Investing in an equitable future

The United States faces four converging and overlapping challenges—a public health crisis and resulting economic one, a reckoning over structural racism, and the worsening effects of climate change—all of which require substantially greater public investment to overcome. Indeed, a growing body of research finds that declining public investment is damaging to U.S. communities and the overall strength of the economy because older infrastructure depreciates, and economic and social challenges go unaddressed.

The debate over the size and reach of recently proposed investments to restore and transform the U.S. economy is shaped, in part, by the nation’s weak and unequal recovery from the Great Recession more than a decade ago. There is ample evidence that the inadequacy of the recovery legislation enacted in 2009 and in later years contributed to slow employment growth, stagnant wages, and the long-term scarring experienced by many workers during the 2010s despite record-long economic expansion, and that concerns about federal budget deficits and U.S. debt levels are overblown.

Having learned these lessons from the past recession, Congress, in March 2021, passed the $1.9 trillion American Rescue Plan Act, which provided targeted support to those hit hardest by the coronavirus recession. Legislators will soon begin working on the next relief package: the $2.3 trillion American Jobs Plan, which directs large, targeted investments to infrastructure and clean energy, and a third, soon-to-be-announced plan to support families. But already, there are voices in Congress and elsewhere claiming that these measures are too big and far-reaching, that the United States cannot afford these investments, and that they would inappropriately increase the size and scope of government.

To elevate research about the need for increased public investment, the Washington Center for Equitable Growth and the Groundwork Collaborative hosted a virtual event on April 6 titled “Investing in an equitable future.” The webinar, a relaunch of Equitable Growth’s Research on Tap series, featured Cecilia Rouse, the chair of the White House Council of Economic Advisers, who was interviewed by Washington Post reporter Tracy Jan, as well as a discussion on the need for structural changes among a panel of economic and social policy experts—Jhumpa Bhattacharya, vice president of programs and strategy at the Insight Center for Community Economic Development; Joelle Gamble, a special assistant to the president for economic policy on the White House National Economic Council; and Saule Omarova, a Cornell University law professor—that was moderated by Equitable Growth’s Policy Director Amanda Fischer.

The speakers explained that markets and the private sector are ill-equipped on their own to make the kind of investments needed to address long-term challenges and produce strong, broadly shared economic growth. They agreed that there were fundamental structural problems before the pandemic caused by massive income, wealth, and racial inequality, even if topline economic indicators, such as the overall employment numbers, suggested the U.S. economy was strong. The goal of policymakers, they said, should not be to return to the pre-pandemic economy but to build a stronger, more equitable future in which prosperity is broadly shared. 

Genuine recovery means transformation, not a return to March 2020

For the short term, Rouse drew a contrast between recovering from the Great Recession and the coronavirus downturn. “The Great Recession was caused by a problem in our financial market,” she said. “It had a true economic cause … This recession was caused by a public health emergency … We had to basically power down the economy … This time, fundamentally we’ll be able to come back more quickly.”

She then pointed to the inequality in the economy that existed despite the fact that the economy was generally healthy before the pandemic. This “inequality baseline … was exacerbated by the pandemic … On many dimensions, this crisis … for many of us, was what I would call an inconvenience … and for others, it’s been completely devastating.”

As she explained, addressing this disparity is key to full economic recovery: “We recognize that there are those who have really been harmed by this pandemic, and we believe that you need some assistance,” she said. “We are committed to keeping in place some of that assistance for the lowest-wage workers, those who are the least advantaged in our society … Improving our safety net is one way in which we as a society will come out of this better.”

Moreover, she said, policies such as the American Jobs Plan are designed “to ensure that investments in infrastructure are widely shared.” The bulk of the jobs created, she said, will be for workers without a college degree, who are disproportionately workers of color. She said that there also needs to be a focus on providing training for workers who do not have the necessary skills.

