Investing in Our Future: Labels vs. Substance in the Infrastructure Debate

Posted in: Tax and Economics

When President Biden announced that he planned to propose a large infrastructure spending bill, it was all too predictable what would come next. We knew that Republicans would amp up their panicky (and completely opportunistic) attacks on budget deficits, and that they would describe the plan as “radical left,” along with their usual run of other epithets.

Indeed, within what seemed like mere nanoseconds of Biden’s announcement, we saw the first attempts by conservatives to red-bait Democrats. One right-wing Washington Post columnist (who, it should be noted, possesses precisely zero expertise in economics) flew out of the gate with a claim that the bill should be called the “American Central Planning Plan.” Yes, the definition of communism has been so dumbed down by conservative ideologues that literally anything that a government might do is now to be rejected as the equivalent of Stalinist five-year plans—even democratically elected policy makers determining where and when to spend tax dollars. It’s all a Big Government conspiracy! Are zoning laws Marxist, too?

Again, however, even though all of that is silly and facile, it was to be expected. There is, in fact, some comfort in knowing that the conversation among anti-government ideologues is still stalled where it has been for decades. They are stuck in the past, claiming that the Department of Motor Vehicles is proof that the government is an evil cabal of freedom-hating latte drinkers.

I was, on the other hand, a bit surprised that the mainstream press has gone along with Republicans’ re-framing of the Biden bill as not being devoted to spending on “real” infrastructure. The right wing is now loudly asserting that only roads and bridges are infrastructure, and even though that is not even close to being true, the major political talk shows are suddenly seeing hosts demanding that Democrats accept the right’s re-framing of what should be a straightforward discussion.

Even CNN’s Jake Tapper has now spent two weeks beating this drum, suggesting to Secretary of Transportation Pete Buttigieg this past Sunday that Democrats are “hurting your cause” by “jamming a bunch of social programs into an infrastructure bill and calling it infrastructure.” Tapper would surely protest that he was merely “asking tough questions,” but the fact is that he was reinforcing Republicans’ main attack line.

What is infrastructure? To be sure, that is a tough question, but not in the way that Tapper and the other purveyors of the conventional wisdom would have it. They are all proceeding from the belief that “everyone knows” what infrastructure is, usually limiting the discussion to roads and bridges. Tapper, to his credit, did go a bit further than those two categories, allowing that “electric grids, or clean water, or rural broadband” would qualify. He claims, however, that the inclusion of “social spending” for things like assistance for care of the elderly and the disabled, while important, put the stench of Democratic overreach on the plan.

But this is flat-out wrong. Infrastructure is both more and less than that absurdly narrow view allows. Understanding what it really means to invest in the country’s (and the world’s) future is essential to moving away from the stunted debate that is currently consuming Washington’s political class.

Budgetary Matters are Always Easy to Demagogue

The official price of the infrastructure bill, according to the Biden administration, is somewhat more than two trillion dollars. Almost immediately, the chattering class started to talk about how we only recently passed Biden’s two-trillion-dollar COVID relief bill, asking whether this is becoming too much.

I have been a macroeconomist for my entire career, with much of my writing even after moving into legal academia being focused on government budgeting, taxes, deficits, and debt. One of the most frustrating aspects of the public discussion of these issues is that there is almost never any attempt to put numbers in perspective. As soon as there is an “-illion” involved, people started hyperventilating; and when the numbers are in the trillions, people lose their minds.

The fact is that the United States is big, and the U.S. economy thus generates big numbers. Our population now amounts to over a third of a billion people, who together produce about twenty trillion dollars of goods and services every year. Even though our government sector is a smaller share of our economy than other countries’, simply pointing out that the federal government’s budget is permanently above $5 trillion per year makes it look very big.

This, in turn, provides an opening for people to make the leap from “too much spending” to “too much debt,” even though the hyper-cautious and very orthodox Congressional Budget Office projects that the ratio of public debt to GDP will barely budge over the next decade.

But it is even worse than that, because time frames matter enormously. Did you know, for example, that the very poor state of Mississippi is also going to spend $2 trillion? Of course, 2021’s total state budget there is $21 billion, and if the budget rises at three percent per year, it will take forty-five years to spend a total of two trillion dollars. (As an interesting side note, almost three-quarters of Mississippi’s budget is paid by the federal government. Those fiercely independent, anti-Washington red states are awfully willing to take what they can get.) In any case, even though it will take almost a half-century to do so, Mississippi will spend two trillion dollars!

Is that merely a fatuous example? No, because the Biden infrastructure plan and the COVID relief bill, which both carry $2 trillion nominal price tags, have very different time horizons. The relief bill, because it is aimed to provide immediate help to the millions of people who continue to be harmed by the economic effects of a global pandemic, will disburse benefits over the remainder of 2021 and into 2022. The Biden infrastructure bill, by contrast, is an eight-year spending plan. On an annual basis, then, the two bills are not “about the same size.” And again, neither of those bills’ spending numbers, even if shown as annual amounts, is ever discussed in the context of the size of the economy.

Nor, I should add, does the discussion in Washington ever focus on the magnitude of the problems. The American Society of Civil Engineers (ASCE) has been issuing an “infrastructure report card” that for at least the last decade has warned that we need to spend more than two trillion dollars as quickly as possible, simply to fix our existing physical infrastructure. That is, merely to stop things from continuing to fall apart, we would need to spend—right away—the full amount proposed in Biden’s eight-year bill. And that is simply to prevent our infrastructure from killing us, through tainted water, collapsing bridges, and so on. It says nothing about adding to that infrastructure or modernizing it.

