Remarks by Secretary Janet L. Yellen on the State of the US Economy in Atlanta, Georgia
By Secretary Janet L. Yellen
The past year-and-a-half has been a turbulent chapter in the lives of so many business owners, so many Americans. Millions of companies, in fact, whole industries, approached the brink of collapse. For a time, our economic outlook had never felt more fragile, and there was a legitimate worry that we’d slip into a prolonged recession, worse than any in the past century; fortunately, that didn’t happen.
I joined the Treasury Department six months ago, and in that time, the economy has changed faster than any point in recent memory. We are now trending towards full employment. GDP now exceeds pre-pandemic levels.
Our recovery has been rapid, and it did not happen by default. It’s the result of the choices we’ve made. It’s the result of leadership. When president Biden took office, he promised 200 million shots in his first 100 days. He fulfilled that promise with a week to spare. He committed to one of the most ambitious relief packages since the New Deal, and he delivered on it: The American Rescue Plan.
The Rescue Plan helped businesses open safely. It put expanded unemployment benefits and child tax credits into people’s bank accounts. It provided billions to local and state governments, allowing them to fund critical services communities rely on – fire, police, public education, while funding public health programs.
In this way, we’re helping families make it to other side of the pandemic. Many will emerge more financially stable on the other side. One recent study projected that the expanded relief measures kept 50 million Americans from slipping below the poverty line – and raised 20 million above it. The projections suggest that this year poverty rates could hit the lowest levels on record, especially among children.”
This isn’t to say that our recovery is without challenges – it has them, the Delta variant, first and foremost. There are also bottlenecks in certain supply chains, and mismatches between supply and demand have led to price increases. And yet, the data indicates that these mismatches will resolve with time as more businesses are able to keep up with demand.
Economists search for lessons in our history, and the last six months have provided a crucial one. Bold fiscal policy matters. A government that can execute it well matters. Together, they can improve American lives on a mass scale, and shift our economic trajectory in a better direction.
Now, we just need to apply that lesson to another set of problems.
After all, our economic challenges do not begin and end with the pandemic. Long before a single American was infected with COVID-19, our economy was suffering beneath the surface. Millions of people were running up against a series of structural economic problems, major threats to their own livelihoods and to America’s competitiveness on the world stage.
For instance, labor force participation. When I first joined government about thirty years ago, a higher percentage of American women participated in the labor force than women did in almost any other wealthy country. But since the turn of the millennium, women’s labor force participation in this country has been mostly on a downward trajectory. In 2019, it was hovering somewhere near where it had been in the late-80’s and early-90’s – and still hadn’t recovered from the major decline during the Great Recession.
The same thing is happening to men, but it’s been happening for much longer. Even before the pandemic, a smaller percentage of men were working than at any point since the 1950s. This has not only harmed working families – that’s obvious – but the businesses that depend on an adequate supply of labor.
Another worrying trend is wage inequality. In healthy economies, we see wage growth across the distribution. But over the past several decades, that has not been the case in America. While the highest earners have seen their incomes grow, families at the bottom end of the distribution have seen their pay stagnate. It’s a drag on household finances, and it also depresses our consumer base.
The inequality extends beyond wages to wealth, especially for Black families. When I started studying economics in 1963, the average Black family’s wealth was roughly 15 percent of the average white family’s. Maybe that isn’t surprising. Jim Crow laws were still in effect; John Lewis wouldn’t lead the march in Selma for another two years. What is surprising, however, is that it’s almost six decades later, and the data point has barely changed. It’s still 15 percent.
Climate change adds a fresh layer of crisis on top of all this. Left unchecked, it will undermine every aspect of our economy from supply chains to the financial system.
These destructive forces, the decline in labor force participation, the divergence in wages, the persistence of racial inequality, and the rise of climate change are different economic challenges in some ways than the ones that came along with the pandemic. They’re longer term, slower-moving. But they share something in common: Both are subject to our policy choices. Fiscal policy can help unwind them. Or the lack thereof can intensify them. And we know this because that’s exactly what’s happened over the past 40 years.
