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Moody's Talks - Inside Economics

Episode 15
July 16, 2021

China and Cris Votes No

Dan White, Director of Public Sector Research at Moody's Analytics, joins Mark, Ryan, and Cris to debate the economic impact of the bipartisan infrastructure deal and other proposed government spending.  A full transcript of the episode can be found here

Mark Zandi: Welcome to Inside Economics. I'm Mark Zandi, the Chief Economist of Moody's Analytics. Glad to have you joining us today. I'm, as is always the case, joined by my two colleagues, Cris de Ritis. Cris is the Deputy Chief Economist. And Ryan Sweet. Ryan is the Director of Realtime Economics. And we also have a guest today, Dan White. Dan is another one of our colleagues. Dan is the Director of Public Sector Research. Dan, how long have you been with us at Moody's Analytics?

Dan White: Going on 12 years now.

Mark Zandi: 12 years. And you came to us, as I recall, from the State of New Mexico. Is that right? You were at the State of New Mexico before you came to Moody's?

Dan White:  I was, yeah. I worked for the legislature in New Mexico for the Legislative Finance Committee, doing revenue forecasting and economic analysis around finance, and public debt and all that fun stuff.

Mark Zandi: Yeah. And how did you find us? How did you find Moody's? What was that link?

Dan White: I grew up in a lot of places when I was a kid, and when my wife and I had our oldest son, we looked at a bunch of places to live. And one of the places I grew up in was Pennsylvania around the Pittsburgh area. So I applied to a bunch of jobs in Pennsylvania, and not knowing where a lot of them were, hoping they were close to Pittsburgh, and boy was I wrong with Westchester. Couldn't have been further away from Pittsburgh, but it was an awesome fit for us, and my wife and I are super happy in the area and it's been a great move for us being with you guys in Westchester.

Mark Zandi: Yeah, and I think you were a football player, right? You played football, didn't you? For [crosstalk 00:02:12]-

Dan White: I did, I played football. I played football at New Mexico State and got my butt kicked by some of the best football players in the country.

Mark Zandi: Is that right? Would we know any of those players? Are they in the pros now?

Dan White: Oh yeah, we played against everybody. My first game I ever played in, in college actually was against Vince young and Darren Sproles, I played with him, and a bunch of guys.

Mark Zandi: Really? Darryl Sproles. Wow. He's a pretty tough guy to tackle. What position did you play?

Dan White: So I was an outside linebacker and a long snapper for punts and extra points. And I remember, I touched Darren Sproles twice as he ran by me on punt returns. He returned two punts against us. He was tough to bring down.

Mark Zandi: Yeah, he's a tough player. He's a tough player. Well, while we're on sports, you must be pretty happy, Cris right?

Cris de Ritis: I'm thrilled. Absolutely.

Mark Zandi: Yeah, so tell the listeners why.

Cris de Ritis: Two reasons. Italy won the Euro Cup and Argentina won the Copa America.

Mark Zandi: Oh, I didn't know about Argentina. Why do you care so much about Argentina? Well, we all know you're Italian, so that's why you care about the Italian team.

Cris de Ritis: I am Italian. I was actually born in Argentina.

Mark Zandi: You know what? I thought I knew everything about you. I did not know that.

Cris de Ritis: It's a little factoid, but I lived there very briefly.

Mark Zandi: Buenos Aires or somewhere else?

Cris de Ritis: Buenos Aires, yep.

Mark Zandi: Yeah, we've got a lot of links to Argentina at Moody's, yeah. Hey Ryan, while we're on sports, just to flesh things out, did you play baseball in college?

Ryan Sweet: I did.

Mark Zandi: You did? And who did you play for?

Ryan Sweet: Washington College. It's a small school in Chestertown, Maryland.

Mark Zandi: Wow. And what position did you play?

Ryan Sweet: Third base.

Mark Zandi: Third base. Well guys, I'll have to say, I'm a little bit of a nerdy geek. I ran track a little bit up until middle school. I played a little football, maybe ... Actually I was pretty good up until sixth grade.

Ryan Sweet: Wait, like American football or soccer?

Mark Zandi: No American football, American football.

Ryan Sweet: I can't picture, you-

Mark Zandi: No, no, no. Hey, I was a strapping young guy at one point, yeah. But I was up to sixth grade. I played in band. I don't know, it sounds so geeky now, relative to you guys. I played in a jazz band when I was in high school. Actually we went to Spain. I don't know if this is true, but they told me that we played on the Johnny Carson of Spain, touring around. We played in jazz competitions. But you guys, I just feel a little out of place with all their prowess.

Dan White: You get hit and had a lot less playing in the jazz band, so that's probably better for the economist.

Mark Zandi: That's a good point, that's a good point, that's a good point. Well, it's good to have you, Dan. Thanks for joining. And just for the listener, Dan and I, we've done a lot of work over the years. We've had a boatload of fun over our presidential election modeling, and also evaluating the policy proposals put forth by various presidential candidates over the years. The various presidential elections, we've done a lot of work and a lot of debates because Dan is, as you can tell, I might be a little around the left of center. Dan's little I'd say ... And correct me if I'm wrong, Dan, I don't want to mislabel you, or maybe I shouldn't label you at all. But I think of you a little bit right of center, would that be fair?

Dan White: I think that's fair.

Mark Zandi: Yeah. deRitis and Sweet, I don't know where the hell they are on the spectrum. They're on the [crosstalk 00:06:05]-

Dan White: They like to keep you very close to their vest.

Mark Zandi: Yeah, they do. They do indeed. They do indeed. Well it's good to have you. So as everyone knows, who's been listening to the podcast, we begin with the statistics and then we'll turn to the big topic after that. And of course, apropos to having Dan on, we're going to be talking about fiscal policies. A lot going on in Washington, a very fiscal policy packages, proposals kind of winding their way through and we'll talk about that. But before we get there, let's talk about the statistics. And Ryan, you go first this week. What's your statistic?

Ryan Sweet: All right. Ton of stuff came out, but I'm going with 1.3%.

Mark Zandi: 1.3%.

Ryan Sweet: You got to think outside the box. It's an important one, so you can't give me any crap about it.

Mark Zandi: Oh, Cris seems like he knows.

Cris de Ritis: Well, there might be more than one 1.3%.

Mark Zandi: Go ahead, fire away.

Cris de Ritis: But I think retail sales, X Auto.

Ryan Sweet: Nope.

Cris de Ritis: No? Are you sure about that?

Mark Zandi: Well retail sales [crosstalk 00:07:11]-

Ryan Sweet: It could be. That's not the number I'm thinking of.

Mark Zandi: Well, I don't know, retail sales were up 0.6. What was retail sales X Auto?

Ryan Sweet: I think it was closer to one. 1.1 maybe.

Mark Zandi: Oh, was it that strong? I didn't know.

Ryan Sweet: Yeah, it was strong for me.

Mark Zandi: Okay. Okay, so Cris, maybe you should check it out.

Cris de Ritis: I'm checking it out now.

Mark Zandi: Yeah, check it out while we're checking.

Ryan Sweet: You can fact check, that's fine.

Mark Zandi: You said this is a little out of the box?

Ryan Sweet: Yeah, from our normal discussions. So I'm broadening out, so it's a non-US number.

