Goldman Sachs Advice on Build Back Better After a Bad Economic Call


When Goldman Sachs speaks, people are usually listening because the smart guys who run the business often make good calls in the markets.

But they were also wrong, and that’s usually when ideology about how best to drive economic growth begins to creep into business forecasting models.

There’s a pretty solid list of their economic failures, which I don’t get a chance to go into in full detail, but here’s what I bet will be their last: recent indications from the company that the demise of the tax and tax fiasco. President Biden’s spending – known as Build Back Better – will somehow slow the US economy.

Yes, of all the things we need to worry about these days (like possible new lockdowns from COVID), Goldman’s economics team wants us to believe that the economy will suffer because Senator Joe Manchin put an issue at the heart of something that raised personal and business taxes, dramatically expanded the welfare state, and added billions to the federal debt.

Worse yet, it was built on a foundation of lies: Biden said it would cost nothing despite his

$ 1.8 trillion price tag.

BBB, as it’s called in DC, is so structurally unhealthy that it contained very little building of real things (like real infrastructure) and a lot of spending on weird things with Orwellian labels (like “climate infrastructure”) and other progressive political goals.

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

But forget all that: the package was really a good thing, according to Goldman, because any kind of spending is good for the economy. And now his defeat will cut first-quarter 2022 GDP by one point, dropping it to 2% from 3%, the company’s chief economist Jan Hatzius said in a note last week because “A failure to pass BBB has negative implications for growth.

President Joe Biden
President Joe Biden has claimed his Socialist Build Back Better bill will not cost a dime despite Americans suffering from record inflation.
REUTERS / Elizabeth Frantz

Failing to raise taxes on businesses and wealth creators – Goldman clients, you think – has “negative implications for growth”? It’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 a path to non-inflationary economic growth?

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

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

To understand why a Wall Street company that deals with wealth creators, entrepreneurs, and companies embracing capitalism would be supporting something as anti-capitalist as BBB, you have to understand what is still missing from the coming Goldman economic analysis. of the Hatzius group.

Unlike stock analysts who must disclose whether their company is buying shares of covered companies, there is no bias disclosure on the economics side of the Wall Street business model.

The dirty little secret in economic circles is that Goldman is a big cheerleader team for the economic theories of John Maynard Keynes, the liberal economist who generally believed that big government spending could spur consumer demand – and trigger it. Economic Growth. He is credited with solving the economic puzzle of the Great Depression and much more.

But FDR’s allegiance to Keynesianism didn’t really start the Depression, otherwise it wouldn’t have been so “great.”

Recall also the great Keynesian experience of the Obama years when the nation suffered nearly a decade of below average economic growth despite mountains of fiscal and monetary stimulus after 2008.

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

And that’s essentially what they’re predicting now as President Biden’s “Build Back Better” spending fiasco ignites.

Jan Hatzius is a smart guy, and apart from his economic theories he made some good calls in the market.

He deftly predicted the real estate collapse, which helped Goldman survive the 2008 financial crisis, when its traders began selling risky bonds at the right time to offset other bad bets.

But again, it has political blind spots, including a recent modest adoption of fashion known as Modern Monetary Theory, a school of economic thought that offers the government to borrow and spend without limits.

As we all know, there are limits to everything, thank goodness. Manchin just proved it by saving the country from the market consequences of rising corporate taxes – and the almost certain inflationary surge BBB would have unleashed.

How’s that for a market call?


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