Why the Build Back Better negotiations are going to disappoint me

The things I want, the things Americans want, and the things Manchin will allow are all very different

The negotiations over the Build Back Better bill — the $3.5 trillion reconciliation spending bill that’s supposed to be the centerpiece of Biden’s economic agenda — are ramping up, with the typical amount of posturing, brinksmanship, threats, backroom deals, concessions, counteroffers, media posturing, special interest carve-outs, and so on, while the press wrings its hands. The basic issue is that two “centrist” Dem senators, Joe Manchin and Kyrsten Sinema, are holding out for big cuts in the bill — Manchin because he’s basically a conservative guy with ties to the fossil fuel industry, Sinema for reasons that are less clear. It seems highly likely that something will eventually pass, but no one knows quite what it’ll be yet. Kevin Drum speaks for many of us when he writes:

Now, it's frequently the case that just as the shouting reaches a peak, suddenly everyone comes to an agreement and a compromise package gets passed. Maybe that will happen this time. We can hope.

On Biden’s side, as Jeff Stein writes, the biggest question seems to be between breadth and depth — whether to keep a few big things, or keep everything in reduced form. Catherine Rampell makes a good case for the former, while Jordan Weissmann makes a good case for the latter. What happens will probably depend on Biden’s ability to strongarm legislators behind the scenes.

But I have a sinking sensation that, whatever bill emerges triumphantly from the last-minute wrangling, it’s going to disappoint me. The reason is that what I think the country needs is very different from A) what the country wants, and B) what Manchin will allow.

First, of course, let’s talk about what I want, and why.

The good and the blah of Bidenomics

Back in April, I set out to write down a simple explanation of Biden’s economic vision. I wrote:

Three approaches stand out above the maelstrom:

1. Cash benefits

2. Care jobs

3. Investment…

I think Bidenomics, with its dual focus on research/investment/immigration and care jobs + cash benefits, is an attempt to boost both sectors of the economy at once — to make the export sector more productive while making the domestic sector better at spreading the wealth around.

This approach is pretty good. I’m wholeheartedly in support of more investment — both government investment in science/infrastructure/education, and policies to encourage the private sector to invest more. That’s key both for economic growth and for saving the planet from climate change. And I’m wholeheartedly in support of cash benefits — as I wrote in a Bloomberg post in June, cash is a simple, efficient, flexible way of administering a welfare state.

But the third part of the package — care jobs — I’m far more ambivalent about. The basic idea behind care jobs — health care, child care, education, and so on — is that these are good middle-class jobs that won’t be threatened by automation in the near future. I very much like the idea of building a broad middle class, but there’s a nasty and inescapable tradeoff here.

We already pay way too much for health care, way too much for child care, and somewhat too much for education. These are basic services that Americans depend on, and the fact that we pay way too much for them is a huge millstone around the neck of our economy. And every good middle-class job we create in these industries means more that Americans have to pay for these things.

Of course, it’s important which Americans pay. Biden’s approach is to let middle- and working-class Americans have their cake and eat it too, by taxing the rich to subsidize the care services. That way, middle-class Americans get to work in health care and have affordable health care, work in child care and have affordable child care, etc.

This is a form of redistribution, but it’s an inefficient one. Using subsidies to expand the care workforce lowers productivity in industries that are already woefully unproductive — it gives hospitals and health insurance companies and day care centers an incentive to expand their workforces even further past the point of economic efficiency, instead of finding ways to economize on labor and do more with less.

In an ideal world — the kind of pristine mental model that economists love to think about — we’d use cash to do all the redistribution. We wouldn’t need to subsidize particular goods like health care, we’d just give people money and let them decide what to spend it on. And we’d push the care industries to deliver higher quality services with lower costs. If this resulted in fewer jobs in the care industries, as it has in manufacturing and agriculture, then so be it; we’ll always find something else for human beings to do, and with cash benefits we can make sure that everyone can afford a decent lifestyle.

We do not live in that ideal world. In the real world, people generally prefer salaries to government checks, and “we’ll find something else for people to do” inspires no confidence; people want to know that they can train for a good, safe, middle-class job that they’ll still be able to do in 20 years instead of being thrust onto the dole by a fancy new machine.

So, OK. We tax the rich to give people cheaper care and more care jobs. But you can see why I’m a bit ambivalent about this pillar of Bidenomics, compared to the other two. Unfortunately, I predict that this is the part of Bidenomics that’s likely to get most of the money in the final bill.

What is Build Back Better actually building?

