/5): Ryan frames the widening February trade deficit as evidence of strong U.S. demand, even as Mark notes it will act as a drag on GDP growth this year. Jobless claims, data distortion, and labor market noise (Priority: 4/5): Ryan argues claims data should be discounted because of fraud, multiple filings, and pandemic-era distortions, contrasting them with stronger labor-market evidence from hiring and hours worked. Biden’s infrastructure plan: scope, definition, and politics (Priority: 5/5): The group debates what belongs in the plan, from traditional transportation spending to broadband, housing, elder care, and R&D, and whether the package is really infrastructure or a broader investment bill. Productivity and growth effects of infrastructure spending (Priority: 5/5): Mark argues the plan raises long-run GDP and potential growth by improving productivity; Chris counters that much of the spending is repair and maintenance rather than transformative new investment. Funding the plan through corporate taxes (Priority: 4/5): The speakers debate higher corporate taxes as the main pay-for, with Mark defending them as low-risk economically and politically practical, while Chris questions the funding structure and suggests alternatives like public-private partnerships or a carbon tax. Preferred projects and strategic priorities (Priority: 3/5): Ryan and Chris name cybersecurity and the electrical grid as high-priority investments, while Mark advocates for Amtrak improvements in the Northeast corridor.

Key Arguments: The widening trade deficit is not necessarily bad; it reflects strong U.S. demand and consumer spending on goods, though it subtracts about 1 percentage point from GDP growth. Jobless claims are now a poor labor market signal because pandemic-era fraud, multiple filings, and administrative distortions make them inconsistent with other improving indicators. The economy’s recovery is broad enough that Moody’s back-to-normal index reached 86%, but large states like New York and California still lag well behind Florida. The Biden plan can boost long-run GDP and employment: Mark estimates GDP will be about 3% larger in 10 years and 2.7 million jobs higher. Chris argues the plan overstates productivity gains because much of the spending repairs existing assets rather than creating new productive capacity. Traditional infrastructure is only part of the package; the bill also includes housing, R&D, elder care, and broadband, making the term “infrastructure” too narrow or misleading. Corporate tax increases are presented as a practical way to fund the plan because corporate taxes in the U.S. are low relative to peer countries and voters appear receptive to them. Mark argues the 2018 corporate tax cuts did not generate clear evidence of stronger investment or growth, so reversing some of them should not meaningfully hurt long-run performance. Ryan believes a better framing would be an “American Investment Plan” to reduce political friction over what counts as infrastructure. The most valuable investments may be cybersecurity and the electrical grid because both are vulnerable to disruption and would have large economy-wide consequences if compromised.

Data Points: Nominal trade deficit (February): $71.1 billion - Ryan’s weekly statistic; used to argue the deficit is likely to remain large. GDP growth forecast for the year: 6% to 7% - Mark’s baseline forecast before considering trade deficit effects. Trade deficit drag on GDP: 1 percentage point - Mark says the growing deficit reduces GDP growth by about one percentage point. Regular initial UI claims: Over 700,000 per week - Jobless claims remain elevated despite recovery. Pandemic UI claims including emergency programs: About 850,000 per week - Combined claims figure cited for context. Well-functioning economy benchmark for claims: 225,000 to 235,000 per week - Pre-pandemic reference point for initial claims. Bitcoin price: 58,400 - Chris’s first statistic of the week, used as a market snapshot. Bitcoin price last week: 58,877 - Context for the current Bitcoin reading. Consumer credit growth (February): $27.6 billion - Chris’s second statistic; signals rising borrowing and revolving credit use. Annualized consumer credit growth: Close to 8% - Interpretation of February’s consumer credit increase. Back-to-Normal Index (BNI): 86% - Mark’s statistic showing economy operating at 86% of pre-pandemic normal. BNI low point during pandemic: 60% - April 2020 trough in economic activity. Florida BNI: 97% - Highest state-level BNI mentioned. Lowest state BNI: 74% - New York is cited as the lowest among large states. Estimated infrastructure package size: $2.6 trillion - Mark’s breakdown of Biden’s proposed spending over 10 years. Estimated tax increases to fund plan: $1.8 trillion - Mostly corporate tax increases over 10 years. Static 10-year budget deficit effect: About $800 billion to $850 billion - Mark’s arithmetic on the plan’s net deficit impact over 10 years. 15-year budget effect: Basically a wash - Mark says higher corporate tax revenue eventually offsets spending and credits. Estimated GDP level effect in 10 years: About 3% larger - Moody’s estimate of long-run output gain from the plan. Estimated jobs added in 10 years: 2.7 million - Mark’s estimate of employment gains from the plan. Potential growth rate increase by 2030: 0.1 percentage point per year - Mark says the plan modestly lifts trend growth. Traditional infrastructure share: About $600 billion - Chris’s estimate of highways, airports, ports, and similar spending. Mark’s estimated return on infrastructure spending: 7% - He says a dollar of spending yields about seven cents of GDP return over 10 years overall. Broadband return: A little over 10 cents per dollar - Mark says broadband has the highest 10-year return among listed categories. Transportation return: About 7 to 8 cents per dollar - Mark’s estimate for traditional transportation spending. Housing return: About 6 to 7 cents per dollar - Mark’s estimate for housing-related spending. Corporate tax revenue as share of GDP (U.S.): 1% - Chris compares the U.S. to other developed economies. Corporate tax revenue as share of GDP (UK): 3% - Used for international comparison. Corporate tax revenue as share of GDP (Canada): 4% - Used for international comparison. Corporate tax revenue as share of GDP (Japan): 4% - Used for international comparison. Support for funding via higher corporate taxes: 65% - Morning Consult survey cited by Chris. Penn Wharton estimate after 10 years: Real GDP 0.25% below baseline - Referenced as a more pessimistic assessment of the Biden plan. Penn Wharton estimate in 2050: Real GDP 0.33% below baseline - Longer-run estimate cited by Ryan.

Pivotal Quotes: "I think it's a winner. I think it's going to help the economy out both near term." — Mark Sandy: Mark’s opening judgment on Biden’s infrastructure plan and its macroeconomic benefits. "I don't think it's gonna have quite the impact in terms of growth that we're talking about." — Chris Dorides: Chris’s skeptical view that the productivity and growth effects are overstated. "I think people are getting too hung up on what is traditional infrastructure versus what's in the package." — Ryan Sweet: Ryan argues the plan should be viewed more broadly as investment in both infrastructure and human capital.

Implications: The episode signals broad support for large public investment, but with disagreement over scope and financing. For listeners, the takeaway is that infrastructure, climate, and human-capital spending may increasingly shape growth, productivity, and policy debates for years.