‘Build Back Better’ Will Create the Pennsylvania We Want and Even Help Reverse Inflation

Stephen Herzenberg |

Powerful special interests that don’t want to pay their fair share in taxes have latched onto inflation as their latest excuse for the country not to invest in climate action, jobs, and families. Don’t listen to them.

Here are three reasons why:

There are enormous benefits of the Build Back Better (BBB) climate infrastructure, jobs, and work supports act, which passed the U.S. House on November 19 and will go to the U.S. Senate for consideration after Thanksgiving.
BBB itself will help fight inflation, especially of the cost of items that families struggle to pay most. So, if you fear inflation, you should more strongly support, not oppose, Build Back Better.
The risks of inflation are overstated because (a) it is driven by temporary COVID-related factors and (b) our economy today has a long-term structural bias against inflation. (Since (b) is the most complicated argument in this blog—and least familiar to broad audiences—I save it for the end. Some readers may want to skip it. Others may want to skip TO it because it is an argument not widely made in the current inflation debate.)

Taken as a whole, the Build Back Better climate infrastructure and work supports act is pivotal to creating the prosperous, sustainable, and equitable Pennsylvania, Appalachia, and America that we need—and to enabling families and communities to thrive.

The benefits of Build Back Better start with jobs. Build Back Better would be the largest investment in climate response in U.S. history. It will create hundreds of thousands of jobs, many in the trades—jobs for operating engineers, laborers, pipefitters, electricians, and others. These are jobs that reduce emissions in our entire carbon footprint—modernizing the grid, growing renewable energy, laying rail, building electric vehicles and electric vehicle infrastructure, and in energy efficiency. And thanks to Senator Casey’s leadership, BBB includes investment in a civilian climate corps that will create an estimated 300,000 jobs.

BBB will also create jobs making the materials and products needed in a sustainable economy. For example, the Philadelphia shipyard is already building the specialized ships needed for the exploding offshore wind industry. U.S. steel mills outside Baltimore are already making the steel for offshore wind facilities, which Pennsylvania’s steel industry can do as well. Other opportunities include manufacturing energyefficient transit vehicles and other electric vehicles and parts.

Many of these jobs should be good union jobs because Lehigh Valley Representative Susan Wild and others have led the successful fight to include strong labor standards and workers’ rights in Build Back Better.

And keep in mind that these BBB jobs add to those from the bipartisan infrastructure plan—building roads, bridges, and broadband; upgrading water and sewer systems; making infrastructure resilient to climate-related weather events; and repairing the damage from extraction. Reclaiming abandoned mine lands alone will create thousands of jobs in Pennsylvania—multiplying many times the number of good operating engineer and laboring jobs that already exist at Howard Concrete, a Pittsburgh-based, unionized contractor.

The benefits of Build Back Better beyond job creationagain, in conjunction with the bipartisan planinclude mitigating the costs of climate change. For example, climate-related flooding threatens parts of every state, but especially mountainous West Virginia because a larger share of people live in flood plains and can’t easily move out of the area. (Read a brief West Virginia flood risk overview here.)

Additional benefits will result from the BBB’s investment in family and work supports, including childcare and pre-kindergarten, the extension of a child tax credit that has already significantly slashed child poverty, and a paidleave program that will enable working adults to stay home when sick rather than infect coworkers and customers. These family and work supports directly benefit families. But they benefit businesses too, allowing more adults to do what Senator Manchin in West Virginia applauds—support their families by getting a job. And they benefit all of us because paid leave, early childhood education, and lower child poverty more than pay for themselves in improved public health and in reduced long-term social costs and increased tax revenues (from higher-paid, more-often-employed children once they grow up).

BBB has also targeted investments for communities that have lost fossil fuel jobs; workforce training and supports that can help former coal workers get their next good union job; and an extension of “black lung benefits to combat a disease that affects one in five career miners in Central Appalachia.

Second, the BBB Act will help reverse inflation. Even in slimmed-down form, BBB will reduce health care and prescription drug costs; childcare; college; and energy—i.e., big components of family budgets, including the ones that have increased in cost in recent decades. (A study of the ReImagine Appalachia climate infrastructure plan, similar to the climate portions of Build Back Better, estimated in January that the average household will spend nearly 40% less on energy.)

Long-term, BBB will reduce energy prices and price volatility because of the shift from fossil fuels to lower-cost renewables and the shift away from dependence on foreign oil.

Further, BBB will not increase overall aggregate demand and overheat the economy because it is almost entirely paid forby taxes on corporations and individuals earning over $400,000.

Third, opponents of BBB overstate the risk of inflation, in part, because current inflation results from the interplay of temporary COVID-related factors.

