Some thoughts on… Building Bridges
Under President Biden’s administration so far, he has signed into law measures on Covid-19 Relief, addressing Asian American hate crimes, and making Juneteenth a Federal holiday. But several major legislative initiatives are still being worked out in the House of Representatives and Senate, including revising immigration, supporting voting rights and rebuilding infrastructure.
Infrastructure bills have historically been non-partisan because they initiate jobs across the US primarily for non-college educated individuals and impact a wide swathe of the population regardless of political affiliation. Biden’s $4.2 trillion infrastructure framework consists of two parts the American Jobs Plan and the American Families Plan. The framework is facing Congressional debate on two fundamental questions - what is considered infrastructure, and how the legislation will be financed. Deferring discussion on the payment question,
What is driving the disagreement on Biden’s proposals?
Infrastructure is recognized as the systems and services that households and firms use in a country in order to interact and make the economy function. Examples include physical systems such as road and railway networks, utilities, sewage, water, telephone lines and cell towers, air control towers, bridges, etc., plus services including law enforcement, emergency services, healthcare, education, etc. Without roads or law enforcement, firms cannot hire individuals, and households cannot get to work safely.
In economics, the case for government involvement to finance infrastructure is nuanced because these items are typically neither pure private or public goods. Governments have a clear mandate to step in and provide funds for public goods because they are non-excludable and non-rivalrous. Once produced, a person cannot be excluded from using public goods, and one person’s consumption of the public good doesn’t affect another, examples include National Defense or streetlights. On the other hand, private goods are both excludable and rivalrous – once a pizza is made, people can be excluded from consuming it, and if I do consume the item, it prevents your consumption. The private sector is best suited to produce private goods – government intervention is typically not needed.
Private vs. Public Goods
Many infrastructure items - roads, railways, bridges – are similar but are not pure public goods since they are non-excludable but can be rivalrous. People aren’t excluded from roads and highways but use by too many people will affect others due to congestion. Whereas some infrastructure items are excludable but non-rivalrous. Once an electric grid or cell tower is built people can be excluded from using them, and my enjoyment of electricity typically will not affect other users. The debate on infrastructure stems from the facts that for these hybrid cases there is not a clear government mandate to step in from an economics viewpoint.
The first piece of legislation, the American Jobs Plan ($2.3 trillion) has 6 components which include physical systems:
1. Rebuilding roads, airports, ports and transit systems (falls into hybrid: non-excludable but rivalrous)
2. Deliver clean drinking water, a renewed electric grid, and high-speed broadband to all Americans. (falls into hybrid: excludable but non-rivalrous)
3. Build, preserve, and retrofit more than two million homes and commercial buildings, modernize our nation’s schools and child care facilities, and upgrade veterans’ hospitals and federal buildings. (More like private goods but these items address less served communities where government has typically intervened)
There seems to be bi-partisan support for these “hard” items. The American Jobs Plan also includes services provisions to:
4. Solidify the infrastructure of our care economy by creating jobs and raising wages and benefits for essential home care workers.
5. Revitalize manufacturing, secure U.S. supply chains, invest in R&D, and train Americans for the jobs of the future.
6. Create good-quality jobs that pay prevailing wages in safe and healthy workplaces while ensuring workers have a free and fair choice to organize, join a union, and bargain collectively with their employers.
In addition, the American Families Plan ($1.9 trillion) focuses on making education more affordable and expanding opportunities, providing economic security for families, and expanding tax credits that help workers and families. Examples include $200 billion to provide free preschool to all 3- and 4-year-olds; $109 billion to offer two years of free community college to all Americans; $225 billion to subsidize child care for families and support child care workers; $225 billion to create a national family and medical leave program; Permanently increase tax credits for child care.
From an economics point of view, the last three components of the American Jobs Plan along with the American Families Plan ($1.9 trillion) would not typically be considered public goods or hybrids, and are the crux of the disagreement on Biden’s proposal. The main argument against funding these items is that they are social services which should not be covered by an infrastructure package.
Although these latter items do not conveniently fall into the public versus private goods definition, they should still be considered infrastructure since they facilitate the interaction between households and firms which is what drives the economy. Just like roads and airports, the new services economy of the 21st century cannot function properly without provisions that ensure worker and family safety, training and the ability to organize.
At stake is a notion that to remain globally competitive, the US needs to help households engage more easily with employers. The outcome of the package will depend on how effectively the White House can convince citizens and bi-partisan congressional representatives of the importance of shoring up these broader more expansive concepts of infrastructure.
In other words, Biden will need to build some emotional bridges before building the physical ones.