Editor’s note: We endeavor to bring you the top voices on current events representing a range of perspectives. Below is a column arguing that President Joe Biden’s infrastructure plan will help achieve a long-term vision for the U.S. economy. You can find a counterpoint here, where Cato Institute senior fellow Randal O’Toole argues that Biden’s plan will not address actual infrastructure problems.
If you look around the world, what do you see? While advanced economies are witnessing better than anticipated growth relative to projections made during the height of the pandemic, poor countries continue to struggle amid declining economies and vaccine shortfalls. However, even with this moderated growth, the United States continues to struggle in confronting China and other nations’ growing economic influence.
This past Thursday, the nonpartisan Congressional Budget Office (CBO) released a report signaling that the U.S. economy was on the rebound. The economy is predicted to grow 6.7% in 2021 and unemployment is estimated to fall below 4% next year. By the middle of 2022, the country is on track to regain all the jobs lost during the pandemic.
There were downsides to the CBO’s estimates as well. Taking into account stimulus spending to date, including the $1.9 trillion American Rescue Plan (ARP) that President Joe Biden signed into law in March, the federal budget deficit will total $3 trillion and the federal debt will reach 103% of gross domestic product (GDP) in fiscal year 2021.
And we’re not nearly done spending. On May 28, Biden announced a whopping $6 trillion budget proposal that includes a $2 trillion program entitled the American Jobs Plan (AJP). The AJP embraces a wider, long-term vision for infrastructure spending, not just focused on bridges, highways and ports, but schools, science and society.
First, the AJP proposes investing $100 billion to upgrade and build new public schools, through $50 billion in direct grants and an additional $50 billion leveraged through bonds. Coming in and out of the pandemic, school districts around the country are on the backfoot preparing to reopen safely. According to Rachel Hodgdon, CEO and President of the International WELL Building Institute, “[School leaders] are in a race to address the ongoing challenges brought on by COVID-19 before the school year starts, and they need a turnkey, efficient, and cost-effective roadmap to address these pressing challenges holistically and comprehensively.” Public schools have been underfunded for decades. The COVID-19 pandemic only exacerbated these inequities and called more attention to the failing infrastructure.
Second, the Biden administration seeks to invest $30 billion over 4 years in scientific, medical countermeasures, R&D and related bio-preparedness through advanced manufacturing. This would include shoring up the strategic national stockpile and scaling up domestic vaccine production to not just respond to COVID-19, but future biological threats that could take hundreds of thousands of lives and cost billions of dollars in lost productivity. We’ve been down that road before.
Third, the AJP has a $213 billion program to produce, preserve and retrofit more than two million affordable and sustainable homes. Housing in America is at an inflection point. According to the National Association of Realtors, the median price for existing U.S. homes hit a record high of $350,300 in May, rising 23.6% from the same month a year ago. While U.S. demand has roared during the pandemic, sharp increases in prices have created inequities for average Americans. More affordable housing opportunities will create added capacity for lower income families.
Despite their virtues and benefits, the cost of these programs has created a growing panic around inflation. That seems to be the only thing outside Bitcoin and Bill Cosby that Wall Street and Main Street will agree on in this climate, which is ironic given the gross dislocation between the capital and real economy we’ve seen in the post-pandemic world.
Even Democrats are sweating. Larry Summers, former Secretary of the U.S. Treasury under Bill Clinton and director of the National Economic Council under President Obama, has been extremely vocal on the repercussions of inflation. And the buck stops with the president. According to Summers, “the Fed has had almost no success gently bringing down inflation once an economy has started to overheat.” He argues that runaway government spending would force the Federal Reserve to raise interest rates, which in turn would cause an economic downturn.
What Congress, Americans and foreign direct investors really fear is a U.S. retreat from global competitiveness due to the Biden administration’s AJP. Increased spending causes inflation, which leads to rate hikes and recession. The recessions of 1953, 1958, 1961, and 1981 were all caused by tight monetary policy due to crises. It’s history repeating itself.
Let’s take a different lesson from history.
For the past 50 years, countries like China have been in the industrial planning business, investing in their infrastructure block-by-block. We haven’t had to do that for over 100 years. At the turn of the 19th century, John D. Rockefeller and Andrew Carnegie viewed growth with that same nostalgia, building steel bridges, railways and buildings to usher in a modern American era. But today, our economy is more complex. We can’t relegate ourselves to old solutions for new problems. Hard capital can be directed to human capital. The AJP evolves infrastructure spending into areas that will allow the U.S. to outcompete other countries in the long-term.
While Congress should embrace alternative infrastructure policies, it should be cautious when determining how to pay for them, as tax increases could undo any positive policy gains and indeed compromise the competitive edge the US is hoping to maintain. There are also transitory risks to massive stimulus. But the last thing China, Russia and other strategic foes want to see in the United States is a long-term investment in our students, science and society. That’s what will catapult our country and economy to new heights in the decades to come.
Samir Kapadia is the Chief Operating Officer at The Vogel Group. The views expressed in this piece are his own and are not representative of The Vogel Group.