Goldman Sachs guidance on Build Back Better a bad economic call


When Goldman Sachs talks, people usually ­listen because the smart guys who run the company often make good calls on markets.

But they’ve also been wrong and it’s usually when ideology about how to best spur economic growth starts seeping into the firm’s forecasting models. 

There’s a pretty solid list of their economic misses, which I don’t have room to fully detail, but here’s what I’m betting will be their latest: The firm’s recent guidance that the demise of President Biden’s tax-and-spend fiasco — known as Build Back Better — will somehow slow the US economy.

Yes, of all the things we must worry about these days (like possible new COVID lockdowns), Goldman’s economic team wants us to believe the economy will suffer because Sen. Joe Manchin put a stake through the heart of something that raised taxes on individuals and businesses, vastly expanded the welfare state and added gazillions to the federal debt. 

Even worse, it was built on a foundation of lies: Biden said it would cost nothing despite its

$1.8 trillion price tag. 

BBB, as it’s referred to in DC, is so structurally unsound that it contained very little building of real stuff (like real infrastructure) and lots of spending on weird stuff with Orwellian labels (like “climate infrastructure”) and other progressive policy goals. 

It was offered smack-dab in the middle of an inflationary cycle, where real wages are being erased by high prices. And another jolt of federal spending would only push inflation even higher.

But forget all that: The package was really a great thing, according to Goldman, because any kind of spending is good for the economy. And now its defeat will shave a whole point off first-quarter 2022 GDP, sending it down to 2 percent from 3 percent, the firm’s chief economist, Jan Hatzius, said in a note last week, because “a failure to pass BBB has negative growth implications.” 

President Joe Biden
President Joe Biden claimed his socialist Build Back Better bill wouldn’t cost a dime in spite of Americans suffering from record-high inflation.
REUTERS/Elizabeth Frantz

Not raising taxes on businesses and wealth creators — Goldman clients, mind you — has “negative growth implications”? That’s a new one. 

We’re also supposed to believe that recklessly spending money on weird environmental gimmicks, and the broader expansion of the federal welfare state, will put the country on the path to non-inflationary economic growth?

Next thing you know, Hatzius and Goldman CEO David Solomon will be offering to sell the firm’s clients shares in the Brooklyn Bridge. 

The intellectual founding fathers of the International Monetary Fund (IMF) and the World Bank Assistant Secretary, US Treasury, Harry Dexter White (left) and John Maynard Keynes (right)
John Maynard Keynes’ (right) big government spending philosophy sounds good in theory, but has never successfully worked in the long run.
HO/AFP/Getty Images

To understand why a Wall Street firm that deals with wealth creators, entrepreneurs and companies embracing capitalism would support something so anti-capitalist as BBB, you have to understand what’s always missing from Goldman’s economic analysis that comes from the Hatzius group. 

Unlike stock analysts who must disclose if their firm underwrites stocks of companies that get coverage, there is no such bias disclosure on the economic side of the Wall Street business model. 

The dirty little secret in economic circles is that Goldman is one big cheerleading team for the economic theories of John Maynard Keynes, the liberal economist who generally believed big government spending could goose consumer demand — and spark economic growth. He’s credited with solving the economic puzzle of the Great Depression and a lot more.

But FDR’s allegiance to Keynesianism didn’t put much of a dent in the Depression or it wouldn’t have been so “great.” 

Also recall the great Keynesian experiment of the Obama years where the nation suffered through almost a decade of subpar economic growth despite mountains of post-2008 fiscal and monetary stimulus.

More recently, the Keynesians at Goldman scoffed at the Trump-era supply-side economic reforms, predicting over and over that his tax cuts would run out of steam and the economy would sputter. Neither happened, of course.

And that’s essentially what they’re predicting now as President Biden’s “Build Back Better” spending fiasco is going down in flames.

Jan Hatzius is a smart guy, and aside from his economic theories, he’s made some good market calls. 

He adroitly predicted the housing collapse, which helped Goldman survive the 2008 financial crisis when its traders began to short subprime bonds at just the right times to make up for other bad bets. 

But again, he has political blind spots, including a recent modest embrace of the fad known as the Modern Monetary Theory, a school of economic thought that proposes the government borrow and spend without limits. 

As we all know, there are limits to everything, thank God. Manchin just proved it by saving the country from the market consequences of raising taxes on businesses — and the near-certain inflationary surge BBB would have sparked. 

How’s that for a market call?



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