The Finance 202: Biden presiding over family fight over how much should be spent to resurrect economy

The family fight spilled into public view earlier Thursday. Ted Kaufman — Biden’s longtime chief of staff in the Senate, now leading his transition team — made the case for a more moderate approach in a Wall Street Journal interview, arguing the swelling deficit will limit what the next administration can pursue.

“When we get in, the pantry is going to be bare,” said Kaufman, who served the two remaining years in Biden’s last Senate term when he became vice president. “When you see what Trump’s done to the deficit … forget about covid-19, all the deficits that he built with the incredible tax cuts. So we’re going to be limited.”

The comment unleashed criticism from liberals who have rallied around the view federal spending doesn’t matter as long as it doesn’t incite runaway inflation. So far, despite the extra spending Kaufman cited, inflation appears relatively moderate. Meanwhile, many economists contend policymakers are in the midst of making a much graver mistake by choking off federal support for a teetering economy sparked by the coronavirus pandemic.

From Stony Brook University economist Stephanie Kelton, author of “The Deficit Myth,” which spells out the anti-austerity case known as Modern Monetary Theory:

From Rep. Alexandria Ocasio-Cortez (D-N.Y.):

From Nathan Tankus, research director at the Modern Money Network:

Biden and his own advisers offer conflicting signals about the candidate’s plans.

Liberal critics seized on Kaufman’s comments. But Biden himself and other aides indicate the nominee is still weighing how ambitious his agenda should be if he’s installed in the White House and the scale of the spending that will accompany it.

Biden recently “has suggested the overlapping [health and economic] crises demand that the government respond the way it did during the Depression and World War II,” per the New York Times’s Jonathan Martin and Carl Hulse.

The Democrat’s plans call for raising taxes by $4 trillion to fund investments in clean energy, rebuilding the nation’s infrastructure and reviving the manufacturing sector, among other goals. His ability to push such a sweeping vision if he wins will turn in part on the state of the pandemic and the economic recovery when he takes office — and whether Democrats retake the Senate, and by what margin, as we noted here this week.

For Biden’s part, he will maintain a “laser focus on the long-term fiscal health of the United States,” Jake Sullivan, another of the nominee’s top policy hands, told Bloomberg News earlier this month. But Sullivan said as Biden has consulted a wide range of voices about the need for more federal economic support, “the answer that comes back is we’re going to have to make big, bold investments early next year,” Sullivan said. “He feels that’s going to be necessary.” 

And Biden rapid response director Andrew Bates on Thursday said the candidate is committed to “stimulus spending in the short term,” and, “in the long run, Biden would ensure the ongoing costs are paid for by having the wealthiest taxpayers and big corporations pay their fair share for the future of our country, which is consistent with what Senator Kaufman said.”

There’s room to interpret the statements from Sullivan and Bates and what they suggest about where Biden would emphasize between more spending and minding the deficit. They didn’t reassure liberals. And Vox’s Dylan Matthews recently concluded Biden’s advisers “insist he’s a deficit hawk at heart.” 

“Even positive forecasts see unemployment likely to remain above 10 percent—worse than the worst of the Great Recession—well into next year,” Mike Konczal, director of progressive thought at the liberal Roosevelt Institute, recently wrote. A new Internal Revenue Service projection adds grist to that view, projecting there will be 37.2 million fewer jobs next year than it had penciled in before the pandemic —and the economy still struggling to replace them in 2027.  

Konczal argues as a consequence the federal response must include “overdue” investments “to transition our economy and employ workers in new fields… The arguments for those investments being debt-financed were strong last year; they’ve only become stronger during this high-stakes moment.”

Tech stocks led the way. “Shares of Apple, Facebook and Microsoft all rose more than 2%. The gains propelled the S&P 500 up 10.66 points, or 0.3%, to 3385.51 by the end of the session,” the WSJ’s Michael Wursthorn and Caitlin Ostroff report. 

“The advance helped recover some of the losses from a day earlier. Stocks turned lower Wednesday after the Federal Reserve released minutes of last month’s meeting showing officials believe further government intervention is needed to help the economy fully recover from the pandemic… Not helping matters was an uptick in jobless claims back above 1 million last week, according to Labor Department data released Thursday morning.”

• A reminder of who is benefiting: “Stock ownership is increasingly concentrated among a sliver of the population,” the WSJ’s Paul Vigna reports. “The top 10% of Americans by wealth owned 87% of all stock outstanding in the first quarter, according to data from the Federal Reserve. That share has grown over the past decade, from 82.4% in 2009.”

