tv Bloomberg Markets Bloomberg May 28, 2021 1:30pm-2:01pm EDT
amanda: this is bloomberg markets. i'm a man. matt: and i'm matt miller. -- i'm amanda lang. matt: and i'm matt miller. amanda: a little bit of inflation out there, matt, but nothing that is bothering markets. we have tech in a leadership role once again today. matt: it looks like we are getting some budget headlines right now. check out your bloomberg terminal, and you will see biden'budgets headlines rolling across. $6 trillion has been telegraphed for fiscal year 2022. it looks like the budget assumes real gdp growth of 4.3% next year, unemployment of 4.1% next year and the deficit, the $6
trillion, would equal a 7.8% deficit of gdp in fiscal year 2022. there's a number of interesting headlines here, amanda. the biden budget includes $600 million for electric vehicles? that doesn't sound like very much. is it only million? that is a small figure, i would say. amanda: it seems like a small figure, but the context is the giant figures of spending being offered up here. we are looking at some of the assumptions underlying the budget plans and forecasts, and they are pretty rosy. we will check this with mike mckee and a second, inflation below 2.3% through 2031 -- strong gdp growth forecast and a
strong employment forecast as well. the 10-year treasury yield staying at one point 4% in 2022 and 2.8% in the following -- 1.8% in the following year, so we could see 2.8% by 2031. matt: i am looking through these headlines for bln rather than mln, because the billion dollar figures seem terribly more interesting. biden wants to boost the state department funding by $5.4 billion, maybe do more diplomacy, or do it in style. it also looks like he wants to increase spending at the epa by 11.2 billion dollars, so, of
course, we would expect this. president trump wasn't terribly interested in boosting epa spending. still looking for figures that are reported in billions rather than millions, because we see a lot of other headlines, of course, the president wants to boost spending at the state usaid global health programs, but they will only get an extra $855 million. it does not seem like moving the needle. of course, in real life, these are massive figures. we can't lose side of the fact that $865 million is a lot of money. i wonder how many charging stations you can install with that. i don't know. there's a lot of work to be done in that sector. amanda: it's a big spending budget with some big assumptions. we want to bring in laura davidson and mike mckee.
mike, i want to start with you. some of the ascension's --these assumptions seem kind of goldilocks. matt: -- mike: it even as an economist, these numbers are meaningless. it is put together on the assumption that nothing happens over 10 years to change any of this, and that will not be the case. a year ago, you would not have said anything about a pandemic. the numbers are put together to try to make the numbers work in the budget, because they will probably try to use reconciliation for this and they have to hit certain caps. the third thing, these are as of february 19, when they locked these numbers in place and the economy has changed a lot since then. you get a bump to 3.2% in 2022,
but then you go back to the potential growth you had before the pandemic. if that's the point of this whole economic program, people are going to ask, why don't we get more growth out of it? the inflation numbers might be a little unrealistic because they don't take into account the inflation we will see in the short run, and the 10 year yield started with 10.2% back in february. things have changed will go up -- and that will go up. matt: so the real gdp growth figure, 4.3 percent, includes inflation. they are expecting inflation around 2% in coming years, which is right about where we are right now. what we are looking at in terms of cpi, in terms of unemployment, it looks like they expect to get to a low number in 2022, 4 .1%.
do you think that's where they feel comfortable? mike: i think it is, then they go down to 3.8% to 2023, and it stays that way until 2031. i bet we will have a recession between now and then, so you can't count on those figures either. the cut off where you want to look at is 2024, that's the next election year. matt: we are going to have megan mcardle on later. i am sure you have read a lot of her work. her view is that with growth forecasts of 4% or more with unemployment forecasts of 4% or less, it is bonkers, those her -- those are her words.
