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By Janet Yellen, U.S. Secretary of the Treasury
For more than a generation, America has underinvested in the public goods that are the foundation of our economic growth: infrastructure, education, childcare.
Our funding for them has been on a downward trajectory 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 to turn the page on this unfortunate chapter in our economic history and, with two pieces of legislation, started building the economy that 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 its name indicates – will commence the largest modernization of American infrastructure since Eisenhower built the Interstate Highway System.
Its history is written in concrete and fiber optic cable. In addition to repairing roads and extending transit lines, the bill will connect every home to broadband internet and dot the American landscape with half-a-million electric vehicle charging stations, part of a down payment on a greener, more resilient economy.
Later Tuesday evening, the Senate made history a second time when it began consideration of a broader set of investments, including childcare, education, health care, and housing. This broader legislation and the infrastructure package are pieces of President Biden’s “Build Back Better” family of proposals.
It’s important to understand how Build Back Better fits into our economic history. During the postwar years, the United States was almost certainly the best place to start a business or a family. But about a generation ago, economists started to observe a set of worrying trends that threatened the proposition.
Some have asked: 'Are we overinvesting here?' My response is 'no,' and there are at least three compelling reasons.Janet Yellen, Treasury Secretary
The percentage of prime-age workers who participated in the labor force started declining. There was a divergence in wages. High-earners saw pay go up, while lower-earners watched it stagnate. The racial wealth gap remained stubbornly persistent. When I started studying economics in 1963, the average Black family’s wealth was roughly 15 percent of the average white family’s. Six decades later, the data point is the same.
Underinvestment in public goods like infrastructure and childcare likely didn’t set these trends in motion, but it has perpetuated that motion and – in some cases, like the decline in labor force participation – accelerated it. More women leave the workforce in America than in many other wealthy countries, meaning that our economy loses out on their talents, and their families lose out on a paycheck. One study looked at the connection between this trend and our nation’s lack of funding for “family-friendly policies” like paid parental leave and childcare. It found that underinvestment in things that help parents balance work and life accounted for nearly one-third of the decline in U.S. women’s labor force participation.
Fortunately, fiscal policy works both ways. The lack of it can amplify destructive economic forces, but its ambitious use can unwind them. That is the big idea underneath President Biden’s economic proposals. The Build Back Better agenda, much of which is contained in the reconciliation bill expected to move through the Senate this fall, will increase labor force participation because it makes those long-overdue investments in families. It expands access to high-quality childcare, provides universal pre-K, and expands the Child and Dependent Care Tax Credit — all of which reduce the cost of raising families.
'Now is the right time'
This new bill makes community college tuition-free for two years, which will help workers – especially younger ones – better compete in the labor market. And it will help Americans who’ve never been able to build wealth obtain the most important asset for doing so: the family home. The Build Back Better agenda calls for half-a-million new affordable homes, and one million new rental units (which should alleviate the housing crisis).
As the Senate moves forward, I know there is a good-faith debate about how much spending is too much. The Senate just passed a once-in-a-generation infrastructure funding bill, and now we’re proposing another set of ambitious investments.
Some have asked: “Are we overinvesting here?” My response is “no,” and there are at least three compelling reasons.
First, if we are going to make these investments, now is the right time. Real interest rates are currently negative, and payment on our public debt, as a share of the economy, is expected to remain below historic levels for at least a decade.
Second, the Build Back Better proposals are fiscally responsible. The investments are spread out over time, and total around one percent of our gross domestic product over the course of the decade. They’re also paid for over the long-term through a reformation of the tax code that will make it fairer, without touching Americans who make less than $400,000 a year.
Third, and most importantly, we have to consider the opportunity cost of not making these investments. We’ve grown used to America as the world’s greatest economic power, but we aren’t destined to stay that way.
I question whether we can if we remain a country where renting a home eats up the lion’s share of your paycheck, and owning one is out of the question; where young people can’t gain the skills to compete in the job market because they can’t afford the tuition bill; or where Americans must make a choice: have children or have a job.
The Build Back Better agenda will address these challenges. It will bolster our economic growth and productivity, while bringing down some of the largest cost drivers for American families.
Indeed, the crucial question isn’t “What if we make these big investments?” It is: “What if we don’t?”
We are now engaged in the most important economic project in recent history: Repairing the broken foundations of our economy, and on top of them, building something stronger and fairer than what came before.
Janet Yellen is the former Federal Reserve Chair and the current 78th United States Secretary of the Treasury.