The Economics Behind the President’s Economic Agenda

Over the past several decades, the United States has failed to make important investments in its economy and underlying infrastructure. This has resulted in unequal economic growth and an economy that is not delivering the living standards it could. A common issue with these problems is that the private market cannot be expected to solve them on its own. When the benefits to the country as a whole outweigh those to the individual or private firm, or when capital markets do not operate smoothly, there is a critical role for government.

As a result, strong, stable, and shared growth can be achieved when the public sector is viewed as a partner, not rival to private sector activity. President Biden has signed into law or proposed billions of dollars with this partnership in mind. Taken as a whole, three legislative measures—the Bipartisan Infrastructure Law, the CHIPS and Science Act, and the proposed Inflation Reduction Act—will support productivity and help ensure that the U.S. economy not only continues to grow, but also works for the American people by promoting good jobs, increasing equity, and putting the United States at the forefront of the clean energy revolution. These bills will expand our economy’s productive capacity to drive sustainable economic growth, improving living standards and lowering prices over time

This blog focuses on how this trio of legislative measures address three long-standing problems that hinder economic growth: access to the internet, the fragilities of America’s supply chains, and the rise of increasingly costly climate disasters.

Supporting access to the internet

Economic growth is not only reliant on building people’s skills, but also on ensuring that people can fully utilize those skills in the economy, driving productivity and innovation. In the  Economic Report of the President, CEA laid out how public investments in education and training are critical for economic growth, but investments that help people access the economy are also important. When public investments enable everyone to fully participate in the economy, employment outcomes and productivity improve, which supports economic growth. This set of economic capacity-building legislation expands the ability of people to participate in economic activity in a number of ways.

One example is broadband. Reliable broadband internet has become increasingly essential to economic activity and job creation because it enables more people to access economic opportunities—and likely has positive impacts on health and educational outcomes. In response, the Bipartisan Infrastructure Law’s Affordable Connectivity Program focuses on ensuring widespread access to this critical infrastructure by reducing the cost of broadband internet and providing one-time discounts on laptops, desktops, and tablets. With these discounts, access to the internet should be free for the majority of eligible Americans. These investments are particularly important for reducing economic disparities, as survey data from January and February 2021 indicate that people of color, lower-income Americans, and Americans in rural communities are particularly likely to lack access to broadband internet. The BIL has already reduced the cost of broadband internet for roughly 13 million American households (and counting).

Strengthening supply chain efficiency and resilience

A strong economy can recover more quickly from unusual events—including evermore frequent billion-dollar natural disasters—and that requires supply chains that are both efficient and resilient. Such supply chains must therefore have the ability to secure key inputs both from across the United States and abroad, and have the infrastructure necessary to move these inputs efficiently and safely until they reach the end consumer. This is fundamental to the scaffolding that all economic actors rely on.

The past few years have revealed vulnerabilities in some of our supply chains, with adverse effects on American producers and consumers. The three pieces of legislation together address various aspects of these vulnerabilities that the private sector cannot adequately address on its own. For example, the Bipartisan Infrastructure Law includes historic investments to improve the infrastructure that physically connects points of the supply chain, including ports ($17B), roads and bridges ($110B), and the rail system ($66B).

The COVID-19 pandemic underscored that some inputs are so critical to our economy that we cannot rely exclusively on foreign sourcing for their supply. In particular, semiconductors are now basic components in a vast array of products, from consumer electronics, to automobiles, healthcare equipment, and weapons systems. According to analysts, in 2021, global semiconductor shortages affected at least 169 different industries in the United States. Ready access to key technology components is now critical to national security. To address these deficiencies, CHIPS provides roughly $52B in grants, loan guarantees, and other support to improve the U.S. semiconductor supply chain, while the BIL provides more than $7B for the battery supply chain.

Smoothing the transition to clean energy and addressing climate change

A strong, stable economy requires a smooth transition to clean energy with a need for public investment along the innovation pipeline—from investments in research, development, and demonstration, all the way to commercialization. Without bold action, the damages from climate change will continue to be costly and fall disproportionately on lower-income communities, which are more likely to be directly impacted and least able to protect their residents. It is also clear that there is substantial opportunity to lead the world on the production of clean energy technologies. President Biden has set ambitious goals to lower U.S. greenhouse gas emissions, with a near-term goal of 50 percent of 2005 levels by 2030. Recent legislative accomplishments will push toward that, reducing U.S. emissions while lowering energy costs for households and creating high-quality jobs.

For example, the Bipartisan Infrastructure Law invests in building a nationwide electric vehicle (EV) charging network. Widespread adoption of EVs is necessary for reducing transportation emissions, which made up 27 percent of total U.S. greenhouse gas emissions in 2020. However, current charging infrastructure is inadequate to support largescale EV adoption. According to one projection, meeting the Administration’s goals for EV adoption by 2030 will require 1.2 million public chargers (Figure 1). While many chargers will come from private sources, particularly as EV adoption rises, a recent economic paper concludes that government investment in EV chargers is the most cost-effective way to support adoption of EVs.

The BIL also invests in clean energy demonstration projects that will be critical to successful innovation efforts to address climate change. Demonstration projects are needed to avoid the “valley of death” that emerging technologies can fall into between successful research and commercialization efforts, which happens when investors will not take on the large costs and risks associated with the first several commercial deployments of complex, largescale, low-carbon solutions.

The Inflation Reduction Act (IRA) would build on these economic investments by supporting the transition to sustainable energy sources. Independent estimates have found that the IRA will be critical for reducing U.S. emissions, and this law on top of BIL and other existing measures would put the United States on track to reduce emissions by roughly 40 percent of 2005 levels by 2030.

These investments would lower energy costs for American consumers. For example, the International Energy Agency recently declared solar energy the cheapest electricity source in history. The hundreds of billions of dollars of proposed investments in clean energy in the IRA would accelerate the deployment of a variety of new clean energy solutions that would benefit American households and position American firms and workers to be leading suppliers of energy projects at home and abroad.

Conclusion

These examples are only emblematic of the historic investments within these three pieces of legislation, as they contain much more. The legislation also includes measures to lower prescription drug costs for many Americans, maintain important health insurance affordability, and increase resources for the Federal government—including shoring up the ability of the Internal Revenue Service to ensure our tax code is enforced fairly. Combined, these bills will drive American competitiveness, address climate change, support good jobs across the United States, and lower costs for families. Fundamentally, the Bipartisan Infrastructure Law, the CHIPS and Science Act, and the proposed Inflation Reduction Act are all grounded in the idea that the public sector must effectively partner with private actors. While there is still much more to be done, this trio of economic capacity-building legislation is a historic down payment towards achieving sustainable growth that is broadly shared.