Temporary factor number one: supply bottlenecks caused by the global pandemic. The pandemic reduced supply by disrupting manufacturing production as well as global supply chains and distribution networks (shipping, ports, trucking). The rebound of distribution channels is not helped by the fact that we pay truck drivers, including in ports, so poorly.

Temporary factor number two: the pandemic shifted more spending to goods because people could not safely spend on in-person services like vacations and eating out.

Temporary factor number three: worker shortages in low-wage labor markets. Many parents—disproportionately women—had to leave work in the early months of the pandemic to slow the spread of the virus. Some cannot yet return to work because they lack childcare and/or because of the health risk to themselves or family members from workplace infection. Those worker shortages are leading to wage increases in restaurants, retail, and other low-wage labor markets after years of stagnation—that is a good thing.

As the pandemic winds down, the factors driving inflation are predominantly pandemic-related. As Federal Reserve Chair Jerome Powell, a Republican Trump appointee renominated by President Biden, said on November 3, “…our dynamic economy will adjust to the supply and demand imbalances, andas it does, inflation will decline to levels much closer to our 2 percent longer-run goal.” Global supply chains will work out their pandemic kinks. People’s spending patterns will revert to normal. Sharp price hikes will end.

This is not your father’s (or mother’s) inflation. One of the most important voices raising concerns about inflation has been Senator Joe Manchin of West Virginia. The senator’s concerns stem partly from his firsthand memory of 1970s inflation. I am also old enough to have memories of that period. They don’t worry me, however, because as an economics Ph.D. student in the 1980s I learned that 1970s inflation stemmed from specific characteristics of that economy that don’t exist today.

The key differences between then and now lie in pricesetting in goods markets and wage-setting in the labor market. From the 1940s to the 1970s, as other countries struggled to recover from World War II, U.S. manufacturers faced limited competition from imports. Two or three U.S. companies dominated many industries: the Big Three in the auto industry, John Deere and International Harvester in farm implements, GE and Westinghouse in appliances, etc. These few competitors did not compete aggressively based on price. In the labor market, by 1950, unions in manufacturing and other industries (supermarkets, construction) had won contractual provisions that provided inflation protection plus real wage increases of about 3 percent—formula increases that persisted in major collective bargaining contracts until around 1980.

Limited-price competition in (“oligopolistic”) manufacturing and steady real wage increases for workers did NOT lead to inflation for the quarter-century following the late 1940s. Real wage increases of that period weren’t inflationary because they matched, but did not exceed, high productivity growth—workers received only their “share” of an expanding economic pie. In the 1970s, however, two shortages engineered by the OPEC (oil-producing and exporting countries) cartel led to spikes in the cost of oil. In response to the 1973 oil shock, manufacturers facing limited price competition passed on the increase in the price of their energy. Workers continued to receive cost-of-living adjustments plus 3 percent—passing on increases in energy costs and further contributing to inflation because productivity growth slowed to well below 3 percent. The result was an inflationary spiral that fed on itself, and which the 1979 oil shock then exacerbated.

Today, the goods market and the labor market are completely different than in the 1970s. There may be spot shortages of goods—such as computer chips, hence cars, hence rental cars—and there may be corporate pandemic profiteers who are jacking up prices because, well, they can. But we now have an intensely competitive global market for goods that will reassert itself as soon as pandemic supply hiccups end. In addition, no-name brand manufacturers face relentless pressure to lower prices from retail giants like Amazon and Walmart, which shows no signs of letting up.

While workers have more leverage in the job market right now because the labor supply has not fully rebounded, the long-term picture is one in which employers have the balance of power. Over the past decade, a growing body of economic studies has documented that major employers in local labor markets—health care oligopolies such as UPMC (University of Pittsburgh Medical Center), as well as fast-food restaurants like Jimmy Johns and Subwayhave substantial power to keep wages down (“monopsony power in economist-speak). After catch-up wage increases as many employers hire at the same time in a reopening economy, we can expect a return to stagnant wages that won’t keep pace with productivity growth, contributing to low inflation. Summing up, Senator Manchin, the 1970s’ experience of inflation is not prologue for the 2020s pandemic recovery.

Build Back Better offers a once-in-a-generation chance to deliver shared prosperity to Pennsylvania—and West Virginia, Ohio, and Kentucky—states in which workers without a college degree have experienced either persistent poverty or 40 years of downward mobility thanks to anti-worker and anti-union public policies. Inflation is not a real threat. Climate change, underinvestment in families, and the perpetuation of extreme economic inequality, including based on race and gender, are very real threats. It is time to invest in our common future and pull together to fight the existential threat of a changing climate. It is time to kick start the creation of a New Deal That Works for US—in coal country, in all of Pennsylvania, and across America. To the Pennsylvania congressional delegation and Senator Manchin: we’re counting on you to enact the Build Back Better Act.