The impact of the Biden administration’s package of infrastructure bills on subjects including labor force participation, economic growth and inflation was debated by a panel of renowned economists at a webinar sponsored on Nov. 17 by the National Association for Business Economics.
The panel—which included Moody’s Analytics chief economist Mark Zandi, American Action Forum president Douglas Holtz-Eakin and Douglas Elmendorf, dean & professor of public policy at the Harvard Kennedy School—agreed that the infrastructure portion of the bill would spur growth. However, there was some disagreement as to whether the bill would push labor participation higher and whether it would have negative budgetary implications.
The package consists of two components. The first is the $1 trillion Infrastructure Investment and Jobs Act that was passed and signed into law by President Joe Biden. The act focuses on “hard” infrastructure, including roads, bridges, airports and transportation, ports, water systems, rural broadband and electric vehicle charging stations.
The second component, the $1.75 trillion Build Back Better Act (BBB), is still being debated in Congress. BBB would focus on social spending, including $400 billion for expanded childcare, child tax credits and home care for seniors, and $550 billion for environmental measures to fight climate change.
Assuming BBB is also signed into law, Zandi said that the acts would add 0.9% to GDP growth over the next two years and enable the economy to return to full employment growth by early 2023. But he said the long-term impact on growth would be “small in the grand scheme of things.”
Regarding budget implications, Zandi also said that the law would largely be paid for on a static basis and would pay for itself entirely when factoring in the additional growth. The benefits of the plan would entirely go to low- and middle-income households, he said, adding, “The bottom line is, I think this is a good piece of legislation.”
Holtz-Eakin, former director of the Congressional Budget Office under President George H. W. Bush, said that the Infrastructure Act already passed will have a positive impact on the economy, but he expressed concerns about some parts of the BBB bill.
Holtz-Eakin questioned the wisdom of the government adding stimulus to the economy at a time when demand is already strong and inflation is at a decades-long high, in part because it comes on the heels of upwards of $4 trillion of COVID-19 relief distributed in 2020 and 2021. He also expressed doubt about whether the BBB would achieve its intended purpose of adding workers to the labor pool.
One of the main purposes of the social spending in the BBB act is to help workers who have dropped out of the workforce because they must care for a child or parent or can’t afford childcare to get back into the labor pool. According to the U.S. Bureau of Labor Statistics, the labor force participation rate dropped from 63.4% in January 2020 to 60.8% in May 2020, when the pandemic forced sheltering at home. Labor participation since has risen to 61.6% as of October but remains far below the 30-year average.
Holtz-Eakin said that the childcare provisions of BBB amounted to a “risky bet.” He said the payments were too generous and would create “a recipe for expensive childcare” and noted that California had increased its childcare benefits only to see labor participation drop. “Having a childcare subsidy is one thing; how to execute it is another,” he said.
Zandi said that although there were reasonable concerns about the implementation of the program, he expected that BBB would result in higher labor force participation and higher productivity growth. Elmendorf, also a former CBO director under President Barack Obama, said that the positive social impacts of the BBB were more important than the economic effect.
Elmendorf noted that there is a long body of evidence that demonstrates that support for low-income families and children has positive long-term impacts on the productivity of children from those households. “That should make us bullish about child-focused investments,” he said.
Addressing another area of contention surrounding the bills, the panel was sanguine about the infrastructure bills’ impact on inflation. Elmendorf noted that the $2.25 trillion in spending in the bills was spread out over 10 years in which the U.S. economy was expected to total $300 trillion. The spending “is not large relative to the economy,” he said. Zandi agreed. “I don’t see it as meaningful,” he said of the impact on inflation.