Why America should bet on infrastructure



By Laura Tyson and Lenny Mendonca / Berkeley

Economists from all walks of life have long advocated for increased investment in infrastructure in the United States. Today, Congress is debating packages of infrastructure spending that would secure the current economic recovery and boost potential growth over the next decade.
Despite deep partisan divisions on most other issues, the Senate recently passed the $ 1 billion Infrastructure Investment and Jobs Act (IIJA) by a large majority. The bill must now be passed by the House of Representatives, where President Nancy Pelosi has secured an agreement for a vote by the end of September. Approval seems likely but is by no means certain, given the complete lack of support from House Republicans and the lingering divisions among House Democrats.
The IIJA focuses on traditional physical infrastructure, where much of the need is for long overdue maintenance, committing around $ 550 billion for investments in things like roads and bridges, water infrastructure and the high debit. The bill also contains climate-related investments in clean energy transmission and electric vehicle infrastructure, including the electrification of school buses and public transportation.
These investments would be funded through a combination of unspent emergency aid funds, business user fees, stronger tax enforcement and revenues from stronger economic growth. The Congressional Budget Office warns that the IIJA could increase the budget deficit by $ 256 billion over the next decade. But additional borrowing to finance infrastructure is warranted, given that the actual cost of federal borrowing is currently around 2%, while the expected return on investment in physical infrastructure is around 7%.
Moreover, the IIJA is only a down payment on the investments in physical and human capital necessary to achieve inclusive and sustainable growth. Congress must adopt an even more ambitious and daring plan focused on human development, economic mobility and climate resilience.
To that end, the Senate, with only Democrat support, recently passed a $ 3.5 billion budget resolution for the next ten years that includes such investments, and the House has now incorporated the plan into its budget framework. . Again, adoption of the plan is by no means certain. The main details need to be decided and tough negotiations on funding and non-infrastructure items (including immigration) are ahead.
The US economy is built on fragile foundations. While the rebound from the Covid-19 recession has been surprisingly quick and robust, the U.S. Federal Reserve may soon begin to cut back on its monthly bond purchases, and the first budget and stimulus spending contingency plans will soon follow their path. Classes. The spread of the Delta variant (due to reluctance to vaccinate) has already reduced demand in sectors susceptible to the pandemic like travel, tourism and hospitality. Worse yet, the recovery has yet to hit many workers hardest hit by the “double recession”, especially the uneducated, low-paid women and people of color in vulnerable sectors.
In addition, labor market participation remains low, largely because school closures have forced many parents (mostly women) to leave the labor market to care for their children. Politically motivated claims that increasing unemployment benefits have fostered low labor market participation will fade as these benefits expire this month. Indeed, the experience of states that decided to cut increased benefits earlier has already refuted the argument that these provisions undermine work incentives.
The recovery has benefited shareholders, owners and the wealthy. Stock markets are at record highs and home prices are up 25% from a year ago. The number of billionaires continues to grow, their overall wealth increasing 62% since 2020. Overall, inequality has continued to increase as economic mobility has declined, leaving a growing number of Americans even further behind. .
The $ 3.5 billion budget plan proposes major investments in social infrastructure to change this trajectory. These include $ 726 billion for preschool services, child care for working families, a tuition-free community college, increased funding for historically black universities and colleges, and the expansion of Pell grants and primary health care. Over $ 300 billion is also earmarked for public housing, the Housing Trust Fund, housing affordability, and community and equity land trusts.
To foster sustainable and equitable growth, the plan includes nearly $ 200 billion for clean energy development and $ 135 billion to tackle forest fires, droughts and other climate-related challenges. As evidence of the adverse effects of climate change accumulates, denial and resistance to mitigation and adaptation policies has waned in the United States and around the world. Recent polls show that more than two-thirds of Americans now want the government to do more to tackle climate change. As more communities experience its negative effects, voters increasingly join major investors in demanding action.
The $ 3.5 billion plan would be funded by a combination of new tax revenues, stronger tax enforcement, healthcare savings and income from long-term growth. The main income generators are an increase in the corporate tax rate to 28%, a global minimum corporate tax of around 20% and higher tax rates on personal income and capital gains for wealthy Americans (those with taxable income over $ 400,000). Recent polls indicate that there is strong support from voters from all parties for tax increases on both corporate and high-income earners.
A recent report by Moody’s Analytics concludes that over the next decade, the $ 3.5 billion budget along with the IIJA would accelerate the economy’s recovery to full employment, increase employment by 20 million and would stimulate long-term growth, the benefits of which would accrue primarily to low- and middle-income families. Moreover, even if these plans increase the deficit more than anticipated, it is still a particularly good time for the federal government to borrow to increase investments in infrastructure, given the expected returns and the rates of. extraordinarily low interest.
Investing in infrastructure is one solution: in the short term, it stimulates demand through powerful fiscal multiplier effects, and it strengthens the supply foundation for economic growth and competitiveness over time. The infrastructure plans debated this month would generate these macroeconomic benefits in a way that would also foster greater equity and resilience to climate change. Congress holds the keys to a future of inclusive and sustainable growth for America. Now he must find the courage to use them. – Project union

• Laura Tyson, former chair of the Presidential Council of Economic Advisers of the United States, is a professor in the Graduate School of the Haas School of Business and chair of the board of directors of the Blum Center at the University of California at Berkeley. Lenny Mendonca, Senior Partner Emeritus at McKinsey & Company, is a former chief economic and business adviser to Governor Gavin Newsom of California and chairman of the California High-Speed ​​Rail Authority.



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