Mark Zandi: I know, Chinese GDP growth.

Ryan Sweet: There you go.

Mark Zandi: That's quarter to quarter. And Dan-

Ryan Sweet: It's not annual.

Mark Zandi: Wait a second. Dan, are you impressed I got that? Somebody's got to be impressed I got that.

Dan White: I'm impressed you got the quarter to quarter number, because I didn't even look at the quarter to quarter number. I only looked at the annual number.

Ryan Sweet: No, you can't look at anything year over year right now, because it's all screwed up.

Dan White: Only you and Ryan look at that quarter to quarter number.

Mark Zandi: Well, probably half true. There's got to be somebody out there that knew that number, other than Ryan and I. 1.3%, but that was ... So tell us about that. Why'd you pick that number, Ryan?

Ryan Sweet: So I've been paying very close attention to what's going on in China because it's likely what the US is about to go through. They got out of the gate after the pandemic, very, very quickly, a lot of support from fiscal stimulus and reopening of the economy. Then things slowed down a little bit, and you can see that in the Citigroup Economic Surprise Index for China, it's been below zero. If it's zero, it means the incoming monthly quarterly data is in-line with expectations. It's been below zero for several months now, and that may have contributed to the Chinese Central Bank cutting the reserve requirement recently. But the good thing is, the economy is picking back up. So I think we might have a similar case in the US. We go through a little bit of a lull as the fiscal impulse response fades a little bit, and then we find our feet again and start running.

Mark Zandi: Yeah, I think there's a real reasonable probability that the US economy is measured by real GDP growth. Year over year, real GDP growth will be stronger than Chinese real GDP growth over the next couple four quarters. Because as you point out, the Chinese economy has slowed. It benefited from the surge of its reopening earlier, and now it's on the backside of that. And we still have a lot of growth related to the reopening. And I think in our forecast, we have US real GDP growth stronger, on a year over year basis, stronger than China through starting this quarter, Q2, and extending through, I think Q2 2022. Guess when the last time that happened?

Ryan Sweet: That is correct.

Mark Zandi: Guess when that last time? Anyone want to take a crack at that? When's the last time US growth, on a year-over-year basis, was stronger than Chinese GDP growth? It's got to be a while ago, right? China entered into the WTO, I believe in 2001. So after that, it's been blistering growth in China. 1990. You have to go back to 1990 to see that. I think China and the US-China relationship should be a podcast. Don't you think?

Cris de Ritis: For sure.

Ryan Sweet: Yeah, I agree.

Mark Zandi: We should dig deeper into that, yeah. Anything else on that Ryan, you wanted to mention about China, Chinese growth?

Ryan Sweet: No, I think we covered it.

Mark Zandi: Okay. Okay, very good. Cris, what's your statistic?

Cris de Ritis: Well I'll give you an easy one, because Ryan's was tough. 80.8. But before I go there, 1.3% was retail sales X Auto.

Ryan Sweet: Okay.

Cris de Ritis: Just for the record. Yeah.

Mark Zandi: No way. Really? Not [inaudible 00:11:24] gas, X Auto, just X Auto?

Cris de Ritis: Just X Auto.

Mark Zandi: I think you've been boning up for this podcast.

Cris de Ritis: You bet, you bet.

Ryan Sweet: I think we all are.

Mark Zandi: Hey, not me. I just knew that 1.3%.

Cris de Ritis: All right, 80.8.

Mark Zandi: Okay. 80.8.

Ryan Sweet: All right, Mark, I'll let you go first.

Cris de Ritis: Ryan's got it.

Mark Zandi: You know this right away?

Ryan Sweet: Yeah.

Mark Zandi: Well, what is it? What is it, 80.8?

Ryan Sweet: University of Michigan Consumer Confidence.

Cris de Ritis: Yep, that's right.

Mark Zandi: Oh, I didn't know that. I didn't.

Ryan Sweet: Yeah, it came in a lot weaker than what people were expecting. I wonder if the inflation ... What do you think, Cris? Do you think it's the inflation jitters?

Cris de Ritis: I think gas prices, inflation jitters, yeah. And inflation expectations were up in the survey, so I think that's part of it. I also think it's this latest round of COVID increases it. I think that might certainly not compensate it.

Mark Zandi: Well there's this growing gap between the Conference Board Survey of Consumer Confidence and U Mich Consumer Index. I guess that's because the Conference Board survey's more labor market oriented, is that why Ryan?

Ryan Sweet: Correct, yeah. Yep. Where Michigan's much more personal finance tied, so to Cris' point, higher gas prices, things like that, are going to affect Michigan more than Conference Report.

Mark Zandi: I would've thought there's higher stock prices and housing values though would've lifted you U Mich, but I guess it's more about gas prices. Yeah. Okay.

Cris de Ritis: Oh, the buying expectations were down as well though.

Mark Zandi: Were they?

Cris de Ritis: In terms of home, people feeling like it's a good time to buy a home, or a car or appliance.

Mark Zandi: Yeah. Hey Cris, you're coming in a little bit light, your sound.

Cris de Ritis: Oh, okay, let me see what I can do.

Mark Zandi: Yeah, pull that up a little bit.

Cris de Ritis: Is this better?

Mark Zandi: That's better. Yeah, that's better.

Cris de Ritis: Okay.

Mark Zandi: Okay, hey Dan, I don't mean to put you on the spot, but do you have a statistic you want to call out?

Dan White: I'm an economist, Mark, I've always got a statistic in my back pocket just in case.

Mark Zandi: Oh, is that right? Okay.

Dan White: How about 202%?

Mark Zandi: 202%. Would this happen to be-

Dan White: I'll give you a hint. It dovetails very nicely with our discussion today.

Mark Zandi: Okay. 202%, is that something like ... It has something to do with deficits or debt probably right?

Ryan Sweet: That's my guess.

Dan White: Yes.

Ryan Sweet: Increase in the deficit.

Mark Zandi: Okay, and is that the ... It's kind of a weird thing to look at, but is it the increase in the size of the annual budget deficit?

Dan White: It's not an increase, so it's a share of something.

Mark Zandi: Oh, 202%. Well, overall debt, federal debt, is more like 100%, a little over 100% of GDP right? That's 100% of GDP, so that can't be it.

Dan White: Well, you're on the right track. It's a projection that recently came out from CBO.

Mark Zandi: So is that where we're headed, that's the debt to GDP ratio is headed?

Dan White: That's the current law baseline estimate. It's the one I always look at for 30 years from now. I have four boys, as you guys know, and one of them is exactly 30 years younger than I am. So I always figured out, "Well, when he's my age, what will the debt to GDP ... Or the GDP ratio be? And under the baseline, so the best case scenario, so assuming there's no more recessions for the next 30 years, CBO estimates it'll be 202%.

Mark Zandi: Oh man, I didn't know that. That's current law, so that means that if there are no changes in policy whatsoever, based on their economic assumptions, 30 years from now, the nation's federal debt to GDP ratio will be over 200%. So it's going to double over the next 30 years.

Dan White: Yep, it'll double in the next 30 years. And that's huge because just two years ago, so pre-pandemic, the same report, it's that annual long-term outlook that CBO puts out. They estimated that 30 years from now, we'd be at about 145, 150% of GDP. So we've basically, we've fast forwarded a generation in terms of the debt to GDP ratio.

