President Biden’s Economic Agenda Will Help Make Life More Affordable Without Adding To Inflation
President Biden’s Economic Agenda Will Help Make Life More Affordable Without Adding To Inflation
The Build Back Better Act and the already enacted bipartisan Infrastructure Investment and Jobs Act will help reduce inflationary pressures in the coming years and lower costs on essentials such as prescription drugs, energy, child care, and housing.
Inflation has risen to more than 6 percent over the past year, but this paints an incomplete picture. Many families—especially lower-income ones—have seen substantial job and wage gains, in addition to a number of income boosts, as a result of President Joe Biden’s American Rescue Plan. This has bolstered their financial security amid rising prices. Both the Build Back Better Act and the bipartisan Infrastructure Investment and Jobs Act will lower inflationary pressures in the coming years, not add to them. In fact, 17 Nobel Prize-winning economists have said that Biden’s economic agenda would ease long-term inflationary pressures, pointing to the expanded economic capacity that would result from both pieces of legislation.
President Biden and his administration are doing all they can to ease the pain of working families. Much of their focus is on solving an affordability crisis amid stagnant wages that have squeezed families’ finances for decades. All three signature pieces of President Biden’s legislative and economic priorities—the American Rescue Plan and Infrastructure Investment and Jobs Act, both of which have been enacted, as well as the proposed Build Back Better Act—were designed to make key necessities more affordable for families by boosting their incomes and driving down the costs of essentials such as health care, housing, energy, and child care. In the end, working families will see much-needed stronger inflation-adjusted income growth now and for years to come.
What’s going on with inflation?
There is no doubt that current inflation is pinching some people’s wallets. The ongoing pandemic has showcased existing vulnerabilities in our economy and created new dynamics that have caused current inflationary pressures.
On the demand side, consumers have changed their buying patterns, spending a lot more on goods than on services, and accelerated the shift to online shopping. This temporarily squeezes capacity and drives up prices. On the supply side, there are supply-chain bottlenecks fueled in part by an initial shutdown of production and ongoing disruptions from the pandemic around the globe. Moreover, a shortage of good jobs and a lack of adequate and affordable care options is forcing workers—disproportionately women with young children—to leave the labor force. Simply put, companies cannot always get all of the workers they want to hire at the wages and benefits they want to pay.
Combined, this has resulted in excess demand boosting prices higher.
Higher incomes help working families deal with inflation
Higher prices are only one side of families’ budgets. The other side is their income, from wages and other sources—such as the expanded child tax credit (CTC) payments that parents now receive thanks to President Biden’s American Rescue Plan—that help families absorb higher prices to some degree and keep them better off after all factors are considered.
From October 2020 to October 2021, prices for all workers increased by 6.2 percent. At the same time, the hourly wages of most American workers increased by 5.8 percent. At face value, it may seem that workers, on average, have less buying power for each hour that they work. However, these numbers overlook many key factors that show how workers are faring.
First, a lot more people are working now than a year ago. Over the past 12 months, employment has increased by 5.8 million people. Almost all of these jobs—5.6 million, or 96.7 percent—were created since January 2021, when President Biden took office. The president’s policies have a lot to do with this: Employers hired 4.3 million more people from March 2021, when Congress passed the American Rescue Plan, to October 2021—which amounts to an average of 609,000 jobs gained each month since this critical legislation passed. Last month, the unemployment rate fell to 4.6 percent, two years ahead of Congressional Budget Office projections. More jobs mean that people have more reliable incomes to pay their bills.
Second, as the economic recovery accelerated this year, low-wage workers in particular—disproportionately women and people of color, who have faced stagnant wages for decades—saw their wages increase, and do so faster than inflation. For instance, hourly wages for people working in restaurants grew 8.1 percent from September 2020 to September 2021, the last month for which these data are available; and that’s after accounting for inflation. Meanwhile, hourly earnings for people working in child care—mostly women and disproportionately women of color—rose 2.6 percent faster, and hourly earnings for people working in nursing homes and other care facilities rose 1.5 percent faster than inflation over the same time.
The resurgent recovery has put many low-wage workers in the driver’s seat and provided them with wage growth that outpaces faster inflation—a welcome and much-needed change for workers who have long been undervalued and underpaid and who usually are the last ones to see real gains in a recovery. Importantly, the economic recovery that has driven demand for workers relatively quickly in 2021 would not have happened without President Biden’s American Rescue Plan, which gave workers the opportunity to find jobs with higher pay and stronger benefits. It bears repeating that higher pay makes it easier to afford more costly goods and services, especially among low-wage families.
Third, higher wages due to an accelerating recovery are not the only component of Biden’s economic agenda that boosted working families’ incomes. Additional stimulus checks in March 2021, expanded unemployment insurance benefits for those who still could not find jobs amid the ongoing pandemic, and monthly advance CTC payments from July 2021 to November 2021 all boosted incomes. For example, real disposable personal income per capita is up 2 percent compared with 2020 and up 9 percent compared with 2019, which means that disposable personal incomes are growing faster than inflation. (see Figure 1)
Furthermore, married couples with incomes of less than $150,000 received $2,800 in stimulus payments plus another $1,400 for each dependent. Higher income earners still received some money, but less than was the case for lower income earners. These checks were a critical lifeline for working families at a time when many were still looking for jobs as the labor market recovery gained steam. Families with children also received increased CTC payments, which the U.S. Treasury started to pay out as monthly advances in July 2021, helping to cut child poverty nearly in half. Now, a married couple with two children under the age of 6 and with incomes below $150,000 will receive an additional $3,200 in CTC payments in 2021—half of which can be paid out as an advance throughout the year. They will get the other half of the credit when they file taxes in 2022.
