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OpEdNews Op Eds    H3'ed 12/23/16

Financing Infrastructure: Trump's Plan Seems Like a Joke

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While Trump is right to emphasize the need for more and better infrastructure, his program is not the way to address the problem.

There is much research showing the benefits of spending on traditional infrastructure such as roads and bridges. There are also likely to be large gains from less traditional areas like broadband, where the U.S. ranks poorly among wealthy countries, and improving the quality of public drinking water to avoid more Flint disasters. Ideally, a public investment agenda would carry over into areas like early childhood education, which we know provides huge benefits to the children directly affected and the economy over the longer term.

The economy can still use a further boost to demand. The percentage of the prime age population (ages 25-54) that is employed is still down by two full percentage points from pre-recession levels and four points from the year 2000 peaks. There is no evidence that the economy is pushing against limits in either more rapid wage growth or accelerating inflation. There is little reason not to push the economy to see how many more workers can be employed, especially since those who would get jobs are disproportionately Hispanic, African-American, and the less-educated, who are still less likely than others to have jobs.

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But based on what is known to date, the Trump plan is not likely to meet these needs.

Because it relies on a tax credit, only projects that generate revenue would fit the bill. That's fine for toll roads and bridges, but this won't repair our water systems and schools or even pay for repairing existing roads and bridges that are publicly owned. And items like early childhood education would clearly not be on the agenda.

Of course we could privatize everything in sight, but this often does not go well. And it especially does not go well in the absence of strong government regulation. Every believer in free market economics knows that an unregulated water monopoly will gouge its consumers.

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The basic structure of the tax credit almost seems to be a joke. If a contractor says it spent $100 million to build a toll road, entitling it to $82 million in tax credits, who is going to verify that it did actually spend this amount? Do we think an eviscerated Internal Revenue Service will do it? And how do we know that the contractor didn't pay his cousin's firm $20 million for a $10 million job and agree to split the benefits from the tax credit? There is always some fraud associated with any tax credit, but an 82 percent credit on infrastructure is virtually a neon sign screaming "rip off the taxpayers."

The Trump plan may be useful if it made economists change their thinking about deficits. If the government financed $1 trillion in infrastructure through bond sales, the deficit hawks would all be screaming about the $1 trillion in new debt. But if contractors spent $1 trillion in infrastructure financed by decades worth of tolls and other charges the economists would be silent, even though the public would be paying for both. What matters is the value of the spending, not the method.

This column originally appeared in the New York Times.

 

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Dr. Dean Baker is a macroeconomist and Co-Director of the Center for Economic and Policy Research in Washington, D.C. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. (more...)
 
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