Mark Zandi: Wow, that's a pretty sobering statistic. We create this statistic called fiscal space. Fiscal space is the difference between the nation's debt to GDP ratio, actual debt to GDP ratio, and that debt to GDP ratio above which you get into a self-reinforcing negative cycle, where investors begin to lose faith that they're going to get repaid in time away because of a high debt load. Interest rates start to rise, that increases the interest expense of the government, adds to the deficit and debt. You get into this kind of vicious debt spiral. And according to our analysis, we've got about 200, 250 percentage points of GDP left before we run out of space. So it feels like under this CBO scenario, we're getting pretty close to that debt spiral. That is pretty sobering. Yeah, wow.

Dan White: Yeah, and if you look at some of their more realistic cyclical forecasts, it gets up above 230, 240%.

Mark Zandi: Yeah, yeah. Well, that is good. We'll come back to that in just a minute. I've got a statistic, but it's not fair, really. So I'm going to try anyway.

Cris de Ritis: As usual.

Mark Zandi: As usual, as usual. No, I actually am pretty good, aren't I? I come up with statistics that, they're doable, but this one I don't think is doable, but it does highlight a point. And I won't make you suffer very long, but I'll go ahead and say it. 33 out of 36. 33 out of 36, and I'll give you 1, 2, 3, I'll give you a hint. It has to do with the stock market, has to do with earnings, has to do with [crosstalk 00:17:56]-

Ryan Sweet: Is that how many companies have beat earnings projections already?

Mark Zandi: Excellent, excellent, excellent. Very good. Yeah, of the 36 companies in the S&P 500 who have reported, 33 beat analyst expectations. So that highlights how strong businesses are doing. Corporate earnings are very, very good. It hasn't helped the stock market out so much. The stock market's been kind of going sideways here, but of course the stock market's come a long way in a very short period of time. Valuations are extraordinarily high, so not too surprising. But yeah, businesses are rip-roaring here, despite the pandemic, despite the tight labor market, despite the stronger wage growth, despite the disruptions of the global supply chain and higher prices for materials and everything else, they're doing well. They're doing really well. So businesses are raking it in.

Cris de Ritis: So is this as good as it gets, or do you see more?

Mark Zandi: I think so, I think so. I think it's going to be pretty tough going forward. They benefit obviously from the surge in demand coming out of the pandemic. They benefited from some cost cutting and restructuring that they did during the pandemic. We've seen productivity gains improve quite a bit during the pandemic, and that goes right to the bottom line. And of course, a lot of it has been driven by ... The companies that are reporting first, a lot of them are financial, like a JP Morgan Chase or Goldman Sachs, and they're benefiting from the wide yield curve. So short-term interest rates are pinned to zero, even though long-term rates are very low, they're very high relative to zero. So you can make a lot of money just borrowing short at a low interest rate and lending at a longer rate and booking that spread.

And of course markets are strong, and that goes to trading volumes and commissions and that kind of thing. Merger and acquisition activity has been very good. So the financials are done very well, but broadly, I think companies, but I think it is the high water mark in terms of corporate earnings growth.

Ryan Sweet: That's what we have in our forecast.

Mark Zandi: Yeah, is that what we had in the forecast?

Ryan Sweet: Yeah. I look at margins, so profit margins. Corporate profit margins are expected to decline in the second half of this year in our forecast.

Mark Zandi: Yeah, well makes sense.

Ryan Sweet: Which makes sense, yep.

Mark Zandi: It makes a lot of sense. Okay. We have been following a few statistics on an ongoing basis. And first up, Cris' UI claims, unemployment insurance claims. What did they do last week?

Cris de Ritis: They had a good week. 360,000, so down 26,000 from the week before. So good movement. Four week average is 383,000, so below 400,000. That's good, we're moving in the right direction. So all in all, quite positive. Yeah, but we're still well above what we would consider normal. 250,000, or prior to the pandemic, we were as low as 210,000 I believe.

Mark Zandi: Anything in the UI data that goes to the debate over the impact of unemployment insurance, the supplemental UI, on labor markets? Did you notice anything in the data?

Cris de Ritis: I didn't. I thought it was still too early to detect, but Ryan, I know you parse out the data as well.

Ryan Sweet: Well Adam, Adam Kamins, one of our colleagues, he wrote a very ... It was a great piece on economic view, looking at that debate. Is there any evidence in the UI data that ending the supplemental UI benefits early is causing claims to fall? He identified some disparity that those states that did end it, you're seeing claims fall more quickly than others, but then he points to the home-based data, Google mobility. And there's not a lot of evidence there that it's having a big impact. So I think the jury's still out. I think we need to know a few more weeks, or a couple months.

Mark Zandi: I see [crosstalk 00:22:12]-

Cris de Ritis: Tough, right?

Ryan Sweet: Yeah, exactly.

Mark Zandi: I know we've got data today for June labor market data, employment data, at a state level. And I was looking at that. Hard to discern any impact of ... It's still very early, but we had a few states. I think you had four states, four or five states, that ended the supplemental UI during the June survey. The Bureau of Labor Statistics conducted survey during the week of the 12th of the month. And you had four states who ended the supplemental UI during that week. And based on that, you can't see anything. In fact, employment in those states actually fell, whereas in May, it increased.

So that wouldn't be consistent with it. And then there are more states, there's probably ... I'm making this up so I don't have an exactly right, but six, eight states that ended supplemental UI by the end of June, early July. And if you look at that, there's a few states where the June employment data is stronger than May, but there's a few states where the June employment data is weaker than May. So again, pretty hard to discern anything. But again, it's too early to tell. We'll have to wait at least another month, I think, or two before we have enough data.

Ryan Sweet: I did see, I don't know if it was Morning Consult or Indeed, they did a survey and they asked respondents, "If you're not in the labor force, what's the primary reason?" And UI benefits was the lowest, the percent of respondents. Number one was childcare issues and number two was health concerns.

Mark Zandi: That's interesting, yeah.

Ryan Sweet: Which I think is the correct rank.

Mark Zandi: I think that'd be consistent with what I would say, but we'll see, we'll see. We'll get a good sense of it soon. My statistic I've been following is copper prices. I didn't look today. Maybe Ryan, you did, or Cris, but they still remain very elevated. $4.25, $4.30 per pound and no real change. That's where we've been. It's awful high, but it's still very elevated. Anything over four bucks, a pound is consistent with a strong global economy and a lot of pricing pressures out there. So that has not abated to any significant degree. No change there. Pricing remains a problem, an issue, globally. And Ryan yours is the-

Ryan Sweet: Have you seen lumber prices?

Mark Zandi: I thought they had been cut in half from the peak and they've stabilized. No, or are they still coming in?

Ryan Sweet: The last couple days, they've dropped a lot.

Mark Zandi: Okay, yeah.

Ryan Sweet: I think that's what we're banking on for all these other commodities that they start to come back down.

Mark Zandi: Come back down, yeah. And do we know why they're coming down, lumber prices? Any particular reason? Is it just a confluence of stuff? Less demand?

