Analysis: Despite Biden Narrative, Infrastructure Bill Won’t Help GDP

 A new analysis finds that the Infrastructure Investment and Jobs Act will not boost economic output — despite the narrative to the contrary forwarded by President Biden.

In a recent fact sheet about the legislation — which passed the Senate on Tuesday — the Biden administration repeatedly emphasized the law’s purported economic benefits:

The Bipartisan Infrastructure Deal will grow the economy, enhance our competitiveness, create good jobs, and make our economy more sustainable, resilient, and just.

President Biden believes that we must invest in our country and in our people by creating good-paying union jobs, tackling the climate crisis, and growing the economy sustainably and equitably for decades to come. The Bipartisan Infrastructure Deal will deliver progress towards those objectives for working families across the country. 

In the years ahead, the deal will generate significant economic benefits. It is financed through a combination of redirecting unspent emergency relief funds, targeted corporate user fees, strengthening tax enforcement when it comes to crypto currencies, and other bipartisan measures, in addition to the revenue generated from higher economic growth as a result of the investments.

However, Penn Wharton Budget Model — a project of the University of Pennsylvania’s Wharton School — explains that the Infrastructure Investment and Jobs Act’s $548 billion in new spending would have no discernible effect on economic output.

The group’s analysis of the legislation considers that “investments in ‘public capital’ like infrastructure boosts the productivity of private capital and labor.” For example, improved transportation “allows private firms to get their goods to market at a lower cost, which raises both the value of the firm’s capital to private investors as well as the value of the labor that they employ.”

However, the bill would also cause a decline in private capital — such as buildings, machinery, and other assets used to produce goods and services — thereby making workers less productive.

This reality is driven by lower private investment induced by government debt necessary to fund the bill. Instead of investing in new business ventures that boost output over time, federal spending draws investors into financing government debt — a phenomenon that economists call “crowding out.”

In June, Penn Wharton Budget Model evaluated the first bipartisan infrastructure framework endorsed by Republican and Democratic lawmakers, as well as President Biden. They predicted that the legislation would have increased the United States’ gross domestic product — the total amount of final goods and services produced by the economy annually — by 0.1% over the course of three decades. Public debt would decrease by 0.9% over the same period. Instead, the new version of the bill would increase debt by 0.6% — while leaving economic growth unchanged. 

“Unlike the infrastructure compromise outlined in June, we estimate that this bill would increase government debt by 2050,” explained Penn Wharton Budget Model. “Higher government debt mitigates the positive impact of public investment.”