Spending as if the future matters
By Paul Krugman
For centuries, America has invested taxpayer money in its future. Public funds built physical infrastructure, from the Erie Canal to the interstate highway system. We invested in human capital, too: Universal education came to the United States early, and America basically invented modern public secondary education. This public spending laid the foundations for prosperity and helped make us an economic superpower.
With the rise of the modern right, however, America turned its back on that history. Tax breaks — essentially giving wealthy people money and hoping that it would trickle down — became the solution to every problem. “Infrastructure week” became a punchline under Donald Trump partly because the Trump team’s proposals were more about crony capitalism than about investment, partly because Trump never showed the will to override conservatives who opposed any significant new spending.
Now Joe Biden is trying to revive the tradition of public spending oriented toward the future.
The Build Back Better legislation that passed the House last week isn’t a pure investment plan; in particular, it includes substantial health care spending that is more about helping Americans in the near term than about the future. But about two-thirds of the proposed spending is indeed investment in the sense that it should have big payoffs in the future. And if you combine Build Back Better with the already-enacted infrastructure bill, you see an agenda that is about three-fourths investment spending.
Here’s how I read the Biden program as it now stands. Total new spending would be about $2.3 trillion over a decade. This total would include $500 billion to $600 billion of spending on each of three things: traditional infrastructure, restructuring the economy to address climate change, and children, with the last item mainly consisting of pre-K and child care but also involving tax credits that would greatly reduce child poverty.
There’s every reason to believe that all three types of spending would have a high social rate of return.
Snarled supply chains have reminded everyone that old-fashioned physical infrastructure remains hugely important; we are still living in a material world, and getting stuff where it needs to go requires public as well as private investment.
As far as climate investments are concerned, the damage from a warming planet is becoming increasingly obvious — and droughts, fires and extreme weather are only the leading edge of the disasters to come. Build Back Better’s investments wouldn’t come close to ending the danger, but they would mitigate climate change, partly protect us against some its consequences and make it easier for the United States to lead the world toward a more comprehensive solution. So the money would be well spent.
Finally, there is overwhelming evidence that helping families with children is a high-return investment in the nation’s future, because children whose families have adequate resources become healthier, more productive adults.
So what’s not to like about this agenda? No, it wouldn’t be inflationary: Don’t take it from me, listen to credit rating agencies, which are saying the same thing. The approved and proposed spending would be fairly small as a share of gross domestic product — which the Congressional Budget Office projects at $288 trillion over the next decade — and largely paid for with new taxes, so it would have very little inflationary impact.
Oh, and while some of the “pay-fors” are questionable — as it happens, mainly on the traditional infrastructure bill; Build Back Better is more or less paid for — which means that the spending would probably add somewhat to federal debt over the next few years, that debt increase would be small relative to GDP and, given low interest rates, would barely add to debt service costs. Over the longer term, the payoff to public investment might well be enough to reduce the deficit.
Still, Republicans are denouncing the Biden agenda as socialism, because, of course, they are. Hey, by their standards America has been run by socialists for most of its history — people like DeWitt Clinton, the New York governor who built the Erie Canal, and Horace Mann, who led the Common School movement for universal basic education a couple of decades later. And don’t even get me started on Dwight Eisenhower, who presided over huge government investment and a top tax rate of 91%.
Admittedly, the Biden plan would reduce economic disparities, both because expanded benefits would matter more to less-affluent families and because its tax changes would be strongly progressive. But public policy that reduces inequality, like public investment, is squarely in our national tradition. America basically invented progressive taxation, and as economist Claudia Goldin has noted, the high school movement was “rooted in egalitarianism.”
So don’t believe politicians who are trying to portray Biden’s investment agenda as somehow irresponsible and radical. It’s highly responsible, and it’s an attempt to restore the all-American idea that government should help create a better future.