mike: the economy is growing the way it is because of the rescue fund and the rebound effect we are having from the recession. once we get past that, we go back to trend growth, which is just around 2% or so. the idea is, or at least it is supposed to be, they raised that growth rate by increasing the economy's potential. that's the point behind the infrastructure program, the american jobs program, and the american families program, which should make it easier for people to go to work. if that were the case, you wonder why they put in such conservative numbers for gdp. the budget also compares to what previous presidents suggested what happen with their budgets, and almost all of them, including donald trump with his tax plan, overestimated growth. they are maybe trying to be conservative so they can say they did better than biden. amanda: laura, we have seen
budgets out there, this is also an overhaul of some form of the revenue side. the tax system overhaul. can you reflect on the likelihood of that actually passing, of this being something that comes to pass? laura: this is the most comprehensive look we have had at biden's tax plan, plan to capture tax revenue from more companies abroad. this is a big problem politically for biden, an $800 billion political problem, and that his tax increases don't cover the full cost of his proposal, his jobs plan and family plan. jobs plan is 530 billion dollars short, the family plan is $270 billion short. this will be a problem as the plan goes to congress, and they have to figure out ways to cover the costs of all the spending that biden wants to do. the other issue, democrats are
really nervous about some of these things. they are talking about lowering the corporate rate from where biden has set its, paring back capital gains, and they are going to have to find ways to make numbers work. this will be a huge negotiation and a very big challenge for democrats if they start to write this in legislative form. amanda: of course, because, as you say, there are already shortfalls on the revenue side, there is a lack of balance here and some assumptions that go into growing the weight of balance. can we assume that some of the expenditures will have to come down? laura: they likely will. this is always it -- a transitional document. it is always subject to lots of negotiation, but spending is easy. people say, let's spend money on tax credits, child tax credits, green energy -- that's the easy
part. the hard part is when you have the high goal and they have to pare some of that back. that's when the lobbyists start descending on capitol hill and a big fight breaks out. matt: laura davidson and bloomberg's mike mckee, covering the news out of washington as it relates to the markets for us, our resident economist. i want to send it over to mark crumpton with your first word mood. -- first word news. mark: the 54-30 five vote today fell shy of the 60 votes needed to start debate on a measure to investigate and form a commission into the deadly capitol hill riot. president biden had aimed for
70% of u.s. adults to get at least their first covid-19 shots by july 4. a new survey from the kaiser family foundation found that 62% of respondents had gotten that first shot and about a third of those in the wait and see categories say they've made appointments or plan to do so. the malaysian government has announced a two week nationwide lockdown set to start june 1. the move is to help contain a surge in covid-19 cases in the country. malaysia's prime minister has been facing pressure to reconvene parliament, which he suspended in january. he's been accused of making a power grab. the russian hackers behind the solarwinds campaign have ramped up their attacks on u.s. agencies, think tanks, and nongovernmental organizations, according to a blog post from microsoft president tom berg. biden ordered sanctions against
for the moment. great to have you on the program. let's get your initial reaction to biden's spending plan. certainly, he is asking for more than he wants to receive, but a couple of interesting issues worked in there. the taxes and how it relates to debt and deficit. megan: it's pretty stunning. it looks like the debt would not fall below $1 trillion for years. in the past year, we took our national debt from 80% of gdp to over 100% of gdp. you know, i supported the measures that did that. we paid people to stay home because we did not want them to be spreading a pandemic virus, but we are now at a point where it is time for the economy to start recovering, and the biden administration's argument is, this is world war ii and we have to go in and spend, spend, spend.
they are raising taxes, but that new money is going into spending and not going to close the deficit or, god forbid, paying down some of this enormous debt that we have. amanda: one thing seems clear, and that is that the american voting public does not care much about the deficit. tell them why they should care. tell them what happens when you have 150% of your gdp and the numbers that might impact your economy. megan: on the one hand, let's give the pro side, which is the doom and gloom, the interest rates start spiking, it has not materialized at debt levels that were higher than people thought we could sustain in the 1990's. if a little bit didn't do anything, any amount of it is fine.
