Joe Manchin Didn’t Trigger Doomsday and Build Back Better’s Infrastructure Spending Will Stimulate the Economy
With all the hand wringing, name calling and chaos in Washington just before the Christmas holidays, you might think we were awaiting a killer asteroid. But relax, it’s just the democratic process – so grab some popcorn!
Every year or two, there’s a standoff over important legislation. with one lone senator digging his or her heels in the luxurious Senate carpet. Each time, the political pundits declare that the holdout’s treachery will topple the pillars of heaven…as well as our markets and the broader national economy.
And who’s the villain du jour this time to a big segment of the political spectrum? The honor goes to Joe Manchin of West Virginia, the alleged murderer of Biden’s Build Back Better legislation.
But as always in Washington’s apocalypse operas, the tales of horrors committed by the mutinous Manchin are greatly exaggerated.
Two Out of Three Ain’t Bad
How quickly we forget that what we call the “Build Back Better Act” is only the third piece of legislation in the President’s Build Back Better Plan.
The first two are now ALREADY law, including the $1.2 trillion Infrastructure Investment and Jobs Act enacted in the closing months of 2021.
Markets anxious about the Fed’s tapering and battle plan against inflation should feel relieved when fiscal stimulus is on the way, and make no bones about it…Massive stimulus is on the way, even if the recent Build Back Better Act never revives.
Just think about it.
Congress scheduled $1.2 trillion in infrastructure stimulus over several years, and a large portion of it will enter the economy in just a few months. Put simply, we’re only in a short lull until infrastructure spending starts to take effect, and then we are going to see a LOT of money coming into our economy.
Do We Need Immediate Stimulus?
Now, there are always the pundits who argue that the economy needs an immediate financial injection, rather than drip-feed spending over several years.
But let’s get real. Sure, sudden money inflows spark the economy like flashes in a pan – with massive but short-term effect. By contrast, massive spending spread over time provides a smooth, extended boost to the economy.
For argument’s sake, let’s assume we do need stimulus right now. Stat, doctor!
Well, then the Build Back Better Act would not have been ideal anyway. Why? Because it would take years to disburse all its allocations, just like thce Infrastructure Investment and Jobs Act.
Instead, the White House and legislators would have to put drama aside for a while to enact a quick stimulus package.
And, news flash: That’s precisely what unfolded three times recently under both the Trump and Biden administrations, regardless of who controlled the Senate.
The democratic process can move swiftly if and when Washington recognizes we need another expedited stimulus.
Hold Back on That Victory Lap
Washington’s lone legislator dramas invariably contain a second group of pundits aiming in the opposite direction – declaring the world will end if the legislator reconciles with the majority.
In the current episode, these commentators cheered Manchin on, echoing his concerns about inflation and other policy matters.
With all that said, the current political debate winners should resist the temptation to take a victory lap, because you cannot 100% rule out that the bill may revive (however unlikely that seems right now).
If the Infrastructure Investment and Jobs Act successfully stimulates the economy, supporters of the Build Back Better Act will use those results as evidence that education, childcare, clean energy spending must also benefit the economy.
Both sides would raise the same arguments again in a new battle royale, but the success of infrastructure spending itself could tip the political scales of Joe Manchin’s support network in favor of the Build Back Better Act.
Here’s the Bright Side for Independent Financial Advisors
If you still feel like Joe Manchin knocked the wind out of your sails in terms of what you individually would have liked to see happen in terms of politics and policy, just remember that there is a very clear upside for your business and your clients:
Joe Manchin’s intransigence prevented a new 87,000-strong army of IRS agents from scouring personal transactions for that summer you or your clients didn’t 1099 the neighbor’s kid for cutting the grass.
Although the Manchin episode failed to unleash the hounds of Zeus, there’s still plenty in the worry-hamper: the Fed tapering purchases and raising interest rates, supply chain adjustments, inflation, COVID variants and the burgeoning debt load, to name a few.
Despite these worries, we crossed the 2021 finish line in good shape in terms of our economy and will likely do so again in 2022. The glass is indeed half full.
To be clear, this editorial takes no sides for or against Joe Manchin, Joe Biden, or any other political view or figure – it’s simply a practical analysis of the situation, with an emphasis on what it might mean for wealth management industry participants.
Please share your thoughts and let us know what topics you’d like to see the editors discuss.
In the meantime, cheers to the start of a fantastic new year for all!
Julius Buchanan, Contributing Editor at Wealth Solutions Report, can be reached at firstname.lastname@example.org