Ryan Sweet: Yeah, that's what it sounds like.

Mark Zandi: Yeah.

Cris de Ritis: That's right. Yeah, and also there've been reports of some speculation that had been going on there, so some reversal of the trades.

Mark Zandi: Yeah.

Cris de Ritis: You concerned at all about the coffee prices for your Wawa boost every morning? Coffee's been ...

Mark Zandi: You know, I haven't been paying attention. Should I? What's going on with regard to coffee prices?

Cris de Ritis: Coffee's going up. I think there was a bad season or something.

Mark Zandi: Oh, really? I didn't notice that.

Cris de Ritis: In relation to demand, yeah. So Wawa's towing the line so far\?

Mark Zandi: Not necessarily. I'm on autopilot. Every morning, I get up. Here's my morning-

Dan White: They're keeping it at a dollar for now, that's all you need.

Mark Zandi: Yeah. I mean, I get up, I take a shower, I let the dogs out, I hop in my car. I go five minutes to Wawa, I get my coffee, 16 ounce. I chat with the folks outside a little bit, because there's always a little bevy of people out there congregated around the Wawa. And I come home. And I just sticking my debit card, pay. I don't really look. Maybe I should be looking, I don't know.

Dan White: You pay any price.

Mark Zandi: I would pay any price for Wawa coffee at 7:00 in the morning, absolutely yes. Yeah, no problem. No problem. Whatever it is, I'm paying it. Dan, are you a Wawa coffee fan? What kind of coffee do you drink?

Dan White: I don't drink a coffee. You've seen me, the energy level I have, Mark. If I have coffee, I'm going to be awake for five days. So my wife drinks at all. The only time I ever drank coffee in my life, my wife used to be a barista at Starbucks, and I drank coffee a lot for about a month and then I gave it up cold turkey.

Mark Zandi: That's funny. That is great. So you don't need any unnatural caffeine is what you're saying.

Dan White: If I get caffeine in me, watch out. I'll be awake for three days. You'll see a lot of reports all of a sudden just appear if I have coffee.

Mark Zandi: Now, I'm going to go out on a limb here and say, Cris does not drink Wawa coffee. He's got some kind of weird machine that drips coffee.

Cris de Ritis: I do have the weird machine, but I also, I enjoy a Wawa coffee. They make a good espresso there.

Mark Zandi: Oh, okay. All right, my whole perception of you has changed with that. That was key. Ryan. Ryan is definitely a Wawa drinker. Now, do I have that wrong?

Ryan Sweet: No, I don't drink coffee. I'm like Dan, but my wife does.

Cris de Ritis: [crosstalk 00:27:44] generation. I don't know.

Ryan Sweet: She's a Dunkin Donuts person though.

Mark Zandi: Oh, that's good too. Dunkin Donuts are good too. I like that. Yeah, they're very good. Okay, Ryan, we're up to the last statistic that we follow, 10 year Treasury yields. And I think we'll fill everyone in on where we are on 10 year Treasury yields. And I think we've done a lot of work over the last week or so, trying to understand this better. Maybe you can fill folks in on what we've learned. And I hear you snickering Cris, what the hell's that all about?

Ryan Sweet: Do the 10 year now.

Cris de Ritis: 1.3. Oh, go ahead.

Ryan Sweet: 1.3.

Mark Zandi: Oh, they're 1.3. That's another 1.3. Are they actually 1.3?

Ryan Sweet: Yeah.

Cris de Ritis: Yes, yes.

Ryan Sweet: Yeah, it's 1.3.

Mark Zandi: Is that why you were snickering?

Cris de Ritis: Yes, yes.

Mark Zandi: Because everything is 1.3 today.

Cris de Ritis: That's the magic number.

Ryan Sweet: That's the magic number.

Mark Zandi: That's low. Why are they so ... geez, Louise. What's going on, Ryan?

Ryan Sweet: How do you feel about your ten-year Treasury yield forecast?

Mark Zandi: Hey, it's yours too. You're in with me, right? No?

Ryan Sweet: Whoa, we can go back to the first podcast. I had a lower ten-year Treasury yield than you did.

Cris de Ritis: You're talking about the bet.

Ryan Sweet: Yeah.

Mark Zandi: Wait, we got a long way to go for that bet, right?

Ryan Sweet: I'm feeling more confident. We have a ways to go, but ...

Mark Zandi: We have a ways to go. Well, why are they down? I ask you this every week, and we learn a little bit every week. So what did we learn this past week about why they're down?

Ryan Sweet: We have the Treasury drawing down their cash account at the Fed and they got to get that down by the end of this month to 450 billion to be in compliance with the debt ceiling. So that's requiring less issuance to finance the stimulus. Concerns about the Delta variant, I think is also weighing on the Treasury market. This idea that growth has peaked, not only just in the US but in Asia. And I think that's also weighing on the bond market. And I think you and Cris brought up a good point that 1.3 is low, but they're positive, where they're negative elsewhere in the world. So the US is still an attractive investment.

Mark Zandi: Yeah. Yeah, I didn't realize that debt ceiling is, I think important, because to being compliant ... The Treasury debt ceiling will be reinstated at the end of the month, July, to be in compliance with that. The Treasury can't hold too much cash on hand. They had a lot of cash. They've been drawing down that cash, and the result is, they haven't been issuing any bonds. So the net Treasury issuance, the amount that they're selling versus the amount that are being redeemed, or that come to maturity, has been very modest in recent last few months. And that probably is weighing on yields. The demand is held up, but the supply has been ... Like everything else, supply is less than the demand, price of the bond goes up, the interest rate goes down. But that would suggest that on the other side of the deficit, the debt ceiling, whenever that is, hopefully when we get these fiscal packages through Congress, then we'll start to see more issuance and yields will normalize. That's that's my expectation. Is that consistent with your thinking?

Ryan Sweet: Yeah, I just think they're going to normalize more gradually than usual.

Mark Zandi: Right. So right now in the forecast, we have 1.9% at the end of the year. You're saying, is that okay, or you feel uncomfortable with that 1.9?

Ryan Sweet: Each passing day, I'm getting more uncomfortable about it.

Mark Zandi: That's fair. You too Cris?

Ryan Sweet: Is there anything that in economics that you like ... There's nothing that I don't like less than the debt ceiling.

Mark Zandi: Oh. Oh yeah, in terms of policy, you mean?

Ryan Sweet: Yeah. The debt ceiling is just pointless.

Mark Zandi: Well actually, let's ask Dan that question. Dan, what do you think of the debt ceiling?

Cris de Ritis: Segue?

Dan White: It's one of the dumbest things in the government, and that's saying something.

Mark Zandi: And that's saying something. Right, exactly. Yeah, that's how I feel.

Ryan Sweet: Should we explain what the debt ceiling is?

Mark Zandi: Yeah, go ahead. Fire away.

Ryan Sweet: Well, I'll let Dan do it. Yeah, he's the expert.

Mark Zandi: You want to explain the debt limit, debt ceiling?

