Embracing the softer side of infrastructure in U.S.
By Paul Krugman
Republicans have been having a hard time explaining why they oppose President Joe Biden’s American Jobs Plan.
Their real motives aren’t a mystery. They want Biden to fail, just as they wanted President Barack Obama to fail, and will once again offer scorched-earth opposition to anything a Democratic president proposes. And they’re especially opposed to public programs that might prove popular, and thereby help legitimize activist government in voters’ minds.
But laying out those true motives wouldn’t play well with the electorate, so they’ve been looking for alternative attack lines. And in the past few days many Republicans seem to have settled on the claim that most of the proposed spending isn’t really infrastructure.
Being who they are, they can’t help going to ludicrous extremes, and their claims that only a few percent of the proposal is “real” infrastructure are easily debunked. The only way to get anywhere close to their numbers is to declare, bizarrely, that only pouring concrete for transportation counts, which means excluding spending on such essentials for a modern economy as clean water, reliable electricity, access to broadband and more.
It’s true, however, that much of the proposed spending involves intangibles — outlays on research and development, broader support for innovation, and investment in people. So what you need to know is that the case for these intangible investments is every bit as strong as the case for repairing decaying roads and collapsing bridges. Indeed, if anything it’s even stronger.
Let’s start with technology.
The idea that investment isn’t real if it doesn’t involve steel and concrete would come as news to the private sector. True, back in the 1950s around 90% of business investment spending was on equipment and structures. But these days more than one-third of business investment is spending on “intellectual property,” mainly R&D and purchases of software.
Businesses, then, believe that they can achieve real results by investing in technology — a view ratified by the stock market, which now puts a high value on companies with relatively few tangible assets. Can the government do the same thing? Yes, it can. In fact, the Obama administration did.
Investment in technology, especially in renewable energy, was only a small fraction of the Obama stimulus, but it’s the piece that got the worst rap. Remember how Republicans harped endlessly on how loan guarantees for the solar-power company Solyndra went bad?
The thing is, if your technology strategy produces only winners, you’re not taking enough risks. Private investors don’t expect every bet to succeed; 3 out of 4 startups backed by venture capital fail. The question is whether there are enough successes to justify the strategy.
And the Obama investment in green technology produced many successes. You’ve probably heard about Solyndra; have you heard about the crucial role played by a $465 million loan to a company named Tesla?
More broadly, the years since 2009 have been marked by spectacular progress in renewable energy, with solar and wind power in many cases now cheaper than electricity from fossil fuels. There are still people who seem to imagine that green energy is flaky hippie stuff, but the reality is that it’s the wave of the future.
We don’t know how much of this progress can be attributed to the Obama stimulus, but the stimulus surely played a role.
What about spending on people, which accounts for hundreds of billions and will reportedly be the main focus of an additional proposal? There’s overwhelming evidence that this is a good idea.
The truth is that it’s hard to assess the payoff to spending on physical infrastructure, because we don’t get to observe the counterfactual — what would have happened if we didn’t build that bridge or road. We’ll only get really solid evidence on the value of physical investment if, as seems all too possible, some key pieces of our infrastructure collapse.
By contrast, we know a lot about the effects of investing in people, because some of our most important family-oriented programs, like food stamps, were rolled out gradually across America. This lets researchers compare the life trajectories of Americans who received early aid as children with those of otherwise similar Americans who didn’t.
The results are clear. Children who received early aid did better than those who didn’t by every measure: education, health, earnings. The social return on aid to families, especially children, turns out to be huge.
Should the softer, less tangible parts of the Biden spending agenda — encouragement of new technologies, especially electric vehicles, aid to education and more broadly to families with children — be considered “infrastructure”? The right answer is, who cares? It’s all productive investment in the nation’s future.
And the future needs work. Recovery from the pandemic should be only the start; we need a strategy to cure our longer-term problems of sluggish productivity growth and weak private demand. Large-scale public investment, whether or not it looks like some people’s idea of infrastructure, is the way forward.