So, is the Biden bill big? It represents only about five percent of the federal budget, and it attacks only a small fraction of the existing problem even as it tries to move forward in many important ways. It is, in short, far too small. As always, however, Democrats’ attempts to mollify so-called centrists and to respond to the conventional wisdom have not led Biden’s detractors to recognize his moderation. They instead call him a big spender who wants to spend trillions of dollars. The horror.

What Is Infrastructure?

The political discussion is, then, always distorted by people who do not understand how big our economy is, and who insist on ignoring all context. As I noted above, however, the current debate is even more polluted than usual, because the word “infrastructure” itself is so easy to manipulate.

The ASCE reports, which I mentioned above, provide a breakdown of eighteen categories of physical infrastructure. This is a major step forward from “roads and bridges,” but the bigger issue is that the reports still focus only on physical infrastructure, from drinking water to hazardous waste to stormwater. There is no attention paid to the non-physical types of public investment that propel economic growth.

To be sure, the very nature of ASCE’s expertise should obviously cause them to concentrate on civil engineering matters. I am not, therefore, saying that they are doing anything wrong. It is the politicians and pundits who are truly making matters worse by ignoring non-physical investments.

To begin to untangle what an infrastructure bill ought to contain, we have to remind ourselves that the true goal here is not to build physical infrastructure for its own sake. What we want is to put our money into public investment, whether we call it infrastructure or not. What is the difference?

Some readers might recall a minor story from the 2008 U.S. presidential campaign, in which the Republican Vice Presidential candidate, Sarah Palin, told a (false) story about having used her power as governor to refuse federal funding for a “bridge to nowhere.” As it turns out, that phrase predates 2008, as it is often used to describe physical infrastructure projects that are in some meaningful way pointless.

It is not that any particular bridge leads literally nowhere, of course (although even there, we have to consider bridges that are abandoned before completion). The problem is that the bridge connects two pieces of land, but not enough people use the bridge to justify its cost. It is a waste of money, even though it physically exists.

Even so, one might argue that this merely further limits the category of projects that deserve to be called infrastructure: not only must they be physical, but they must also be economically useful. That distinction, however, also does not work, because there are plenty of spending programs that are economically useful even though they do not create physical assets.

The most obvious example of non-physical spending that is economically productive is education. I have sometimes given public speeches in which I ask the audience to imagine what would happen to the economy if one lane of every highway disappeared overnight. Everyone gasps, knowing that this would seriously damage the economy. I then ask what would happen if we reduced everyone’s educational attainment by two years. The answer is the same. We do not see education’s effects on commerce in the way that we can easily see trucks and trains transporting goods and services over roads, on rails, and through ports. But the effects of education on economic productivity are nonetheless quite real.

But how do public investments lead to enhanced economic output? On the physical side, better roads allow people to get to their jobs, to transact business, and to purchase consumer goods that cannot be delivered to their homes (and even home delivery, again, depends on decent roads). That is, business improves because people’s time is freed up from having to sit in traffic, from having to drive around a harbor rather than over it, and so on. These investments pay off because they allow people to spend more time doing productive things, not because the roads or bridges themselves are producing goods and services.

Similarly, education has a positive effect on economic productivity because it allows each person to do more things in a shorter amount of time. A person who does not know how to measure surface areas, for example, can probably figure out ways to count square feet, but an educated person does not have to waste time reinventing basic mathematics every day. Knowledge is power.

The current discussion in D.C. about Biden’s bill tends to focus on things that do not “sound” like infrastructure, such as money to assist in caring for family members. Again, however, this is logically the same thing as giving workers a better subway system to ride to their jobs, because it frees up time for them to be more productive workers.

Despite heckling about “mere” social spending, social programs are even easier to justify as public investment. Money spent on early childhood nutrition returns multiples of every dollar invested, and so would universal pre-K. Training people for the jobs of the future allows them to contribute to society throughout their lifetimes, not to be burdens on the government.

Is it possible that some projects billed as public investment will not pay off? Of course. But careful economic research allows us to know what is worth the investment and what is not. There is nothing in the Biden plan that fails that test. And to be clear, the vast majority of Biden’s proposal is in fact focused on items that meet even the more limited, mindless definition of infrastructure.

Should the Biden team have used the words “public investment” instead of “infrastructure”? I doubt that it would have mattered, because the political resistance to his plan is offered in such bad faith that it is impossible to imagine his detractors saying, “Oh, I see, we’re talking about all forms of investment, not just roads and bridges.”

But the most important thing to remember is that there is no reason to fetishize roads and bridges—or even broader categories of physical investments—in the first place. Not all roads are productive, whereas many non-physical investments are highly productive. If someone says, “But this isn’t infrastructure as I understand it,” my response will always be: “I don’t care. We should care about whether it is good for the future growth of the economy.” For the Biden plan, the answer is certainly yes.

As I noted above, there is a reasonable argument that Biden is seriously undershooting the target here. We need much more public investment than he is proposing. Reducing that number even further because of a distorted understanding of the concept of infrastructure—a misunderstanding that would lead us to underinvest in our future—would be worse than foolish.

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