Dan White: Right? What it is, is it's basically a limit on the amount of debt that could be outstanding at any one time for the US government. And the reason that it's stupid, that's a very technical economic term, is because we're basically issuing debt to pay for spending that we've already approved and authorized. So it has to just be extended because we're just basically, we're funding things that we've already done. Where we get in trouble is that we try and tie that to future spending. So a lot of times, things get held hostage because of the debt ceiling. So what most states do, for example, is they pass a debt bill and a spending bill concurrently at the same time, so that they're basically approving enough debt to be issued to pay for whatever they're passing in terms of spending. And they don't have to come back after the fact and extend that out into the future and create these fake crises that Ryan loves because they throw off his near-term forecast.

Mark Zandi: Yep, that's a great explanation and exactly why it is ... Stupid, by the way, is a good technical term. We should use that more often I think in our-

Dan White: I teach my kids at Villanova that every ... All the freshmen I say, "You have to learn that it's a very important economic term." It's something stupid, you should call it stupid.

Mark Zandi: Call it stupid. Okay, well this is a good segue into the topic, the big topic, and that's all the fiscal policy discussions debate that's ongoing in Washington. So what I thought I'd do is I'd just spend a minute explain what's going on, turn to Dan. Dan, you can fill in any holes that I have left, or if I've interpreted anything that you disagree with, you can provide your color. And then I thought I'd say, "Here are the things I like about ..." I'll do this, or we can do it another way if you think it's better. I'll say what I like about the things that are going on with regard to the fiscal policy discussion, and get your reaction and see how you guys feel about it. Does that sound like a good game plan to go forward? Okay, all right.

So step one is, let me just explain what's going on. There's really two packages, fiscal packages, making their way through the legislative process in Congress, more specifically at the moment, in the Senate. The first is this bi-partisan package around infrastructure. It's mostly traditional infrastructure. It's bi-partisan because all the Democrats are on board and while there's some hand-wringing about this, it looks like there's roughly 10 Republicans that are on board. That's key because you need 60 votes in the Senate to break any filibuster and get something through law, into law. And it's pretty small. It's about 600 billion in additional infrastructure. Again, traditional infrastructure: roads, bridges, dams, some other stuff like broadband, and power and resilience, infrastructure resilience, but mostly traditional infrastructure. 600 billion over 10 years. And, at least on paper, and we can date debate and discuss this as well, it's paid for on a dynamic basis. And we can come back and we can talk about what dynamic means, but on a dynamic basis.

The other package that's making its way through the process, and this is earlier in the process, is a $3.5 trillion set of increased government spending, some tax breaks, credits, and then some tax increases to help pay for it over the 10 year budget horizon. This includes some additional, non-traditional infrastructure, say housing related, or global supply chain related, manufacturing related. There's a fair amount of spending, tax breaks with regard to addressing climate change. Everything from subsidies for electric vehicles, to allowing the federal government to buy more energy efficient kind of equipment and retrofitting buildings. There's a fair amount in there for childcare, paid family leave. A lot on healthcare, expanding out the ACA Obamacare, expanding out Medicaid in those states that did not take advantage of the Medicaid expansion under Obamacare.

And then on the tax side, some tax increases on large corporations, multinationals. The well-to-do, and some other tax cuts. There may also be some rolling back of the cap on state and local tax deductions, so-called SALT. So that's a really quick summary. There's a lot of moving parts here, but that gives you a sense of it. So 600 billion over 10 years, plus 3.5 trillion over 10 years is 4.1 trillion. And that's kind of, sort of roughly in the same ballpark as what President Biden proposed in his American families plan and jobs plan back a month, two, three ago of the so-called Build Back Better agenda. So at least in spirit, scope size roughly, it's kind of in the ballpark with the Build Back Better agenda. Okay, that's a quick. Did it as fast as I could, hopefully that made some sense. Let me ask the group, beginning with Dan. Dan, any holes in what I explained, did I get anything wrong? Is it roughly right?

Dan White: No, I think you did a good summary there, because there's a lot in there to summarize, as you mentioned. I think the only thing, and I think there's some proper criticism being aimed at the $3.5 trillion bill is, they're trying to say that it's paid for, but if you look at a lot of the assumptions they're making to pay for that, it's really not paid for. So I think there's a lot more controversy around that piece than the infrastructure bill, which is probably why they've been able to get those 10 Republicans on board for the infrastructure bill and nobody for the other side.

Mark Zandi: Well hold that thought for a second. Before we get there, though, let me ask Cris and Ryan. Anything else you want to add in terms of the description of these policies? Anything I missed that you think is important to point out?

Ryan Sweet: No, I think you've got it all.

Mark Zandi: Cris?

Cris de Ritis: High level, high level, I think you hit it all.

Mark Zandi: Okay, so I was going to say one of the reasons I like the plan, the plans, is that it roughly pays for itself over the 10 year budget horizon on a dynamic basis, but I'm going to stop right there. Dan, you explain to me why you think ... It sounds like you don't think that's right, that is not going to be paid for. So what are you looking at when you say that?

Dan White: So I think that the infrastructure piece probably, depending on how you score it, static or dynamic. And we should probably explain what that means.

Mark Zandi: Go ahead.

Dan White: So on a static basis, we go through and you estimate how much something is going to cost, all else equal, on its own. So you don't take the impacts of itself in of itself, I guess, if that's a way to put it. So we did this a lot in 2017 with the Tax Cuts and Jobs Act on a static basis. It didn't pay for itself. And on a dynamic basis, it probably still didn't pay for itself, but it paid for a lot more of itself than it would. The reason being, that if you give somebody a tax cut, it's going to generate more economic activity, which is going to result subsequently in more tax revenue, which is why you can offset some of that. So they're using similar math to what was done for the Tax Cuts and Jobs Act to try and explain why these pieces are paid for over time. And that's a dubious way that to do budgeting. I'm a big fan of budgeting on a static basis. It's a much more conservative way to go about things, and prevents downside surprises.

But if you look at a lot of the analysis that's come out so far, and it's difficult to say with certainty around the congressional proposals, because we don't have a lot of hard numbers on all of those things yet. But when we looked at the Biden administration plan, for example, it's that $3.5 trillion piece that really is a bit scary. There is some budget maneuvers going on into those calculations to make things look a little bit more paid for than they really are. Some of that is because some of those spending programs don't go out into perpetuity, but the tax increases do. But if you look at a lot of those spending programs, especially in the social benefits stuff, those are going to be things that are impossible to repeal. So even though they're scoring it is that they're going to end or sunset, those things are probably around forever once you actually pass them.

The other thing is, there's a lot of things, especially in tax compliance, that they're counting on a lot of money. If they give more money to the IRS, that the IRS is going to be able to close that tax gap. Those are really nebulous numbers. And to budget off of those in terms of a pay for it, is difficult to do. So while I think that, that $600 billion infrastructure plan, you can probably make a good case for being paid for, that 3.5 trillion really scares me, given that 202% number that we talked about just a little while ago.

Mark Zandi: Yeah, on a $600 billion plan in that, they do hope for some dynamic benefit. So of the 600 billion, I think they're counting on 50, 60 billion in dynamic benefit. Again, that's the increase infrastructure spending, help support economic growth. That economic growth means more tax revenue, it also means less government spending because the economy is stronger. So you don't need the same kind of spending for various types of government support. And if you account for that, I think they're expecting 10, 15% of the 600 billion to be paid for on a dynamic basis, which by the way, I think that's perfectly reasonable. All the budgeting we do is uncertain. There's a lot of assumptions, a lot of uncertainty around the estimates, even on a static basis. And while that applies to try and understand the dynamic benefits of these packages, I think that gives us a more realistic understanding of where we're going to land with the fiscal costs. It's just, not accounting for the economic effects, I think means it's just a less accurate forecast of what the fiscal impacts will be. But nonetheless, that's there as well.

