Paul Krugman objects to the Build Back Better criticism.
there may be some sincere concern that the bill would increase budget deficits. Actually, it wouldn’t have a significant deficit impact — the Congressional Budget Office says that the spending is almost completely paid for, and attempts to claim otherwise aren’t credible. But even if the deficit did rise, why would that be such a bad thing?
I was struck the other day by Elon Musk’s declaration that Build Back Better shouldn’t pass because it would increase the budget deficit. Interesting fact: Tesla was founded in 2003 and had its first profitable year in 2020. That is, it spent 17 years spending more money than it was taking in, because it was investing in the future. If, as many executives like to say, the government should be run like a business, why shouldn’t it be willing to do the same thing?
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It’s true that the bill’s $1.75 trillion price tag is, on the surface, a lot of money. But that’s spending over 10 years, which means that annual outlays would be far smaller than the $1.9 trillion rescue plan passed earlier this year, or for that matter the $768 billion annual defense bill the House passed last week.
Also, much of the spending would be paid for with new taxes. Furthermore, you should never cite a big-sounding budget number without putting it in context. Remember, the U.S. economy is enormous. The budget office estimates that in its first year Build Back Better would expand the deficit by 0.6 percent of gross domestic product, a number that would shrink over time.
I’m not aware of any economic model suggesting that spending on that scale would make much of a difference to inflation. And because much of the spending would expand the economy’s productive capacity, it would probably reduce inflation over time.
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