“We can be investing in the workforce at the same time that we’re investing in our economy and in the economic infrastructure,” she said. “We want to try to have not just any old jobs through these investments but we’re looking for the high-value-added jobs, those jobs that actually will pay well, that provide better economic security for the workers.”

Rouse also called for the federal government to invest more in its statistical agencies in order to improve data collection. She emphasized the importance of being able to increase sample sizes in order to better understand the impact of economic trends and federal programs on people up and down the income ladder and across racial and ethnic groups, including Black Americans, Native Americans, and subgroups of Asian Americans.

Joelle Gamble made clear that there is still much work to be done to achieve economic recovery, despite some bright spots. “We are at an important inflection point,” she said, noting that the number of jobs in the U.S. economy is approximately 4 million below the high point prior to the pandemic, and dramatic disparities continue. There is significantly higher unemployment for people of color, and the wide gap between Black and White unemployment persists.

Pointing to numerous long-term structural problems in the U.S. economy, Gamble said, “We have to think broadly about what it means to actually have an economic recovery. It means we have to think broadly about what it means to invest in infrastructure, and broadly about what communities in which this country has perennially underinvested—people of color, women, tribal communities—need to be able to be a part of ongoing economic growth.”

She then asked, “Was February 2020 actually the baseline we want to get back to? Is that sufficient for saying we have an equitable economy and that we have an equitable recovery? I would say no. There’s been a disconnect for decades between wage growth and productivity growth.”

This recession has the added challenge of being, as Gamble termed it, “a female recession.” During the worst of the downturn, women’s labor force participation rate hit a 30-year low, in part because the jobs that were lost were disproportionately held by women, and many women were forced out of the labor market due to caregiving responsibilities.

She cited what she views as three lessons from the past economic recovery. First, there are significant risks from “going too small” in terms of a fiscal response by the federal government, including scarring effects on those who face prolonged unemployment. Second, equity in a recovery is not guaranteed, and if policymakers do not focus on it, the recovery can exacerbate inequality. This is one reason that there must be active investment in quality, good-paying, union jobs, as well as strong labor standards, including in sectors such as the care economy. Third, to improve U.S. competitiveness, there should be a focus on transformational infrastructure projects, as well as “shovel-ready” ones.

Saule Omarova emphasized the importance of not relying only on large one-time appropriations of federal funds. She said that investments and policies need to be ongoing, and they need to represent structural, institutional change. Amanda Fischer noted, as an example, that Equitable Growth has focused on the need to strengthen automatic stabilizers, such as Unemployment Insurance, to combat a recession by triggering significant increases when data indicate a recession has likely begun and establishing off-trigger mechanisms that ensure increases remain in place as long as they are needed.

Care work is infrastructure

Participants addressed the contention of some opponents of the American Jobs Plan that care work should not be included in the bill because, they claim, it is not “infrastructure,” as currently conceived. “I beg to differ,” Rouse said. “I can’t go to work if I don’t have someone who’s taking care of my parents or my children.” Moreover, she added, “That workforce, which is largely female and women of color, is really poorly paid.” Part of the care work funding, she said, seeks to ensure that they are paid better and have better-quality jobs.

Bhattacharya said that infrastructure is “the things that we need to uphold a healthy, sustainable society and economy … We have traditionally divorced care from the conversation about infrastructure and the conversation about public goods.”  

Citing a forthcoming Insight Center report that calculates the rapidly rising costs of child care in California, she blamed costs on overreliance on the private sector. “Child care is enormously expensive,” she said, “because we have no public infrastructure to back it up.”

Bhattacharya contrasted workers with jobs that pay enough to afford these costs with those who do not. “If you’re working a minimum wage job or even a middle-wage job, it is really hard to show up at work and be present and do what you need to do constantly stressing about child care.”

