SYLVIE DOUGLIS, BYLINE: NPR.
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SALLY HERSHIPS, HOST:
Happy Friday, and welcome to THE INDICATOR FROM PLANET MONEY. I'm Sally Herships, in for Stacey Vanek Smith. Today on the show, we look at President Biden's very first federal budget proposal, and it is a big one - $6 trillion. Like all presidents, Biden is required to budget for spending on existing programs like Medicare and Social Security, but he's also making a big push to invest in the United States' infrastructure. He's listed big increases for health care, education and the environment. Congress, of course, still has to approve the budget. And there are also a lot of questions - record-setting federal debt, the possibility of inflation. So after the break, we'll hear from two economics professors, Suneye Rae Holmes and Laura Veldkamp, to get their take.
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HERSHIPS: Suneye Rae Holmes, Laura Veldkamp - two economics professors, one from Spelman College and one from Columbia Business School.
SUNEYE RAE HOLMES: Good morning, Sally.
LAURA VELDKAMP: Good morning.
HERSHIPS: So, wow, Biden's budget proposal is $6 trillion. That does not seem like chump change. That is a lot of money. What do you both make of this number?
HOLMES: It's eyebrow-raising. I'll tell you that much. And even as an economist, I have to say that that one took me by surprise.
HERSHIPS: Laura, what do you think?
VELDKAMP: Well, I like to think about the country as kind of like a company. Suppose this was U.S.A. Inc. And would we think that taking on this debt is a good idea? So, you know, the U.S.A. Inc. is a company with a lot of great ideas and a lot of great potential and a lot of efficiency. But we've got this really old infrastructure. We have bridges that are collapsing and potholes that blow out our tires. And our education system is a bit of a mess. So like a company with a lot of potential that's got a broken, rundown old factory, we kind of need to renew it. So I think the direction this is heading is right on.
HERSHIPS: The National Republican Congressional Committee called the budget insane. What do you say to that?
VELDKAMP: I think one of the reasons there's such enormous pushback against the idea of large government spending is this idea that the private sector spends that money better, right? They find more efficient investments. And I think in a lot of circumstances, that is right. However, at this moment in time, we are facing enormous problems of collective action that only governments can solve. A company will not fix climate change. A company will not switch us to a smart electric grid. They're enormous problems we face right now that are inherently problems that governments need to step in and solve.
HOLMES: Agreed with that 1,000%, Laura, because America Inc. really has these two faces on the sides of its coin - the public side and the private side. And when we're talking about public risk, well, you're right. The private sector doesn't want to take on that sort of risk because it can't privatize those benefits. But when we're talking about public health crises, safety in our communities from gun violence, safety in our communities from domestic violence and for persons that are unhomed, all of these have immense public and positive externalities, as we like to say in economics.
HERSHIPS: What's a public externality?
HOLMES: So we love our big words, our $5 words in economics. And when we talk about externalities, we know that economics is about markets, but some markets don't have anything to do with me. However, even though I'm not a buyer or a seller in that market, it may still affect me. And if more people are healthy in their communities, if more people are safe in their communities, then even if I'm not personally working or living in that community, there's still a benefit to me because you're healthy. You're working, and America as a whole can be healthier as America Inc.
HERSHIPS: While this is a lot of money, we also have to consider, where is this money going to come from? (Laughter) Suneye, do you have any thoughts about that?
HOLMES: The first thing that pops into mind is taxes are going to have to increase at some point. We're making choices right now that we're going to have benefits in the short run that are going to have to be paid for, of course, in the long run. But this is an about-face from the last several years as we're coming out of that major tax legislation from 2017. Taxes were cut, especially from the top down. And so now that we're in a very different economic environment and a very different public health environment, we have to consider that we have to pay for ourselves to be more protected and to feel more safe going back to work.
HERSHIPS: And, Laura, how do you think we're supposed to pay for this?