Weekly jobless claims had begun to decrease: “The number of people applying for the first time for unemployment insurance ticked up last week to 1.1 million, from 970,000 the week before, a sign that job losses continue to plague the labor market five months into the pandemic,” Eli Rosenberg reports.

“The weekly jobless claims had sunk slowly in recent months but have remained well above historical highs, averaging about 1.18 million a week for the last four weeks. Economists had predicted last week’s figure to approach the numbers from the previous week, which had fallen below 1 million for the first time in about five months.”

• At least 5,541,000 cases have been reported; at least 170,000 have died.

Here’s a look at various measures of the pandemic’s trajectory, via The Atlantic’s tracking project: 

• Alarmed college officials clamp down on students: “As tensions grew over the practicality of bringing students back to college campuses for the fall semester,  officials at North Carolina State on Thursday announced that classes would be moved online … Syracuse University and Vanderbilt fired warning shots across the bow of newly arrived students who seem intent on having an ordinary campus experience in a year that is anything but ordinary,” the New York Times reports.
• In face of a possible double threat, U.S. expands access to flu shots: “In anticipation of that double whammy of flu and covid-19, flu vaccine manufacturers have boosted production by about 15 percent, to record levels, with nearly 200 million doses for the United States,” Lena H. Sun reports.
• Trump administration bars FDA from regulating some lab tests: “The new policy stunned many health experts and laboratories because of its timing, several months into a pandemic. Some public health experts warned the shift could result in unreliable coronavirus tests on the market, potentially worsening the testing crisis that has dogged the United States if more people get erroneous results,” Laurie McGinley and Yasmeen Abutaleb report.

• American Airlines to cut service to 15 cities once pandemic aid expires: “The change means 10 airports will lose their only airline service. American’s announcement is another sign of how the pandemic continues to shake the aviation industry, which is also preparing to shed tens of thousands of jobs come October,” Ian Duncan reports.
• Alibaba’s online orders soar: The Chinese e-commerce giant said its “fiscal first-quarter profit more than doubled from the same period a year earlier, mirroring the results of U.S. tech giants,” the Wall Street Journal’s Liza Lin and Dave Sebastian report. “Revenue rose 34% to 153.8 billion yuan, exceeding expectations of 148 billion yuan by analysts polled by FactSet.”
• AMC, Regal and Cinemark prepare to reopen: “AMC theaters will reopen about 100 theaters Thursday, with the aim of having 400 of its 600 being available for the opening ‘Tenet’ in September … Regal, which is owned by global exhibitor Cineworld, operates around 550 locations in the U.S. in 42 states, although it’s unclear how many of them will reopen starting Friday,” CNBC’s Sarah Whitten reports.
• Big firms offer subsidized tutoring for stressed parents: “Tech firms and other major corporations that have long offered family-friendly perks for their employees’ youngest children are adding new educational benefits to help with school-aged kids as working parents again face a school year juggling work and virtual learning,” Jena McGregor reports.

• New Zealand Prime Minister Jacinda Ardern fires back at Trump: “Ardern said that she was ‘very proud’ of the country’s handling of the pandemic, after President Trump said the Pacific nation was experiencing a ‘big surge’ in cases after more than 100 days without local transmission. ‘The United States has 16,563 cases per million people. We have 269 cases per million people,’ she said,” Jennifer Hassan reports.
• South Korea struggles to tamp down surge: The country “recorded its largest daily increase in coronavirus cases since March, as health officials battle a wave of infections linked to a church congregation,” David Crawshaw reports.

The White House quickly tried to distance Trump for the scheme: “In a 23-page indictment, prosecutors said Bannon, Trump’s former chief strategist, and another organizer, Air Force veteran Brian Kolfage, lied when they claimed they would not take any compensation as part of the campaign, called ‘We Build the Wall.’ Bannon, prosecutors alleged, received more than $1 million through a nonprofit entity he controlled, sending hundreds of thousands of dollars to Kolfage while keeping a ‘substantial portion’ for himself,” Matt Zapotosky, Josh Dawsey, Rosalind S. Helderman and Shayna Jacobs report.

“Prosecutors alleged that Bannon and Kolfage along with two others — Andrew Badolato and Timothy Shea — routed payments from the crowdfunding campaign through the nonprofit and another shell company, disguising them with fake invoices to help keep their personal pay secret.”

Judge rejects Trump’s latest bid to shield his tax records: “Trump’s latest attempt to shield his tax records from the Manhattan district attorney was rejected by a federal judge who said Trump’s legal team failed to show the subpoena was issued ‘in bad faith,’ as they had argued,” Shayna Jacobs and David A. Fahrenthold report.