then you look at countries like japan, which has this huge debt to gdp ratio. japan also has this huge domestic savings that the united states does not. that funds a lot of their deficit. also, as their society ages, it is becoming a problem. when the united states has big debts, people are putting money in treasury bills, they are not putting it into something else. the second thing is, it leaves your government vulnerable to these prices. are we going to have a venezuela type event? no, because we borrow in our own currency. but that's not a law of nature. if we don't look like a good repayment prospect, if we start inflating our currency in attempts to work down a bit of that debt, which is frankly what we did after world war ii, people will start demanding higher interest rates in order to lend to us, then you are vulnerable to these moments where suddenly you have a
trillion dollar deficit and suddenly you need to close that deficit to get your interest rates down. even if you don't end up in a greece-like crisis, it is painful and involves making sudden changes to spending priorities that should have been managed over years and decades, such as social security. matt: for 40 years we had reaganomics, supply-side economics seems to reign supreme, half of the economists we talked to were acolytes of milton reed men, and now over the last four years, conservative economists have been grouped together with conspiracy theorists, climate deniers and anti-factors. it seems like there are no freshwater economists out there. megan: i think tyler cowan had a great column on this for bloomberg just the other day, where he points out this alleged consensus against the
conservative idea that there ought to be some relationship between inflow and outflow, the government comes out of this social media environment that is preventing in many ways a full economic consensus, the old conventional wisdom is over. these people tend to be louder on social media and have tighter communities that like each other and up talk each other's work, but a lot of economists are sounding the alarm, saying hey, guys, what about inflation and debt? we can't afford to spend if there is no constraint. amanda: so obviously, we have been talking about the fact that this is just a starting point, but to the point you are making so far, it does seem as though that the cases being made that big debts and big deficit is fine. there is no alternative to the u.s. reserve currency and economy of the world, so reserves will be fine.
others will say, crip does exist, others will say that may china comes along and alters the reserve kerman see -- the reserve currency. megan: there is a question of maybe china, may be the euro. that's really true. predicting the past is difficult, but what we do know is this. if you are not a reliable repayment risk, either because you were going to inflate away the value of the debt or because you are going to find a way to not pay it, people don't like to lend money to those people at attractive interest rates, such that the united states government is now getting. i think the united states will have to repay most of this debt or risk a bad crisis, where people say, we are done. the united states is not a good credit risk. that means this is not free money. one way or another, this is coming out of taxpayer pockets.
that does not mean there isn't spending that we should do. we do need to invest in a lot of infrastructure. there are a lot of projects that merits government spending. but if those projects merit spending, we are not going to spend the rest of the decade in an economic crisis. the economic recovery is a little bit slow, i think in part for some regulatory overhang things, pandemic roles, but we will have a strong economy coming out of this. we should not be borrowing the money. matt: that me ask you about the global tax issue. is there any argument for competition in a national tax rates? megan: absolutely. governments are going to want to set taxes. the government is going to pick the optimal social level of taxation and just pick at it. i think there are reasons ireland has done very well by having the local income tax
rate, and in general, i have to say, i think the corporate income tax is kind of a kind marrow. ultimately, all taxes are paid by people, and government would do better taxing people instead of trying to pull it out of a corporation, where it is taxing shareholders, workers, and customers. if you want to progressive tax code, which i do, go to the individuals that you think are, can more afford the money, whether they happen to be shareholders or customers or whether they have nothing to do with that business, get the money from them directly, not trying to get it out of corporations because people don't like corporations, which is basically how this dynamic works. amanda: indeed. megan, so good to have you with us today. megan mcardle, a journalist and the author of the book "the upside of down."
amanda: this is bloomberg markets. i'm amanda lange with matt miller, and we are watching the muted reaction across markets to the president's budget plan, just a blueprint, of course. a lot will change between now and any kind of implementation, but here's where things were as we headed into those budget headlines. matt: i also want to say, happy friday. have a great weekend. for those in the u.s., i hope you enjoy observing memorial day and for our global audience, i will say i hope jack miller wins a third race on the italian moto gp. this is bloomberg. ♪
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president biden will said lawmakers his first fiscal 2022 budget proposal the white house economic council budget deputy director tells bloomberg he believes big companies have the capacity to pay more in taxes to help fund infrastructure investments. >> 2018, the effective tax rate pays by u.s. multinationals was 8% and compare that with a tax rate small businesses pay. compare that with the tax rate of the average middle-class family. there is clearly capacity for these companies to pay more in taxes, to help finance investments that will be good for these companies and the long run. mark: he says the president's budget is about improving and creasing -- increasing the productive capacity of our a long talk -- our economy over the long term. the syrian president bashar al-assad has won the country's elections.