VELDKAMP: I agree with Suneye that we're going to have to increase taxes on some earners. But at the same time, we're also going to have to issue some debt. We're not going to be able to pay for all of this stuff in one go with, you know, one tax hike. And there, again, I think you want to think about this, you know, like a company. A company could get more money by raising its prices and charging some more for what it does, but they also - companies do issue debt. And so, you know, this is like a year's worth of revenue, right? That's what GDP is. It's how much are we all earning in a year. So, you know, we're asking as a company, should we issue a year's worth of revenue as debt? And the cost of debt right now is really low. And if - and this is a big if. If we spend it really wisely on these high-return investments, I - it sounds like that's true. If that actually happens is always a little trickier. But if we can do that, this is a really smart investment.
HERSHIPS: So if we set the price tag aside, which are the numbers that stand out to both of you? Which spending in particular catches your eye?
VELDKAMP: What I found most exciting were the technological investments, the idea that, you know, we could shift the way that we're doing transportation and fuel and electricity because we need to coordinate that, right? If GM produces a whole lot of electric cars but there's nowhere to charge them, nobody's going to buy them, right? We need some really big actor to come in and say, OK, everybody; we've done things this way in the past. We're now going to, you know, do transit or do electricity in this way. You know, these are changes that eventually are going to need to be made. And the sooner we embrace it, the more competitive we can be in these spaces.
HOLMES: There were a couple of numbers that caught my attention. I definitely was interested in how the administration would like to continue to respond to the coronavirus - so the chunk of $8.7 billion and how that's being distributed to the CDC. So that includes data collection. It includes training new experts and working internationally as well to identify future threats, variants, things of that nature. And then second of all was the large number that is the $30 billion that's going towards assistance to people who are homeless or fleeing domestic violence. We know that there's definitely the human toll, you know, that we faced over the last year. There are some people that are more vulnerable than others. And so that $30 billion price tag that we're seeing for housing vouchers and assistance to certain communities, I thought that that was appropriate.
HERSHIPS: Let's talk about the I-word - inflation. Should we be worried about inflation?
VELDKAMP: Yes and no.
VELDKAMP: I do think inflation is going to pick up, and I think it's worth worrying about. We just sent out a lot of checks, and there are a lot of people who've done a lot of savings in the last year. And so there's just a lot of money and pocketbooks to go chasing, not more goods. And so I think that's likely to send prices up in the next few years. The question about - if we spend more on long-run investments that help increase the efficiency of the U.S. economy, does that send prices up? I think that's a very different question. If - money is like an IOU. And if we print out a ton of these IOUs, you know, it's like your neighbor down the hall is like, hey, can I borrow 20 bucks, and, you know, is handing out IOUs to everybody. And you find out that everybody in the building has a stack of these. You're not going to think they're worth very much after a while, right? You're unlikely to get them back unless that neighbor is starting up this new business, right?
This is back to America Inc. If he's investing everybody's 20 bucks in America Inc. and America Inc. is just this hugely profitable investment, you're going to think, well, yeah, you know, he's collecting some, you know, funds to invest in this high-return project. I think we're going to get our 20 bucks back and hopefully then some. So if we're making smart investments, you know, don't worry about issuing the IOUs because they're valuable.
HOLMES: Agreed. There's a lot of areas of spending from the private sector, just like Laura said, also from the government. But, of course, there's going to be that inevitable push and pull through Congress, so I know that that's going to be - you know, it's just going to be a journey, but I think we're pointed in the right direction for growth.
HERSHIPS: Six trillion dollar journey.
Professors Suneye Rae Holmes and Laura Veldkamp from Spelman College and Columbia Business School, thank you both so much.
HOLMES: Thank you, Sally.
VELDKAMP: Thank you, Sally.
HERSHIPS: This episode of THE INDICATOR was produced by Brittany Cronin with help from Gilly Moon. It was fact-checked and edited by Dave Blanchard. THE INDICATOR is a production of NPR.
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