“Shortly after Marrero’s decision was announced Thursday, Trump’s legal team filed an emergency motion asking the judge for a delay in enforcing the subpoena so Trump may appeal. The team also asked a federal appeals court and the U.S. Supreme Court to intervene and stay the judge’s ruling — preventing the subpoena from being enforced while the case is appealed again.”

Kodak’s $765 million moment tells a lot about the White House: “When a proposed $765 million contract was made public in late July between Kodak and the federal government, investors and lawmakers had questions, chief among them: Why pick Kodak, a struggling photography company?” WSJ’s Rachael Levy, Geoffrey Rogow and Alex Leary report.

“Many of the answers point back to [Trump trade adviser Peter] Navarro, who spearheaded the idea and then used his sway within the administration to help Kodak navigate the bureaucracy to be first in line for the potential contract, including tapping an obscure government agency to help push the loan through the final stages … Today, the arrangement is on life support and Navarro is distancing himself from it.”

Democrats wait for former New York Mayor Mike Bloomberg to put his money where his mouth was: “The appearance, coming just before [Biden] accepted the party’s nomination, stirred anger among some progressives as well as former Bloomberg campaign workers — and reignited questions about the multibillionaire’s pledge to throw his fortune behind the general-election effort to defeat Trump,” the Times’s Rebecca R. Ruiz reports.

“In March, Mr. Bloomberg made an enormous $18 million transfer to the Democratic Party and offered up the leases to 13 field offices for the party’s use. Within weeks of exiting the race, he put $4.5 million into three major progressive groups — Swing Left, Collective Future and Voto Latino. But he has not given directly to Biden, whom he endorsed upon withdrawing from the race, and his termination of thousands of campaign workers who expected to be working through November in Mr. Biden’s name has inspired multiple lawsuits.”

You can thank Congress for the situation: “The earnings would come from an unanticipated side-effect of Congress’ decision in March to allow homeowners affected by the pandemic to delay loan payments for as long as a year, combined with arcane regulations governing mortgage-backed securities,” Bloomberg News’s Joe Light reports.

“The net result is that lenders would get the chance to buy tens of billions of dollars in mortgages out of bonds for less than their current market value — transactions that can hurt investors. Banks including Wells Fargo & Co. and U.S. Bancorp are already buying, frustrating bond holders who say the purchases are leading to losses. Lenders counter that the practice is hardly risk-free and has more to do with accounting issues than trying to score a quick profit.”

• Mortgage rates move higher for second straight week: “Many factors influenced mortgage rates this week — the Federal Reserve minutes, U.S. Treasury auction and encouraging economic data in retail sales and home builder sentiment,” Kathy Orton reports. “The 30-year fixed-rate average moved higher for the second week in a row but remained below 3 percent. It was 2.99 percent with an average 0.8 point, according to the latest data released by Freddie Mac. (Points are fees paid to a lender equal to 1 percent of the loan amount and are in addition to the interest rate.) It was 2.96 percent a week ago and 3.55 percent a year ago.”

Uber and Lyft to continue operating in California: “Uber and Lyft had said they would suspend their ride-hailing service in the state beginning [today] unless a California Superior Court decision requiring them to give drivers full employment was delayed while they appeal. The appeals court issued the stay Thursday,” Faiz Siddiqui reports from San Francisco. 

“The companies were initially given 10 days to make their drivers employees after a San Francisco judge found they had failed to follow the state’s landmark employment law, known as AB5, which specifies that companies must prove independent contractors are free from their control and performing work outside their core business. The appeals court extended that window indefinitely, staying the order ‘pending resolution’ of Uber and Lyft’s legal challenge to the order.”

The effort has gathered some high-profile support. “A group of former Federal Reserve officials and staffers, including former Vice Chairman Alan Blinder, published an open letter Thursday calling on the U.S. Senate to reject President Donald Trump’s nomination of Judy Shelton to the central bank’s Board of Governors,” Bloomberg’s Christopher Condon reports. 

“’Ms. Shelton’s views are so extreme and ill-considered as to be an unnecessary distraction from the tasks at hand,’ the letter said. The letter was also signed by two former reserve bank presidents and three former division directors on the board’s staff. It has 38 current signatories, all of whom worked at the central bank at some point. The Senate Banking Committee advanced Shelton’s nomination on a party-line vote in July, and she now awaits approval by the full Senate. No vote has been scheduled for her or fellow nominee Christopher Waller, research director at the St. Louis Fed.”

From my colleague James Hohmann: