The economic argument for infrastructure: Yahoo News Explains

On Wednesday, President Biden officially announced the first part of a long-previewed infrastructure package dubbed the “American Jobs Plan.” The $2 trillion proposal would make significant investments in traditional physical infrastructure, such as roads, bridges and utilities, as well as largely unprecedented funding for many healthcare services and research and development efforts. Professor Laura D. Tyson of the Haas School of Business at the University of California, Berkeley explains how these types of policies can contribute to economic growth.

Video Transcript

LAURA D TYSON: The argument for infrastructure investment is it helps the economy. It helps make the US a productive, competitive place to do business. There are really three different foundations of economic growth long-term. There's physical capital-- bridges, airports, the roads-- the things that people think about as infrastructure.

There's human capital-- the skills of the workforce. There's knowledge capital-- all of that great ideas and innovations that come out of research and development. And those are the kinds of investments that the public sector should make.

The package that was announced this week take the items one-by-one. And you say, how does this enhance the ability of the US economy to grow over time? The biggest item alone is transportation-- 621 billion. That is traditional infrastructure. It's the way you would measure infrastructure.

The infrastructure itself facilitates the private commerce. And we need to continue to invest in those facilities. The second largest item here is home care services and workforce-- $400 billion.

I understand the motivation. But it would not have ever been included in our measures of infrastructure spending in the past. It's here, because it's something valuable to do. And there is a significant amount of money for worker training worker up-skilling.

We know that, as technology changes, the nature of the occupation changes the skills required for an occupation change. We need up-skilling of the existing workforce. And we need different kinds of training of the new workforce. Very important part of this bill.

The next thing is manufacturing. So manufacturing is really interesting here. Because the US historically has really shied away from the notion of anything that might be called industrial policy.

And in this infrastructure bill, there is industrial policy. There's some money set aside for the semiconductor industry. There is some money set aside for the medical industry. There are some clean energy, because we want to encourage manufacturing of alternative energy innovations.

The reality in the United States is we've always had industrial policy elements, as part of federal spending. What's happened over time is that you've had these explosions of companies in pharmaceuticals, or biotech, or the whole internet-- everything explosion. That has all started with basic science in the government and R&D support to the corporate sector.

There are public benefits-- economy-wide benefits-- for growth and competitiveness to have strong physical infrastructure, human capital infrastructure, and knowledge infrastructure. So in general, this bill hits all the right infrastructure targets and includes a few other items that they're putting in, as infrastructure. They're not quite fit the definition that we would traditionally use.