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Is Joe Biden’s infrastructure plan out of the blue?

Biden's infrastructure plan

The minute you walked in the joint – I could see you were a man of distinction – a  real big spender. Would Shirley Bassey have thought of Joe Biden at the time? Since the new President took office, the bill for his COVID-19 Relief Plan, Bipartisan Infrastructure Plan and (semi-approved) Build Back Better Plan , runs to $4,850 billion, nearly a quarter of U.S. GDP. However, the questions we may ask ourselves are: “Is it necessary?”,  “Who will benefit from it?”  and “Who will pay for it?”.

The man with a plan – or three

Joe Biden became president in January of this year of a country in full-blown corona crisis, a country where also social security is a small matter. He urgently needed to come up with a recovery plan to cut the corners caused by the pandemic. In March, he was given $1,900 billion for his Covid-19 Relief Plan. The stimulus plan included a $1,500 blank check for most Americans, unemployment benefits (there were still over 4 million unemployed in March, nearly double the October figure) and an indirect form of child support. Most Republicans watched it with dismay.
Last week, after much wrangling, Joe Biden signed the Bipartisan Infrastructure Bill, worth $1,200 billion. Of that, $550 billion immediately flows to new projects over the next five years; the balance will be evaluated annually. Originally Biden had 2,250 billion in mind, but that was too far-fetched. The slimmed-down version, on the other hand, did manage to get a majority, including the support of a handful of Republicans.
Whether that will be the case for the Build Back Better Plan is far from certain. The House of Representatives has already given it the green light, and the proposal is now before the Senate. For a whopping 1,750 billion dollars, Biden wants to make the United States more social and greener. Approximately 550 billion dollars will go to climate solutions. For the rest, the plan includes additional money for education, tax breaks for families with children and better public health care for seniors. Again, the U.S. president had aimed twice as high ($3,500 billion), but that was unpalatable to the moderate wing of the Democratic party. And even with this fiercely weakened proposal, it will be dusting in the Senate. Republicans are warming up for a spirited debate and hope to be home in time for Christmas.

Heavy investments needed for infrastructure

Biden's infrastructure plan goes wide. The biggest chunk of the 550 billion budget goes to transportation: roads and bridges, rail lines, public transportation (Biden is a loyal train passenger), infrastructure for electric vehicles, (air) ports and so on. Second is energy and power infrastructure, third is water infrastructure, including potable water. There is also investment in broadband and "resilience infrastructure," which is infrastructure for emergencies like floods and cyber-attacks.
One who looks at the long list is inclined to think that it is a shopping list for a third world country. So is the situation so dramatic?
First the good news. The World Economic Forum ranked the U.S. 13th out of 141 countries in overall infrastructure. For a number of criteria, the U.S. scored the maximum, such as in road network, access to electricity and the safety of its drinking water.
But Brookings Institution, an independent think tank, put its finger on the problem back in 2015. At that time, China was investing four to five times as much as the US in maintaining and improving its infrastructure. Other Western countries, including Europe, also invest, then and now, quite a bit more.
Recently, the American Society of Civil Engineers, a bureau of engineers, once again held up a mirror to America's infrastructure. It gave America a C-minus across the board: fatly flunked. It calculated that some $4,500 billion would have to be invested by 2025 to get the roads, bridges, dams, and other infrastructure back in order.
The details of the report are disconcerting. Over forty-three percent of U.S. roads and highways are in poor or mediocre condition. The bridges are in such bad shape that it would take fifty years to complete all the repairs that are currently needed. The levees that are supposed to protect people from floods are completely inadequate. In public transport, vehicles, tracks and tunnels are in lousy condition. The drinking water systems lose so much water every day that they could fill 9,000 swimming pools with it. Electricity grids are in slightly better shape, but still unable to withstand bad weather. In the land of the free and the home of the brave, it apparently sometimes takes more courage than is desirable to cross a bridge.

Who’s picking up a piece of the pie?

Of course, with a buyer in the market with 550 billion in his pocket, a lot of companies are willing to do anything to be one of the providers. The infrastructure plan will put the entire economy to work – and that’s exactly the idea. From concrete pours to engineers, from sawmills to draughtsman, from suppliers of high-voltage cables to 5G network builders, from steel producers to excavators … everyone is eager to get a piece of the pie.

