This year, the administration of President Joe Biden introduced two of the largest domestic spending bills the United States has seen in generations. Combined, Biden’s American Jobs Plan and his American Families Plan aim to spend $3.3 trillion and provide $800 billion in tax credits over the next 10 years. (For those who follow such things, technically the jobs programs extend over eight years, while most measures in the Families Plan extend for 10 years.)
At the same time, the big price tag is deceptive. If you throw the word “trillions” around often enough, most people will understand that means “big.” But how big? The answer, as it happens, is not as large as it might seem.
First, it’s worth appreciating just how large the federal government is. Note that in fiscal year 2019—before the pandemic—the feds spent $4.448 trillion in a single year. (In 2020, the federal response to COVID-19 pushed up that number to $6.55 trillion). Bottom line, even if you assume that federal spending reverts to something close to that 2019 number by 2022, you’re still talking about $50 trillion in likely baseline federal spending over the next decade, even if neither Biden bill passes.
A simple way to understand the scale of Biden’s two proposals is to recognize that they involve roughly a seven-percent increase in overall spending. If compared with gross domestic product (GDP), the expense works out to roughly 1.5 percent of GDP.
What does that mean? It helps to have some historical perspective. The Office of Management and Budget maintains data that indicate that the federal government in 1980 spent 5.1 percent of GDP on domestic discretionary spending; in 2019, that number was 3.1 percent. Biden’s plans, if they both passed without amendment, would fall far short of restoring spending to 1980 levels.
Then there’s the question of infrastructure specifically. A 2018 report by Jeffrey Stupak of the Congressional Research Service finds that “nondefense gross government investment (federal, state, and local) in the United States has largely been in decline since the 1960s, falling from above four percent of GDP to about 2.5 percent in 2016.” A return to 1960s levels would require $3.5 trillion over the next decade for infrastructure alone.
It should be noted too, importantly, that there is a cost to not spending money. Stupak observes, “Infrastructure is understood to be a critical factor in the health and wealth of a country, enabling private businesses and individuals to produce goods and services more efficiently. With respect to overall economic output, increased infrastructure spending by the government is generally expected to result in higher economic output in the short term by stimulating demand and in the long term by increasing overall productivity.”
The converse can also be true. That is, a lack of infrastructure spending may impede economic development. Over time, productivity growth goes up and down for many reasons. In the US, that rate fell in the 1970s, probably due to rising energy costs, and rose in the 1990s and early 2000s due to new computer technology. But it is hard not to notice that between 2007 and 2020, US productivity growth, according to the federal Bureau of Labor Statistics, was 1.5 percent a year compared to 2.7 percent a year between 1947 and 1973. This poses an interesting question: might declining infrastructure investment already have become a drag on the US economy?
How Did We Get Here?
A 2019 paper by Yale economist Ray Fair sets forth the following conundrum: “Infrastructure as a percent of GDP began a steady decline around 1970, and the government budget deficit became positive and large at roughly the same time. The infrastructure pattern in other countries does not mirror that in the United States, so the United States appears to be a special case. The overall results suggest that the United States became less future oriented beginning around 1970. This change has persisted. This is the interesting fact. Whether it can be explained is doubtful.”
But what might have led the United States to become less “future oriented” around 1970? Is the answer really all that mysterious? A recent book published by Heather McGhee, who chairs the board of Color of Change and used to direct Demos, suggests that the explanation might not be so hard to figure out after all.