One justification for the Biden administration’s “care economy” agenda is that it’s an investment in human capital that will pay dividends in the long run. The idea is that spending now on early childhood education and child care will make today’s children into productive workers who will earn more money, pay more taxes and thus help reduce future budget deficits.
Whether that hopeful scenario will come true is a question that is being investigated by the Congressional Budget Office, the nonpartisan agency set up by Congress in 1975 to produce independent analyses of budgetary and economic issues.
The C.B.O.’s very lack of decision-making authority is what makes it an authority on Capitol Hill: The warring political parties agree to accept its assessments of bills because it’s not perceived as a player with an agenda. “The power that C.B.O. has is less embedded in congressional rules and more in the credibility that it has built,” says Shai Akabas, the director of economic policy at the Bipartisan Policy Center.
President Biden wants Congress to pass two infrastructure bills. One is a $1 trillion “hard” infrastructure bill for transportation, utilities and cleanup, which has passed the Senate and has bipartisan support. The other, which Republicans mostly dislike, would devote $3.5 trillion in spending and tax breaks to the care economy, along with affordable housing, tuition-free community college and clean energy — a package the administration hopes to squeeze through using the reconciliation process. The care economy part of the package includes access to child care, paid family and medical leave, investments in long-term care, nutrition assistance and universal pre-K.
To some economists, the Biden plan for investing more in people is a no-brainer. “So of course child care *is* infrastructure … it’s almost a silly debate,” a Princeton economist, Atif Mian, tweeted on Aug. 8. But that’s not a universal view. Douglas Holtz-Eakin, a former director of the C.B.O. who heads the American Action Forum, says spending on the care economy “is a much riskier bet” than investing in roads and bridges.
Advocates of care economy spending worry that the legislation could be damaged politically if the C.B.O. finds little or no long-run economic benefit from it. There are signs that the agency won’t shower love on the Biden plan. In June it issued what it called “illustrative scenarios” about what would happen to the economy and budget if the federal government increased funding of physical infrastructure by $500 billion over 10 years. It found that if the spending was completely offset by spending cuts elsewhere, the stimulus to growth would reduce the net cost by a third. That’s OK but a long way from paying for itself. Worse, the C.B.O. said, if the spending was financed by borrowing, that would raise its net cost by a fourth.
And that was for scenarios involving physical infrastructure, which is the easiest for economists to wrap their heads around. It might be even harder for the agency to detect long-term benefits from, say, more affordable child care. In 2016, it wrote that “in some cases, it is difficult to determine what increases productivity and thus qualifies as federal investment.” It disqualified health care spending on those grounds.
If the care economy portion of the Biden plan is scored poorly, does that mean it doesn’t merit enactment? Not at all. While the C.B.O. is nonpartisan, that doesn’t mean it’s always correct. For one thing, its models assume that federal investment generates returns only half as big as those of private investment. Is that for sure? The built-in presumption of low productivity raises a high hurdle for investments in the care economy that only the public sector is ever likely to undertake.
Also, the C.B.O. is mandated to look only at dollars, not values, which is what allows it to rise above the partisan fray. In June, Emily DiVito and Mike Konczal of the Roosevelt Institute spotted an extreme example of what that narrow focus can do. In an April report that they pointed out, the C.B.O. calculated that the cost of government programs such as Social Security and Medicare “will decline to the extent that participants die at younger ages” as a result of climate change. “This ruthless conclusion is the result of prioritizing a spending policy’s budgetary impact at the expense of any and all social benefits to such spending,” DiVito and Konczal wrote.
“Ruthless” is a bit unfair; the agency is just doing its job. But the point remains that the C.B.O.’s score should not be the sole measure of whether a piece of legislation is good or bad. A bill that increases deficits can still be a good bill. A fiscal conservative could vote for it in good conscience while looking for cuts elsewhere to offset its impact.
Wendy Edelberg is interesting on this point. She was the chief economist of the C.B.O. in 2019 and 2020 and is now a senior fellow at the Brookings Institution. “I often worried when I was at C.B.O. that it was sending policymakers down the wrong path” by focusing on the economic and budgetary impacts, she told me in an interview.
Countering fears that the C.B.O. isn’t prepared to assess the benefits of spending on the care economy, she said its economists and analysts have deep knowledge in areas such as education and child nutrition.
Still, she said, a C.B.O. score does not deserve to be the final word on Biden’s plan. “It’s the wrong metric to have your eye on.”
Number of the Week
Inflation through July, as measured by the 12-month increase in the price index for personal consumption expenditures, excluding food and energy, according to an estimate by Credit Suisse. It would be the highest reading for the inflation measure since the Covid pandemic began. The Bureau of Economic Analysis will announce the official number on Aug. 27, during the central banking conference planned for Jackson Hole, Wyo. (and now moved online because of Covid-19).
Quote of the Day
“Nudging people without educating them means infantilizing the public.”
— Gerd Gigerenzer, “On the Supposed Evidence for Libertarian Paternalism,” Review of Philosophy and Psychology, 2015. (h/t Science News)
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