By Janet Yellen, US Secretary of the Treasury
For more than a generation America has underinvested in the public goods that underpin our economic growth: infrastructure, education, childcare.
Our funding for them has been on a downward trend for nearly forty years. In 2019, it was about three-quarters of what it was in the 1970s. On Tuesday, the United States Senate began opening this unfortunate chapter in our economic history and began two laws to build the economies Americans should and can have.
The first development happened in the late morning when the Chamber passed the Infrastructure Investment and Jobs Act, which – as the name suggests – will usher in the largest modernization of American infrastructure since Eisenhower built the Interstate Highway System.
Its story is written in concrete and fiber optic cable. In addition to repairing roads and expanding transit lines, the bill will connect every home to broadband internet and enrich the American landscape with half a million electric vehicle charging points, part of a down payment for a greener, more resilient economy.
Later on Tuesday evening, the Senate made history a second time when it began to think about a wider range of investments, including childcare, education, health care and housing. This broader legislation and infrastructure package are part of President Biden’s “Build Back Better” family of proposals.
It’s important to understand how Build Back Better fits into our economic history. In the post-war years, the United States was almost certainly the best place to start a business or a family. But about a generation ago economists began to observe a number of worrying trends that threatened the thesis.
Some have asked: ‘Have we invested too much here?’ My answer is ‘no’ and there are at least three compelling reasons for that.Janet Yellen, Secretary of the Treasury
The share of prime-age workers began to decline. There were differences in wages. High earners saw wages rise while low wage earners saw stagnation. The racial wealth gap persisted. When I started studying economics in 1963, the average black family had about 15 percent of the average white family’s wealth. Six decades later, the data point is the same.
The story goes on
Underinvestment in public goods such as infrastructure and childcare may not have started these trends, but it has perpetuated and – in some cases, such as the decline in labor force participation – accelerated this movement. America has more women quitting work than many other wealthy countries, meaning our economy is losing their talent and their families are losing their paychecks. A study examined the connection between this trend and the lack of funding in our country for “family-friendly measures” such as paid parental leave and childcare. It found that almost a third of the decline in women’s participation in the US economy was due to insufficient investment in things that help parents balance work and life.
Fortunately, fiscal policy works both ways. Their absence can heighten destructive economic forces, but their ambition can weaken them. That is the big idea behind President Biden’s economic proposals. The Build Back Better agenda, much of which is contained in the Atonement Bill slated to go through the Senate this fall, will increase labor force participation as it makes those long overdue investments in families. It expands access to quality childcare, provides universal preschoolers, and expands tax credits for children and dependents – all of which lower the cost of raising a family.
“Now is the right time”
The Verrazzano Narrows Bridge, which connects the Brooklyn and Staten Island neighborhoods, is pictured in the morning mist on June 26, 2021 in New York City, New York, United States. The picture was taken on June 26, 2021. REUTERS / Nick Zieminski
This new bill makes community colleges toll-free for two years, which will help workers – especially younger ones – compete better in the labor market. And it will help Americans who have never been able to build wealth get the most important asset for it: the family home. The Build Back Better agenda calls for half a million new affordable homes and a million new rental units (which should alleviate the housing crisis).
As the Senate moves forward, I know there is an honest debate going on about how much spending is too much. The Senate has just passed a bill to finance infrastructure that can only be done once in a generation, and now we are proposing another series of ambitious investments.
Some have asked, “Are we overinvesting here?” My answer is “No” and there are at least three compelling reasons.
First, if we are to make these investments, now is the right time. Real interest rates are currently negative and the payment of our sovereign debt as a share of the economy is expected to remain below historical levels for at least a decade.
Second, the Build Back Better proposals are fiscally responsible. The investments are spread over time and amount to around one percent of our gross domestic product over the course of the decade. You’ll also get paid long-term through a tax law reform that makes it fairer without affecting Americans who make less than $ 400,000 a year.
Third, and most importantly, we need to consider the opportunity cost of not making these investments. We are used to America as the world’s largest economy, but we are not meant to stay that way.
US President Joe Biden will meet virtually with governors, mayors and other elected officials from states and local authorities on August 11, 2021 at the South Court Auditorium of the White House in Washington, USA to discuss the non-partisan Infrastructure Investment and Jobs Act. REUTERS / Evelyn Hockstein
I doubt if we can if we remain a country where renting a house eats up the lion’s share of your paycheck and owning is out of the question; where young people cannot acquire the skills to survive in the labor market because they cannot afford tuition fees; or where Americans have to make a choice: have children or have a job.
The Build Back Better agenda will address these challenges. It will boost our economic growth and productivity while lowering some of the biggest cost drivers for American families.
In fact, the real question is not, “What if we make these big investments?” It is, “What if we don’t?”
We are now dealing with the most important economic project in recent history: repairing the broken foundations of our economy and also building something stronger and fairer than what was before.
Janet Yellen is the former chairman of the Federal Reserve and currently 78th Secretary of the Treasury.