Economists disagree about whether President Joe Biden’s enormous progressive agenda can spur economic growth, The Wall Street Journal reported.
Most economists agree that items funded by the bipartisan $1.2 trillion bill — i.e. roads, bridges, and airports — qualify as investment in the future of America. However, the social spending legislation, which had an original price tag of $3.5 trillion, is another story, the Journal reported Sunday.
Economy experts differ on whether the massive reconciliation bill can spur economic growth with such items as free community college, expanded Medicare eligibility and benefits, and paid family leave — among things known as soft infrastructure, the Journal said.
Some of the predicted benefits of the reconciliation bill can’t be measured with gross domestic product, and it could take decades to fully understand their effectiveness.
The Journal took a closer look at three items in the proposed legislation — free community college, paid family leave, and free or subsidized preschool and child care.
Biden’s proposal would waive tuition for two years of public community college, and provide more money to cover living expenses. The rationale is that education and training add to human capital and boost future incomes and GDP, the Journal said.
Although recent research on free-college programs in multiple cities and states shows they generally do boost enrollment, the growth of actual educational attainment and wages is less clear because so many students who enroll don’t graduate.
As an example, the Tennessee Promise program has offered all recent high-school graduates free tuition at two-year community colleges. First-time freshmen in the state grew almost 25% in the first year (2015) but just 18.1% of those enrollees graduated three years later — nearly half had dropped out, the Journal reported.
“Whatever sort of upfront cost savings a student would have gotten by studying at the two-year rather than the four-year directly is probably going to be eroded by the professional earnings losses they have,” Jack Mountjoy, an economics professor at the University of Chicago Booth School of Business, told the Journal.
As for paid family leave, Biden has proposed spending $225 billion over a decade to offer 12 weeks of paid leave for parenting, family, illness, and other needs. The administration says it would boost both quality of life and economic output by encouraging more women with children to enter the workforce.
California became the first state to enact a paid family leave program in 2002.
A 2019 research paper written by three economists in academia and one at the Federal Reserve Bank of Chicago used IRS tax data and found “little evidence that (the law) increased women’s employment, wage earnings, or attachment to employers.”
The administration also says its plan to expand access to preschool and affordable child care would help long-term economic growth by making it easier for parents to work.
A program started in 1997 to offer very low-cost child care in Quebec boosted labor-force participation among women, according to a 2019 study, but the program also led to worse outcomes for attendees’ health, life satisfaction, and criminal activity later in life.
There weren’t enough spots in high-quality facilities to meet the dramatic increase in demand, said Jonathan Gruber, an economist at Massachusetts Institute of Technology.
“There is now a sizable economics literature which suggests that access to high quality child care improves outcomes, but simply expanding access without investing in ensuring sufficient supply can lead to worse outcomes,” Gruber told the Journal.