But you make a good point. You make a good lot of good points. I think they're all really good. And by the way, just a level set, I think it is critical that we pay for these programs. That at the end of the day, as close as we can, roughly speaking, given all the uncertainty, that with an economy that's now on track to get back to full employment, we need to put, if we're going to put forward policies and I think we should, those policies need to be paid for one way or the other. So I agree with you on that. And I'm not in the camp that thinks that deficits and debt don't matter. I think they'll matter, and they'll matter again relatively soon.

And I do think you make a really good point on the amount of money being raised through closing the so-called tax gap. The cheating that goes on, which I think everyone agrees, there's a lot of cheating going on and people aren't paying their fair share, but actually making them pay, getting them to pay, is going to be pretty difficult. Okay, so Cris, Ryan, you want to weigh in on this? Dan's making a point that this maybe on paper is paid for, but in reality, maybe it doesn't get close enough. I'm saying, okay, I agree with that, but I think we're close enough. You guys have any views on that particular issue?

Cris de Ritis: I guess I'm closer to Dan on this one. I worry about some of the claims and assumptions about say productivity growth. If you take the infrastructure plan, for example, I think that's more about loss avoidance than gain. We're likely just to repair infrastructure that we have to prevent a loss in GDP growth in the future, rather than installing a new interstate highway that's going to suddenly give us a productivity gain. So I think I would err on the side of caution in terms of reading into the gains we might get from these programs. So more on the static side.

Mark Zandi: Yeah, I don't get that argument at all. That one that you just made, because I think we have been under investing in infrastructure for a long time. There's such low hanging fruit. The returns on any type of infrastructure spending you do now, because we have not been investing, should be higher. When I say returns, I mean economic returns, the gains to productivity. You're right, if we built a new interstate highway, that would be a game changer, but just repairing roads so that we don't blow a tire while we're going down the road, that's a big gain.

Cris de Ritis: It's a small gain I think.

Mark Zandi: Really?

Cris de Ritis: I think it's a small gain. And I also worry about how this thing actually gets implemented and executed.

Mark Zandi: Okay, that's a great point.

Cris de Ritis: There are probably some bridges, in all honesty, we probably shouldn't repair. We probably should knock them down. At a local level though, if you give control, the local authorities are going to say, "I want to repair every bridge in my jurisdiction." I think you need to step back and-

Mark Zandi: Oh man, I don't know. Geez, that's an argument that we-

Cris de Ritis: What?

Mark Zandi: Let's not do any infrastructure spending because-

Cris de Ritis: No, not at all.

Mark Zandi: Of course, you're going to have that problem. By definition, you're going to have that problem, because you have to make a decision about, is it this road or that bridge? And you're going to have that issue, but you've got to make that decision. That's not a reason not to [crosstalk 00:46:37]-

Cris de Ritis: No, I'm not saying not to do it. I'm saying we need to do it, but we have to be smart about how we execute. If you just dole out the money at a local level, everyone's going to look at their own little road and it's going to be inefficient.

Mark Zandi: Okay.

Dan White: Yeah, and to both of those points that Cris made, Mark, I think one of the things he's ... And I think a lot of people have said this, is there definitely will be some ... Any time we do infrastructure, there's big multiplier effects, especially near term, given all the construction money that goes into those things. But in terms of long-term productivity gains, you're not going to see ... That might move the needle for GDP for the next three, four years, but moving it 15 years from now, repairing that road probably doesn't carry a whole lot of weight.

Mark Zandi: Oh, I'm not so sure about that. I don't know, Ryan.

Ryan Sweet: I disagree.

Mark Zandi: Fix the Schuylkill Expressway a little bit, it'll make a huge difference forever.

Ryan Sweet: Yeah, reduces congestion costs. I'm with you. I'm with you on this one, Mark, but I'm also, I think we have to do it. And I think we shouldn't worry too much about how we pay for it. Interest rates are so low, and if you look at the governments, basically their debt service burden. So their interest payments as a share of GDP is really low. Now's the time to do it, and I'm afraid we're going to make the same mistake we did after the Great Recession. We shifted the fiscal austerity too soon, took a lot of wind out of the economy's sails. This seems like we haven't learned our lesson.

Dan White: Right, but this is not fiscal austerity, Ryan, this is not [crosstalk 00:48:02]-

Ryan Sweet: No, I'm saying down the road. This is the first step in fiscal austerity when people start worrying about ...

Mark Zandi: But what about his point though? You got 1.3% 10 year Treasury up. Literally, I could put a map of the United States on my wall over here, shut my eyes, throw a dart, it lands anywhere. I assure you I can find a project, randomly selected, that has a return that's greater than 1.3%, Ryan.

Ryan Sweet: Yes.

Dan White: Sure, which is why I don't think a lot of people are arguing with the $600 billion. It's a $3.5 trillion piece of this that really has all the controversy around it.

Mark Zandi: No, no, but Cris is arguing about the infrastructure. He's arguing that the returns are low, yeah.

Cris de Ritis: Again, I think loss avoidance is a great reason to do it. If we don't do it and the bridges actually do fall down, we're going to have even more of a productivity drag. So I think there's point for it, but don't expect some type of economic miracle from this plan. It's really just about keeping the current status quo, right?

Mark Zandi: Okay, well that's a debating ploy. Don't expect a miracle. No, no, no, we're not talking miracles, just the blocking and tackling. Okay, well those are all air debates and discussions. Let me ask you one other thing I like about the plan, at least in spirit. Just curious as to your perspective, and that is, and this is how I frame it, that this is a plan designed to help support growth. I think infrastructure will lift productivity growth, and it's not a miracle. It's not a game changing event, but it's going to move the dial. And a lot of the other spending, and we can talk about this too, and tax breaks, are about lifting labor force participation and labor force growth, which is going to be very important going forward.

But here's the point. The benefits of that stronger economy of the economic growth, will go to lower middle income households, in part because a lot of the programs that are getting funding here are designed to help lower income, lower middle income households. And in part because the tax increases used to help pay for all this, the incidents of that fall largely on higher income, well-to-do. So it's about trying to lift longterm growth, but also making sure that the benefits of that long-term growth go to the groups, the lower middle income groups, that have been left behind over the last 30, 40 years with the skewing of the income wealth distribution. What do you think about that kind of frame? How do you think about that? Do you think that's a good argument, or not so much?

Dan White: I think that's a great goal and a great way to start the discussion about this. But in terms of practical standpoint, I don't know that, especially that $3.5 trillion bill, I don't know that it does that very well. But I agree that, that's where we should want them to move things, absolutely.

Mark Zandi: Yeah.

Cris de Ritis: I think there are parts of it that are very clear. So big fan of the earned income tax credit. I think that has a proven track record, bipartisan support. I think that's a program that certainly will achieve, or get us closer to achieving that objective. Childcare, some of the healthcare.