She noted that these workers are disproportionately women of color. “When we’re talking about creating an equitable infrastructure, an equitable economy or society,” she added, “we have to bring care into the conversation and consider it a public good.” Bhattacharya also noted that care work has historically been devalued, largely because it has traditionally been performed by women and people of color. This work has always been underpaid, she added, due to the intersecting challenges of misogyny and structural racism.

Reforming the financial system to steer investments equitably

Omarova focused on the need for greater federal involvement in the financial system to ensure that the benefits of infrastructure and other investments are equitably distributed. “You cannot divorce … the structural imbalances in the financial system from the broad structural imbalances in the economy,” she said. “The two are just two sides of the same coin.”

“We really need to focus more specifically and concretely on how we can change the financial system,” she added, “because the financial system is that key link that connects the big plans President [Joe] Biden … puts out on the one hand and what actually will happen in the years to come. Will those people that we care about the most actually get the benefits of these great plans and great investments? What we need to focus on is the structure of the financial system, those channels that allocate capital to specific uses.”

Omarova described the financial system as a public-private structure, in which the private sector generally makes decisions about the uses of capital while the federal government is supposed to back it up, providing the regulation and discipline when markets need correction, as well as the broader infrastructure of society that enable the system to operate.

“That system was working okay until 40 to 50 years ago, when it started falling apart,” she said. Now, “Wall Street, the financial sector, is not really allocating financial flows … to productive economic enterprise. It doesn’t care all that much about what actual companies and the real economy are getting. Instead, they would rather channel incredible amounts of private capital into speculative trading.”

She continued, “The government, on the other hand, has been gradually and quite dramatically exiting from controlling the background economic conditions … And without that public perspective constantly guiding private markets … our government basically lost its institutional muscle as an economic actor, and now we’re living through the results of it, because private actors … don’t have that view of the economy as a whole … We need public actors … with long time horizons, focused on public benefits and public resources to … channel resources” into areas of public need, such as clean public transit, housing, and a clean environment, particularly in disadvantaged communities.

Gamble amplified this point, noting that public-sector investment complements private-sector investment. Rather than it “crowding out” the private sector, it can “de-risk opportunities” for critical investments by private funds, particularly those representing nonprofit institutions, such as pension funds and university endowments. The public and private sectors, she said, are both critical to U.S. competitiveness.

Omarova called for a National Infrastructure Authority to become part of a “three-legged stool” along with the Federal Reserve and the U.S. Department of the Treasury to manage the process of guiding capital to public purposes. The authority would “step into the financial markets …  competing with those types of investors that channel capital away from disadvantaged communities, away from job creation in the United States, toward speculative investments … but do it in a thoughtful, and comprehensive, and programmatic way.”

Now is the time to go big

Bhattacharya perhaps best captured the spirit of the webinar. “Any economy that has such vast stratification of wealth and income … and race and gender is not a healthy economy,” she said. “This is a space where we can start talking about shared prosperity and design an economic structure that allows for shared prosperity … Dream big. Now is the time to do it. If we don’t, we’re just going to be in the same boat 5 years from now, 10 years from now.”

More than 200 scholars call on Congress to support robust and sustained investment

During the event, Fischer announced that more than 200 prominent U.S. scholars have signed a statement urging Congress to prioritize “robust and sustained investment in physical and care infrastructure along with science and technology” in the infrastructure legislation currently under debate. Emphasizing that “the private sector alone is not capable of making the large-scale investments needed to address the overlapping structural challenges facing the country,” they urged “a clear break from the recent history of declining public investment.”

In addition to the leaders of the effort—Hilary Hoynes of the University of California, Berkeley, Trevon Logan of The Ohio State University, Atif Mian of Princeton University, and William Spriggs of Howard University—the signers included former Federal Reserve Board Vice Chair Alan Blinder of Princeton University, former Secretary of Labor Robert Reich of the University of California, Berkeley, and former Chair of the Council of Economic Advisors and Director of the National Economic Council Laura Tyson of the University of California, Berkeley.

April 14, 2021

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