These measures have boosted incomes at a time when many families need the extra money as they wait for jobs to return and for higher wages. In the end, though, these benefits helped families—especially low-income and middle-income families—defray the costs from faster inflation.
The American Rescue Plan has already delivered three strikes against financial insecurity: It boosted incomes in the very short term, accelerated job creation in short order, and helped families build a modest financial cushion amid the ongoing recovery and pandemic, with especially strong income gains for lower-income families.
The work is not done, however. Further legislation is needed to create a stronger, more inclusive economy for working families who have struggled for decades to get a foothold.
The Infrastructure Investment and Jobs Act and the Build Back Better Act will reduce long-term inflationary pressures and make life more affordable
The already enacted bipartisan Infrastructure Investment and Jobs Act and the Build Back Better Act, which is currently under consideration, will lay the foundation for stronger income growth above and beyond the rate of inflation in a number of critical ways. Importantly, these two major pieces of legislation will 1) reduce long-term inflationary pressures; 2) lower costs on essentials such as prescription drugs, energy, child care, and housing; and 3) put more people back to work in good-paying jobs.
Reducing long-term inflationary pressures
Thanks to the Infrastructure Investment and Jobs Act, inflationary pressures will subside over the coming years as governments invest in new roads, bridges, and internet access for all. More productive capacity will ease future supply-chain bottlenecks and thus make it easier to get products and services to people. The Build Back Better Act, meanwhile, will expand child care capacity and add to other care infrastructure in home- and community-based settings. More people, especially women, who still bear the brunt of caring for family members, will be able to join and stay in the labor force.
The additional work will, again, help ensure that households get services, from health care to education, and goods, from meat to cars, when they need them. In addition, the expansion of both physical capacity and the number of people who will bring their skills, talents, and hard work to the labor market will measurably reduce inflationary pressures over the coming years.
The Build Back Better Act is fully paid for over the longer term, and the Infrastructure Investment and Jobs Act adds modestly to the long-term deficit. This fiscally responsible approach will further reduce inflationary pressures.
Reversing decades of stagnant wages by boosting incomes
Workers have now faced stagnant wages for decades, while big corporations have been reaping record profits and CEO compensation has soared. It is crucial to keep in mind that both major pieces of legislation will finally boost people’s incomes, as the American Rescue Plan recently did. They will put people back to work much faster than otherwise would have been the case. The additional infrastructure spending, which is largely paid for by repurposing existing pandemic relief funds, among other items, will mean more hiring, especially in construction and manufacturing. Likewise, the additional funds and higher wages for child care and home- and community-based services will lead to more hiring in these critical sectors—and will help improve jobs in female-dominated industries. At the same time, lower- and middle-income families with children will continue to get extra CTC payments.
The combination of more and better jobs at higher wages and additional tax credits will help ensure that families are able to make their paychecks go further.
Tackling the decadeslong affordability crisis facing families
For too long, families have not had access to affordable health care, child care, transportation, and housing. Yet many costs facing families will decline as a result of the newly passed and proposed laws, coupled with better implementation of existing laws. For example, as Build Back Better helps break the United States’ dependence on fossil fuels—an industry that’s particularly vulnerable to extreme weather, which has and will continue to be exacerbated by climate change—consumer energy costs will be reduced. Specifically, proposed investments in clean electricity and energy efficiency will make energy costs more affordable, saving the average household approximately $500 a year in reduced energy costs. This much-needed investment in clean energy would come at a time when energy prices have pushed up inflation for consecutive months.
At the same time, there are investments aimed at lowering drug prices and capping the amount seniors and diabetics have to pay out of pocket for their prescriptions. Investments in the care infrastructure—child, adult, and disability care—will lower care costs thanks to more competition and greater availability of services. Likewise, infrastructure investments will lower the costs of transportation for people relying on public transit in their daily lives. And more spending on affordable housing, in combination with stricter anti-discrimination housing legislation, will make it easier for families to afford a roof over their heads.
These public investments will occur against the backdrop of stricter antitrust rules that will boost competition and lower prices for many things that people want to buy, from apples to cars to health care. Slower-growing and possibly declining costs of key services will make sure that additional earnings will go further.
Current headlines of inflationary pressures require policymakers to deal with the long-term issues facing American families and our economy. The Biden administration understands that high costs for key services amid modest job growth and little or no wage growth have squeezed American families for far too long—not just over the past few months. Fortunately, the series of critical legislation and policies detailed above would boost economic growth, innovation, employment, and wages, all while lowering costs for American families and lowering inflationary pressures in the coming years. While higher inflation still lingers amid the turmoil of an ongoing pandemic, Biden’s economic agenda can help ensure greater financial security for American families long after the pandemic has subsided and ease long-term inflationary pressures.
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Director of Economic Analysis, Inclusive Economy
Former Vice President, Economic Policy
Christian E. Weller