Mark Zandi: Cris, just really quick on that. The EITC is being expanded for childless workers as part of the plan.

Cris de Ritis: That's right.

Mark Zandi: So the expansion of the EITIC. Right, okay.

Cris de Ritis: That's right, that's right. And I think that's a good thing. You're right, there are income limits, so you're targeting a very specific population at the lower end of the income distribution. So that seems very clear. There's a lot of economic theory to support it. So I think that's very clear. Electric vehicle subsidies, I think in that case, it certainly becomes less clear who's going to actually benefit from that plan. So I think we need to take this thing apart and look case-by-case. I think there are certainly aspects that will achieve your stated objectives, but others that less so.

Mark Zandi: Oh yeah, totally, because there's so much going on here. There's so many moving parts, so many ... Not all of them are going to be helpful just to low middle income groups. That would be hard to believe, given all the things that are going on. But the totality of it, if you look at the broad strokes of it, particularly on the attack side, who's going to bear the incidence of the tax, the tax increases? That is, it looks like it's working to help low income households and the higher income households the high net worth households are paying for.

Dan White: Yeah, but there are other ... It's just like you were saying. There's some stuff in there too, like the SALT deduction. That all goes to high-income taxpayers and they want to get rid of that.

Mark Zandi: Yeah, that's true. Absolutely true. Yep. That's one of those things where it feels like that has to be in there for political reasons to get that through. Get enough Democratic votes to vote for it, because obviously-

Dan White: Sure.

Mark Zandi: Yeah, it's the New England, it's Northeast, it's California. Those were the areas that got hit hardest by the cap on the SALT deduction. No doubt about it, yeah. I do agree with you with regard to, I think you said execution risk. Did you say that Cris?

Cris de Ritis: Yes, yeah.

Mark Zandi: Execution risk. There, TI totally agree with you. It is a complex set of proposals. Some of it is expanding. I think it's good that a lot of it is expanding out, scaling up existing programs. So for example, to help housing build more affordable rental housing, the plan calls for an expansion of the housing trust fund, which right now is a very small program. Now they want to, in part of the plan, expand that out, to provide a lot more resources for rental housing. But a lot of it is new programs as well. So they're talking about, as part of it, a carbon border tax. That's a big, massive change in the tax code. So I do think, in my view, the most significant threat or risk here is the execution risk. It's going to take some pretty def governance to make this work out in a way that lands us in the place where we want to land. So I totally agree with that. And I assume you do as well, Dan. That's something I'm sure you're concerned about.

Dan White: Very much so. Yeah, especially in some of those social benefit programs, because we talked about earlier, a lot of those are, or some of those, are expected to sunset at a certain time, and it's going to take that whole time just to get those programs up and running properly. So I don't think those programs are going away anytime soon. So you're building out a huge amount of recurring spending going forward, but it's just not going to be paid for. And also, it's shown historically to grow at a much faster rate than your other kind of discretionary spending items in the budget.

Ryan Sweet: It sounds like Dan's at an infrastructure site right now.

Dan White: I'm seeing the bill being put into effect already. These guys are expecting that money.

Mark Zandi: Yeah, Dan's, by the way listener, Dan's in transit. He's somewhere. Where are you, in Virginia somewhere? Is that what you said?

Dan White: I'm just outside Harrisonburg, Virginia.

Mark Zandi: A nice spot, nice spot. Hey, before we leave this topic, one other controversial debate discussion is around the tax increases, particularly the tax increases on corporations. So President Trump, in his tax legislation, the Tax Cut and Jobs Act, TCGA, passed at the very end of 2017, implemented in 2018. Lowered the top marginal rate for corporations from 35% to 21. In the proposals that are being debated now, it's not quite clear what's being proposed, but it's either going from 21 back up to 25, or 21 back up to 28, something like that. There's a lot of hand ringing, particularly in conservative circles that, that would do a lot of economic damage to the economy. That going back, rolling back the TCGA tax cuts from 21 to 25, or 28 would do a lot of damage. How do you think about that Dan? Do you think that's a big deal? Would that do a lot of damage to economic growth, long run?

Dan White: I wasn't surprised to see that. I think everybody thought it was coming. What I was really surprised to see was to see that and the higher capital gains rates simultaneously, because that's really a change in the way that tax policy thinkers have been looking at this. There's been a lot of push from the conservative folks lately to get rid of the corporate income tax altogether. But in exchange for that, you would tax capital gains as normal income. The problem is, is if you do both and that capital is being taxed twice, both at the personal level and at the corporate level. And that could definitely have some negative effects, but if you take the existing tax structure and just increase the corporate income tax up to 25%, I don't think, as Cris says, I don't think that's a game changer for most corporations. I think that's something that most of them would have built in contingencies for already.

Ryan Sweet: The tax cuts didn't do anything for business investment when you strip out the energy related effect. So why on the reverse are people expecting a big hit?

Dan White: Yeah, that's what I'm saying. That in and of itself, I don't think is a huge hit, but I think what most people are ... Maybe not only the tax nerds like myself are really thinking about is doing that and the higher capital gains taxes at the same time are going to have some interesting effects, especially on certain companies.

Mark Zandi: Yeah, and of course, that goes back to the point about who bears the burden here? Raising the top marginal rate and raising the cap gains tax, obviously the incidence of that is on the well-to-do, high income households. So I think you're right. That could have some more negative economic consequences, but again, the idea is to place the burden of paying for this, or at least partially paying for this, on the well-to-do. Actually Ryan-

Dan White: Right.

Mark Zandi: Go ahead, Dan.

Dan White: I'm sorry.

Mark Zandi: Go ahead.

Dan White: There's a strong argument, and I don't completely buy into the argument, but there's a strong argument that, that [inaudible 00:59:09] tax increase could be passed on to workers as well. And I think that's very industry specific, but that's definitely a concern that's out there and I think it's worth mentioning

Mark Zandi: Yeah, actually we're pointing out, Bill Gale and a colleague just put out a paper, Brookings Paper, looking at the TCGA tax cuts on investment, on wages, on repatriation. What else? On share repurchases. And I thought it was pretty convincing. They looked at the two years, 2018/'19. They didn't do 2020 obviously because of the pandemic. And they compared that to 2016/'17, so the two years prior to the TCGA implementation and the two years after. I'd recommend everyone go take a look at that. They pretty much showed that the impacts were pretty much on the margin I thought, not very large, and consistent with our work. Okay.

Dan White: Yeah, I thought it was a good piece.

Mark Zandi: Yeah, it was a good piece. By the way, I have a good piece coming out on Monday, just saying, on these proposals. So you'll get my own, along with Bernard Yaros, one of our other colleagues, who's been on the podcast before. We're running these fiscal packages through our models and we'll produce a paper on Monday, so look out for that.

Okay, we're going to end it this way because I know Dan needs to get on the road here. Okay, imagine you're each a Senator. You can pick any state you want, in fact, I'd like to know which state you'd like to be Senator of, but you're the Senator. You now have to vote on the bipartisan package first, and then vote on the 3.5 trillion. And I know things haven't been nailed down yet, it's a little opaque. You're not sure what you're voting for, but let's just go with it, okay? Imagine that you know exactly what's in the plan, similar to what's been described. Okay, I'll go with Ryan first. So Ryan, where are you Senator from?