Rather than invest in childcare that could help parents rejoin the workforce, or in training programs that might help people earn a higher wage, or in infrastructure that could spur economic growth while greening our economy, funding for these types of programs has been in long-term decline.
This underinvestment is a drag on our economy in so many ways. There’s considerable evidence for that, and some of the most persuasive is around what we’d term “family policies.”
Of the 38 OECD countries which are some of the wealthiest in the world, the United States ranks 36th in its public expenditures on childcare, which is to say: We are not a leader in this area. It’s a missed opportunity because investments in children are some of the most productive investments we can make.
Researchers have studied the impact of expanding the Child Tax Credit, which we did this year and aspire to make permanent. They found an enormous benefit-to-cost ratio. The policy would cost roughly $100 billion but generate closer to $800 billion in societal benefits. Kids who are the beneficiaries of bigger child tax credits tend to score higher on tests and are then more likely to attend college and have lower teenage birthrates.
And then there are the benefits to the parents, especially mothers. When they have more support, they’re more likely to join the workforce. One study estimates that lack of access to “family-friendly” policies, such as paid parental leave and childcare, explains nearly a third of the decline in US women’s labor force participation relative to other OECD countries.
There are other areas where you don’t need a published paper to see the impact of underinvestment. One of the more memorable articles I read during the pandemic was about students from Orrum, North Carolina, who would regularly drive to a McDonald’s parking lot. They’d go there to do their classwork because they were some of the millions of Americans who can’t access high-speed broadband at home. And McDonald’s was the nearest place with WiFi.
Remote work and study aren’t going away after the pandemic. The internet is now a crucial public utility, essential for success in American life, and an economy where fast-food chains are the most accessible providers of that utility is not a healthy economy. The government must step in and invest in this public good – and others.
That is the motivation behind the bipartisan infrastructure package that’s now moving through Congress, inching closer to the president’s desk. In the same way that ambitious fiscal policy is accelerating our recovery from the pandemic, it can start unwinding some of these destructive trends and spur growth.
The bill includes the largest infrastructure investment since Eisenhower built the Interstate, funding for transit and road projects that will connect more people to communities that are growing – and bring growth to the communities that aren’t.
The bill will connect every American household to high-speed broadband. We began that work with the American Rescue Plan, but now we will complete it. No more working in parking lots. And the bill includes a down payment in our fight against climate change; one that will dot the American landscape with half a million electric vehicle chargers, which will help accelerate our transition to a greener, more resilient economy.
This is just the beginning. We need to make childcare more accessible and housing more affordable. These things are crucial pieces of the President’s “Build Back Better agenda.” That plan will help build one million new units for renters and half a million new homes for homeowners.
It will lower the price of health care. It will continue to expand the Child Tax Credit. And it will ensure that nobody is denied the education they need to compete in the labor market because they can’t afford the tuition payment. That’s a matter of principle for this administration. It’s also just good economic policy.
Taken together, Moody’s estimates that these investments will significantly increase real GDP over the next decade, boost labor force participation, and reduce the unemployment rate.
More important, though, is what these investments will do over the even longer term. They’ll mitigate the economic impacts of climate change and expand America’s productive capacity. We will lift the upper limit on how big our economy can grow; how prosperous America can be.
I know that there is some debate about all this. There is a good-faith discussion about how much spending is too much. But if we are going to make these investments, now is fiscally the most strategic time to make them. The cost of federal debt payments is expected to remain below historical levels through the coming decade, and over the longer-term, there’s a plan to pay for these investments through a long-overdue reformation of the tax code, particularly the corporate tax code, which will make it fairer without touching the vast majority of Americans, those who make less than $400,000 a year.
And so, my largest concern is not: What are the risks if we make these big investments? It is: What is the cost if we don’t?
We’ve grown used to America as the world’s pre-eminent economic power. We aren’t destined to stay that way, but with these investments, I believe we will. We have a chance now to repair the broken foundations of our economy, and on top of it, to build something fairer and stronger than what came before.
Our national conversation about fiscal policy tends to pit sides against one another: business vs. labor, climate mitigation vs. economic growth. But these investments break down those old, tired lines. They bring us all to the same side, which is the side of more vibrant, resilient economic future.