The BBB bill definitely embodies the three pillars of Bidenomics that I outlined above. The main provisions in the bill, subject to negotiation, are:

Cash benefits:

• Permanent extension of the child tax allowance

• More EITC

• Paid leave subsidies

Care industries:

• Paid leave

• Child care subsidies

• Pre-K funding

• Affordable Care Act subsidies

• Medicare expansion (vision, dental, and hearing)

• Medicaid expansion

• Long-term care

Investment:

• The clean electricity standard

• Clean energy subsidies and research funding

• Affordable housing creation

• Free community college

• More Pell grants

Other:

• Carbon import taxes

• Medicare drug price negotiation

• Immigration reform (this may or may not be allowed in reconciliation)

Notice that some of these really fall into multiple categories. Money for community college and Pell grants does subsidize the education industry, for example, while also representing a form of investment. But overall we can see all three of the Bidenomics approaches represented here.

The investment piece, however, doesn’t get its due in this bill. Biden’s non-climate-related infrastructure proposals have mostly been moved to the bipartisan infrastructure bill, which progressives in the House are now refusing to vote on. Even if they eventually pass it, the need for bipartisanship watered down spending on things like transit. Even worse, Biden’s plan to spend big on research and development got entirely shunted to the Endless Frontier Act, which was subsequently shrunk in size and gutted by special interests to the point where it’s not even close to being the kind of transformational program I and many others have been calling for.

That’s not to minimize the climate investment piece. Biden’s proposed Clean Electricity Standard would be transformative indeed — if it can survive Manchin. And free community college is great too. But I just can’t help feeling that the “build” portion of Build Back Better is getting short shrift in the emerging compromise.

And that’s depressing, because it suggests that America is caught in a sort of high-level equilibrium trap — a situation where the country is so rich but so unequal that we worry exclusively about dividing the pie while forgetting the importance of growing it (or even of preserving it from threats like climate change). I want more redistribution, but if the entirety of the American policy debate for the next decade is going to be about how much more money to shovel into already dangerously unproductive care industries, I’m going to be pretty unhappy.

In the end, though, it’s not my happiness that determines what bills actually get passed — it’s the happiness of American voters, lobbyists, and key politicians.

Americans, lobbyists, and Manchin

Issue polls are inherently untrustworthy, but when you look at a relative ranking of what issues Americans care about, a fairly clear picture begins to emerge. For example, here’s a Pew survey from April:

You can see that Americans generally care more about the cost of health care than about infrastructure, climate change, or the quality of education. Gallup’s survey shows that Americans care more about social issues than economic ones right now, and to the extent that they care about economic issues, it’s just standard pocketbook stuff like the cost of living.

So Americans probably aren’t too worried about the “investment” part of Bidenomics, and instead simply want to be able to afford more stuff in the present. Cash benefits, of course, would accomplish that. But polls are split on the issue — people have generally appreciated Biden’s tax allowance so far, but a majority doesn’t want to make the benefit permanent.

Now, that might change. After years of receiving the child allowance and coming to appreciate it (or rely on it), Americans might decide it’s a fundamental sacrosanct pillar of the welfare state. And future Americans would undoubtedly appreciate the fruits of increased investment. But that’s not so much help here in fall 2021, with a midterm election looming next year.

Meanwhile, lobbyists and special interests are hard at work slicing off small but important pieces of the bill. A plan to repeal the step-up basis loophole in estate taxation already got killed. Influential Democrats may also kill the plan for Medicare to negotiate drug prices — the one measure in the bill that’s actually aimed at reducing this country’s ruinously high health care costs rather than simply throwing more money at the industry.

Finally, there’s Manchin. The West Virginia senator, who is deeply beholden to the fossil fuel industry, has said outright that paying for a faster transition to clean energy isn’t necessary, since renewables are becoming cheaper on their own. This is wrong, of course — the price decreases in renewables are amazing indeed, but cheap stuff doesn’t magically build itself overnight, and we need subsidies to accelerate the pace with which we replace old coal and natural gas plants if we’re going to do our share of global decarbonization. Manchin has also attempted to insert both work requirements and strict means testing into the child tax allowance, taking away the near-universality that makes it such an appealing program in the first place.

Unfortunately, Manchin seems likely to succeed. Polls like the Pew survey above show Americans placing higher priority on the federal budget deficit than on fighting climate change, and other polls show a remarkable unwillingness to spend money on decarbonization. Meanwhile, the ambivalent attitude toward a permanent, near-universal child allowance suggests that Americans remain mired in a scarcity mindset, terrified of the possibility that their neighbors might get a little bit of money they don’t deserve.

So while I’d love to be forced to eat these words, my current glum prediction is that the Build Back Better bill will end up being a lot more about subsidies for care industries than about beating climate change, investing in America’s economic future, or creating a cash-based welfare state. That’s not bad, it’s just not nearly as transformative as I had hoped Biden could be. Perhaps, after a decade of social unrest and two huge recessions, Americans are simply not confident enough to embark on a reimagining of their economy. Perhaps we’re in a mood to hunker down, hoping only for a modest alleviation of our most pressing daily burdens.

Like I said, I really hope Biden and his people can prove me wrong on this one.

---