The Infrastructure Bill And Inflation: Economists Are Divided

The infrastructure deal and the Build Back Better plan — which could be passed through reconciliation due to a lack of support in Congress — is part of the ongoing inflation debate.

Essentially, the question is whether inflation will continue to increase, or moderate over time, as predicted by both the White House and Federal Reserve. 

What Happened: The White House said the proposed infrastructure policies will decrease inflation, putting less pressure on American consumers and making supplies more easily transported around the country. As such, shortages and products stuck in long pipelines would be avoided. 

As the White House said in an August statement, "the transportation, rail, public transit, and port investments will reduce efficiency-killing frictions that keep people and goods from getting to markets as quickly as they should. The child and elder care investments will boost the labor supply of caretakers. The educational investments in pre-K and community college will eventually show up as higher-productivity as a result of a better-educated workforce."

RSM Economist Joe Brusuelas said that inclination is correct, and that more productivity will help ultimately lower prices. 

“Infrastructure spending will result in an increase in productivity, which results in lower costs, that tends to damp any pricing pressures that result as an increase in infrastructure investment,” Brusuelas wrote in an email. 

No Consensus Yet: Many economists are still split on what will come of inflation, including those who worked in the Obama administration.

Jason Furman, the former chair of President Barack Obama’s Council of Economic Advisors, said the infrastructure bill’s benefits outweigh its costs.

Larry Summers, who worked as the director of the National Economic Council for Obama, said inflation will continue to plague the country. 

“I wish, in the midst of his optimistic take on inflation at the Jackson Hole symposium, @federalreserve chairman Powell had discussed housing, lags in wage responses to labor shortages, or the many other factors suggesting the economy is entrenching rapid inflation,” Summers tweeted Aug. 30. 

Related Link: 5 Insurance Stocks To Watch In The Wake Of Hurricane Ida