Biden’s latest stimulus plan: Reducing inequality

Biden’s latest stimulus plan: Reducing inequalityApril 4, 2021

Republican lawmakers for years have longed to pass legislation that would rejuvenate the nation’s aging infrastructure and boost economic growth. They might finally get it with Joe Biden as president but with a focus they never counted on: targeting inequality.

Biden’s $2 trillion plan is aimed at boosting productivity — the key to raising wages and improving American living standards — by generating jobs, and bolstering transportation, communications systems and power lines. But he wants to do that not just by investing in the regions that already have the most potential but by also directing capital into underserved areas where people suffer the most from potholes, poor public transportation and lack of internet access.

It would represent the government’s most extensive bid to spend federal dollars not just on helping poor people but on revitalizing the places where they live: housing, child care centers, water systems, roads and public transit. It’s an ambitious experiment that is part of Biden’s pledge to combat racial and economic inequality.

“We all will do better when we all do well,” he said in his speech Wednesday announcing the plan. “We’re going to bring everybody along. Regardless of your background, your color, your religion, everybody gets to come along.”


The White House released a fact sheet explicitly laying out its intention to help marginalized groups, saying: “These investments will advance racial equity by providing better jobs and better transportation options to underserved communities.”

Economists say that focusing on these long-neglected communities could produce dramatic results — including in deeply red rural areas — something that the 2017 GOP tax overhaul failed to do. It’s a new approach to a long-term problem that economists say is holding back the country’s potential: The U.S. has seen disappointing productivity growth since the mid-2000s. Raising productivity — how much is produced for every hour of work — is about fostering a sweet spot where businesses are able to more efficiently deliver goods and services, and people have the means to buy what those businesses produce.

“The beauty of productivity growth is living standards can improve more rapidly in the future without generating inflation, so achieving that is really the key to making people’s lives better,” said Dan Sichel, an economics professor at Wellesley College.

Some critics, however, are casting doubt on the strategy of spending so much money on rehabilitating depressed areas, arguing that the government should instead aim to make it easier for people to relocate to more viable regions.

“Certainly, there are people who would say, you shouldn’t be subsidizing these areas which are not working,” said James Pethokoukis, an economist at the conservative American Enterprise Institute. He said the government doesn’t have a good track record of turning places into thriving centers of commerce, though he added, “maybe the sheer sort of overwhelming financial might of this will cause something to happen.”

“There are plenty of examples where politicians have dreamily thought there’s some magic infrastructure project that’s going to revitalize an area,” he said.


Yet proponents argue that improving infrastructure in areas that suffer most from lack of transportation, or even lack of clean water, could mean future gains in productivity. The “place-based” investments envisioned by the Biden administration have never been tried at this scale, and the details will matter immensely. The need is certainly there.

Liberal think tank Demos found in 2017 that Asian American, African American and Latino workers commute by public transportation at much higher rates than white workers, a disparity that’s starker in certain metropolitan areas. In Atlanta, Latino workers are 6.6 times more likely not to have a car than white workers, while African Americans are six times more likely not to have a car than white workers in Minneapolis. Workers of color also are much more likely to have public transit commutes that take at least an hour each way.

But the effect of aging infrastructure on poor communities goes far beyond transportation. “Individuals and families in poverty are exposed to environmental hazards commonly found in low-income communities, such as old, dilapidated housing that can cause ‘asthma, respiratory infections, lead poisoning, learning disabilities, behavioral and mental health problems, injuries, long-term brain damage, cancer, and other harmful conditions,’” wrote Emily Benfer, a law professor at Wake Forest University, in 2017.

“What we’re trying to do with this package is take the best of every American city and realize that across the country,” a Treasury official said. “It’s not just about growing the economic pie; it’s about using our existing resources better.”

One of the best ways to both address inequality and boost growth is increasing people’s access to the internet. According to Pew Research data from 2019, only 63 percent of people in rural areas had home broadband. But even in urban communities, that number was just 75 percent, while suburban areas came in the highest at 79 percent.

“Especially around rural broadband and 5G broadband connectivity, once the infrastructure is laid, you really are creating the conditions for a productivity renaissance,” said Joseph Brusuelas, chief economist at RSM US, who estimates the Biden plan could add 0.4 percentage point to GDP every year for 10 years. “You are creating the conditions for a significant step up among disadvantaged communities in the overall economy.”

Matthew Josephs, senior vice president for policy at Local Initiatives Support Corp., a community development financial institution, also said federal investments in child care and early learning facilities are “desperately needed.”

“You can’t shove kids and child care staff into makeshift spaces like basements,” he said. “You need age-appropriate furnishing like child-height sinks and toilets, as well as good air ventilation and surfaces that are easily cleaned. If we really want to get America back to work we have to solve the child care crisis.”

More broadly this approach could build structural support around lower-income people that will make it easier for them to get jobs and stay employed, said Kristen Broady, a fellow at the Brookings Institution.

“You can get job training, but if there’s no job there, you still have to move,” she said. “All of those wraparound services need to go along with it.”

Larry Summers, a former Treasury secretary who has been critical of the level of spending in last month’s coronavirus relief package, is much more enthusiastic about the infrastructure plan and its prospects for increasing growth. But he argued that helping lower-income areas is much more about fairness than productivity.

“The case for focusing on disadvantaged communities turns on the fact that they’re disadvantaged,” he said. “It’s much more important to provide internet access to people who have none than it is to provide better internet access to people who have good internet service.”

“If you fix highways and people no longer have to get their chassis fixed because there are fewer potholes, we’re going to have a more productive economy,” he added. “But I think the case, which I strongly support, for targeting infrastructure in disadvantaged areas is not primarily not one about increments to GDP.”

Regardless, activists on the left say it’s a step in the right direction. “When I think of folks who are in communities like the one I’m in … people are taking care of their families,” said Maurice BP-Weeks, co-director of the Action Center on Race and the Economy. “They don’t have the money for a car. Public transportation takes you an hour and a half to get somewhere” fairly close.

“If there was enough investment for people to watch their child or an elderly relative, you could imagine getting a job or having a larger choice of jobs,” he said. “There’s just a lot more opportunity for folks to really achieve.”

Still, “we’ve got a long way to go,” he said. “Do these investments actually happen?”

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