Infrastructure should include the right investment in people
On the heels of the American Rescue Plan Act, the American Jobs Act is supposedly an infrastructure bill. While the focus is as much on size than substance, this debate offers a real opportunity to address structural economic problems that have affected both American workers and our politics. Seizing that opportunity requires us to think harder about what “infrastructure” means.
There are two serious reasons to put infrastructure on the table. The first reflects productivity or supply effects. Projects that boost productivity in transportation or utilities or computing increase the size of the economic pie and workers’ wages. The second reflects the chance to reset expectations about future demand in response to fears of post-pandemic adjustment or secular stagnation. A committed line of infrastructure support can give businesspeople confidence about the desirability of private and public investment. While both these supply and demand effects can be beneficial, projects must still pass an “opportunity cost” test: Are the benefits greater than the lost economic activity from higher current or future taxes to finance them?
The Biden administration has certainly stretched the bounds of what’s “infrastructure,” as many political commentators quickly turned to proverbial roads and bridges. But both sides need to focus more carefully on a key element of infrastructure as an economic underpinning.
The COVID-19 pandemic shined light on challenges faced by many low-skilled workers in adapting to changes in the economy. Many such workers have long seen their incomes and job prospects dented. By structural changes from technological advances and globalization. While those changes have benefited the economy as a whole, they have not generated gains for many less-educated and low-skilled Americans. This social problem is an economic waste of talent and earning power and could be improved by a well-designed infrastructure program.
Recent populist political rhetoric has focused more on building walls rather than productivity-enhancing infrastructure. These walls, physical or metaphorical, attempt protection of some workers, firms, or industries. They have failed and will fail, an economic observation as old as Adam Smith’s analysis in “The Wealth of Nations.”
But — and it’s a big but — Smith’s work highlighted that individuals need to be able to compete in the dynamic competitive market economy his invisible hand envisioned. While today’s economy is both more complex and disruptive than Smith’s, the goal of broad participation should remain paramount. Realizing that goal requires investment.
An alternative “infrastructure” in this context is bridges. While construction or repair of physical bridges could garner federal support, I am referring to bridges of opportunity that prepare individuals and their communities for economic participation and reconnection. Two such bridges are particularly important, and their cost is a small fraction of that the Biden administration is likely to propose for infrastructure.
First, community colleges are the logical workhorses of skill development, and their local presence in regional economies makes them attractive partners for employers. Yet those institutions have seen their support wither. Inspired by original land grant college support, Amy Ganz, Austan Goolsbee, Melissa Kearney, and I recently proposed a block grant to strengthen community colleges, contingent on improved degree completion rates and labor market outcomes. For an outlay of $20 billion per year over a decade, it sets a goal of raising community college completion rates to 60 percent, the current graduation rate for students seeking bachelor’s degrees. It also would increase the share of Americans aged 25-64 with post-secondary credentials from 47 percent to 65 percent, the level projected to meet the economy’s skill needs by 2030. This direct for capacity in community colleges is very different from the “free community college” idea in the Biden plan.
Second, place-based aid could target areas with stubbornly high rates of long-term unemployment and low geographic mobility. Federal support should focus on long-term job loss from structural change, reskilling people and offering extension services to local businesses, and small and mid-size enterprises, not large ones. Allowing for variation in use across regions helps bring private and public action together. Timothy Bartik estimates that annual support along these lines of $30 billion per year could bring employment rates in the bottom quartile to the median.
These two bridges offer a chance to build human capital for success in our dynamic economy for more people in more places. That chance offer both productivity-enhancing returns, as with physical infrastructure, and added benefits of social inclusion. They also carry a key harbinger of success — customization of federal support to local needs and economic context. For both, a flexible block grant structure attached to clear goals can increase public support and success. The Morrill Act’s land grant colleges followed this model as they evolved and contributed handsomely to state’ economic development.
The Biden administration’s infrastructure plans have been tossed to Congress consideration while the administration races on to more spending. But investing in bridges of preparation for people and communities should be a key element of the plan, not a missed opportunity.
Hubbard, a professor of economics and finance at Columbia University, was Chairman of the Council of Economic Advisers under President George W. Bush. He is author of the forthcoming book “THE WALL AND THE BRIDGE” (January 2022, Yale).
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