Ryan Sweet: I'm going to go Massachusetts.

Mark Zandi: Okay.

Ryan Sweet: You have all the fringe benefits of going to the Red Sox games, Patriots.

Mark Zandi: That's right. Good point, very good point. Okay, bipartisan bill is up for vote.

Ryan Sweet: Oh, I vote for it.

Mark Zandi: And the 3.5 trillion?

Ryan Sweet: I'm for it.

Mark Zandi: Okay, got two votes. Cris, where are you a Senator from?

Cris de Ritis: Trying to think. I would say Washington DC, but that's ... I'll take Maryland.

Mark Zandi: Maryland, okay.

Cris de Ritis: Yeah.

Mark Zandi: Any particular reason why Maryland?

Cris de Ritis: It's a pretty state.

Mark Zandi: It is a pretty state.

Cris de Ritis: Between us-

Ryan Sweet: He went to school.

Cris de Ritis: Went to school here.

Mark Zandi: Oh yeah, Johns Hopkins, right.

Cris de Ritis: There you go.

Mark Zandi: Yeah. Okay, so how are you going to vote, Cris? Actually, this is really the single most important, because I knew how Ryan's going to vote. I have kind of a sense how Dan's going to vote, although he might surprise me. But Cris, I just can't-

Cris de Ritis: You can't read me.

Mark Zandi: He's like down the middle. So okay, Cris, now squirreling out of it. You got to tell us, are you voting for the bipartisan bill?

Cris de Ritis: Yes.

Mark Zandi: Okay, yes. The $3.5 trillion?

Cris de Ritis: No.

Mark Zandi: Oh, no. Oh no, oh no.

Cris de Ritis: In its clear from, no.

Mark Zandi: We're doomed. Okay, I'm going to come back to you in a second.

Ryan Sweet: Johns Hopkins is going to take away your degree.

Mark Zandi: I'm going to come back to you in a second. Don't go anywhere. Don't go anywhere. Dan, Dan, Dan, how are you going to vote on the bipartisan bill? Oh no wait, what state are you Senator from?

Dan White: Oh, I live in Pennsylvania for a reason, Mark. I love it too much there, although looking around me at the mountain ... Looking around me in the hills in Virginia here, I don't know that this would be a bad place either though. I would say yes on the bipartisan deal and hell no on the 3.5 trillion.

Mark Zandi: Hell no. Hold up. Okay, so we got two votes against. Oh, the bipartisan bill, that's that's a done deal then. Yeah, we're done. That's going to pass. Okay, now we got one vote for the 3.5 trillion and two against. Yeah, I'm voting for it, so we're tied.

Ryan Sweet: We're tied.

Mark Zandi: So we need Kamala Harris to come in and break the deadlock here. Vice President obviously, but before-

Dan White: Well, hang on mark. You didn't say what state you were.

Mark Zandi: Oh, well, Dan, you and I are going to have to vie for that Pennsylvania seat.

Cris de Ritis: Well two senators.

Mark Zandi: Actually, you would make a great Senator. In all fairness, I would vote for you, Dan. Absolutely. Would I contribute to his campaign? Yeah, I would do that too.

Cris de Ritis: There's a seat opening up.

Mark Zandi: Yeah, I'd contribute. Yeah, I think you're really a very reasonable guy and you'd be very good for the state. But yeah-

Dan White: Mark, I think if you and I were the two senators from PA, the whole Senate would be a better place if it's you and I making all the decisions.

Mark Zandi: I like that idea. I like that idea a lot, yeah. We should think about that. But here's what I wanted to ask. So Cris first, what would have to change in the $3.5 trillion bill for you to vote for it? Or is it just no way, there's nothing ... Dan said hell no, so I can't imagine there's anything there that can swing his vote, but this is really key. Now this is really key, Ryan. What is it in the legislation that you would change that would swing your vote over to a yes? This is Joe Manchin, Joe Manchin.

Cris de Ritis: I think the size. I think its too big. We're biting off too much in one bite.

Mark Zandi: Okay, how big?

Cris de Ritis: So need to skinny it down. I'd be more comfortable with something in the 1.5 to 2 trillion max. Probably a trillion would be my gambit, but that's not going to fly.

Mark Zandi: Anything else?

Cris de Ritis: And then I think there's a compromise then on the tax portion of it.

Mark Zandi: What do you mean?

Cris de Ritis: I think the tax rates go up, but maybe they don't go ... What did we say, 24, 25? I think there's some compromise there, as well as on the capital gains. So I think there's some right sizing, if you will, of the tax, as well as just the spending.

Mark Zandi: Oh, that's interesting. I wouldn't have thought you would have gone there. I thought you would've gone on the spending side somehow, but you're more worried about the tax increases.

Cris de Ritis: I think to get it passed and at least give some olive branch in terms of bipartisanship here. At least we're listening.

Mark Zandi: Yeah, interesting, interesting. Very interesting. Okay before we wrap this up, Dan anything else you want to say? I kind of led the conversation, so is there something you'd want to say that we didn't get to?

Dan White: I'd just to emphasize again how important the long term fiscal assumptions are here, because if you're talking about trillions of dollars, that's going to have an impact in that 30 year number, whether you like it or not. So it's really important to keep an eye on it. I know that you're going to have some folks on in a couple of weeks to talk about that in more detail, but really important what those long term fiscal assumptions look like.

Mark Zandi: Yeah, just to make that clear, Maya MacGuineas who's the director of, I think is it called the Center for Responsible Budget, I believe, and has been a very outspoken voice on budget issues and the need for fiscal discipline, which again, I think entirely appropriate, is going to be on, I think two weeks or three weeks from now. So we're very much looking forward to that. And Ryan, you need to be on best behavior for that conversation. I know you give our guests a lot of flack, so just rein it in a little bit, please.

Ryan Sweet: You just got to remember, in the long run, we're all dead.

Mark Zandi: Yeah, that's true. That's very true.

Cris de Ritis: But our children aren't.

Mark Zandi: Yeah, hey this podcast has run on a long time. Sorry about that, Dan, but it was a really interesting topic and a lot to talk about. And I thought the way we ended was kind of pretty cool. It summarizes the reality of the situation that there are folks that are on board, folks that are not on board and there are folks in the middle. And those folks in the middle are, I think appropriately worried about the size of this and what it means for deficits and debt long run, and what it means for our families 30 years from now. So I think we encapsulate exactly the debate that's going on in Washington. But in our forecast, we are expecting a fiscal package to get through. And actually, it's about 3.5 trillion in total over 10 years. So I say that with some trepidation, but that is in our baseline forecast, so we are expecting a package to get through the reconciliation process. That bipartisan bill will get passed and that's, that's part of the forecast, but we'll see.

I do want to mention that we have now added to our website,, a place where you can go and tell us what you would like us to talk about. What topics do you think we should be talking about? By the way, deficits and debt are towards the top of the list so far, but please go to, You'll see the banner. Click on that, go to Inside Economics and tell us what you want us to talk about, and we'll get the right guests and we'll dive deeper into that. So with that, I want to thank you for attending and talk to you next week.