The companies that are active in public-private partnerships will also be on high alert. In such a partnership, private companies take on the financing, construction, and long-term maintenance of an infrastructure facility. The costs are spread over the life of the facility and are paid for through recurring revenues from user fees or taxes levied by the government, which retains ownership of the facility. Examples include parking garages, motorways or wind farms. This form of private-public cooperation has already led to major projects in Belgium for instance.

Investors on the stock exchange have of course been closely following the ups and downs of the political negotiations, and in recent months have been anticipating a large infrastructure cheque.

The biggest winners will undoubtedly be American companies, even if here and there a foreign player will get a crumb. America first – the slogan came from Trump, but it is a reflex of most Americans.

A plan that repays itself?

There is no need to look very far for the reasons of the infrastructure deterioration: money and politics. When an American thinks of road construction, he gets hallucinations about higher taxes. And when an American politician talks about building bridges, he usually means it in a metaphorical sense. After all, building a real bridge takes him a long time, and he may be presented with his political bill before then, in one election or another.

Today too, of course, the question arises: who is going to pay for this infrastructure plan? The applicants of the infrastructure plan make a strong case that it will not involve additional taxes, nor create an additional hole in the U.S. budget. The plan will pay for itself, including through the recovery of 200 billion in unused money from the COVID-19 Relief Plan, 50 billion through the deferral of rebates within the Medicare program, 50 billion from states that must return unused federal funds intended for unemployment insurance, and nearly 30 billion through taxing transactions in crypto-currencies, “in line with other stock market transactions.

Are you getting a little dizzy from this juggling of billions? So does the Congressional Budget Office, say the Court of Audit of the U.S. Congress. According to the independent agency, the plan will increase deficits by $256 billion over the next decade. Nothing of the sort, proponents of the plan believe. The agency forgets to calculate the positive effects on economic growth and jobs.

Transformative or reckless?

Now the discussion really gets interesting. For what are the long-term effects of all those fine drastic plans? The great economists are once again brought out from under the dust – Friedman, Keynes – and the discussion takes on a fiercely political tone.

As the mid-term elections are coming up – November 2022 – and now that President Biden’s approval rating is visibly declining, the Republicans see their chance to throw extra oil on the fire. The Democrats are recklessly handling the taxpayers’ hard-earned money, according to the Republicans, who want to regain their majority in the House of Representatives next year. The enemy to be fought this time is not a dictator of a foreign power, nor a terrorist group. The enemy is … inflation.

Americans are rightly concerned about price increases, Republicans believe. By spending money they don’t have, Democrats are pushing up prices in exchange for a short-lived sugar rush – the Republican estimate of economic recovery. The debt mountain will grow, inflation will mercilessly eat away at purchasing power. To bolster the argument, Republicans remind Americans of hyperinflation in the 1970s. Jimmy Carter was president then – he did not get re-elected. 

But the Democrats see it differently. They don’t want to make the mistake from the Obama era, after the financial crisis in 2008, when austerity plans slashed the living standards of millions of Americans. No, the Democrats believe, this time it must be big, the plan must transform America into a just, ecological and better society. The ambitious tax package is designed to structurally increase economic growth and improve U.S. competitiveness. Higher housing supply and lower drug prices would also have a favorable impact on inflation. From academic circles, however, criticism is occasionally voiced, even by Democrats, about the scope and direction of the policy. It is feared that this aid package will not lead to an overheating of the economy and a woeful waste of money.

At the same time, Democrats are also watching the Federal Reserve, the U.S. central bank, tense. What if they get rushed into raising interest rates earlier or more drastically than planned? A sudden and sharp rise in interest rates, before full employment is reached, could seriously stall the economic recovery. That would be the end of the economic party. And of the Democrats in the White House.


Biden’s big investment plans are not out of the blue. The country is in need of a structural renewal and expansion of its infrastructure. Moreover, the corona pandemic has seriously affected Americans’ prosperity, not least because they cannot fall back on the social security safety net. Stimulus and support packages can help them come out on top, and if well designed, the measures give America a head start on the path to a better future. But everything, of course, has a price, short- and long-term. The debate raging over the long-term impact on inflation, debt, and growth, with America’s competitiveness and prosperity at stake, is extremely fascinating and very valid. And too important to be left to some well-chosen one-liners by cunning politicians.

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