Home > Uncategorized > Trump’s infrastructure financing seems like a joke

Trump’s infrastructure financing seems like a joke

from Dean Baker

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 2 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.

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.

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.

See article on original site

  1. Garrett Connelly
    December 22, 2016 at 3:41 pm

    “The economy can still use a further boost to demand … There is no evidence that the economy is pushing against limits in either more rapid wage growth or accelerating inflation.”

    If everyone lived like the US, the world economy would require almost five Earths for replenishment of aquifers, forests, fish stocks, erosion and pollution recycling. Why do economists insist on destroying Earth with increased consumption and production?

    What kind of anti economics is this growth mantra? What is wrong with pondering how to live a prosperous life at a less than one Earth economy?

    • December 22, 2016 at 5:12 pm

      I agree strongly with Garrett Connelly. I imagine that those, like David Ruccio, who want to boost employment by boosting aggregate demand, are doing this because they can’t see any feasible path, politically to achieve any progressive redistribution of income, let alone wealth, and this is their “politically realistic” Plan B. The fact is nonetheless, that this is a pretty short-sighted plan (A or B), because without other drastic reforms, if at all, boosting aggregate demand in the US economy will boost material throughput globally. Doing that, given where we are at the end of 2016, is to almost certainly guarantee greater, and possibly irreversible, ecological-economic poverty in the not too-distant future. I’m not sure exactly, how evenly- or unevenly distributed among the human population this ecological economic impoverishment will end up being, but two things seem almost certain:

      1. non-human forms of life will feel the greatest burden by far (more rapid extinction for many species)
      2. financially poorer human beings will tend, fairly consistently, to bear a larger burden from ecological-economic impoverishment, than richer ones.

      Sadly, conventionally “left-wing” economics is still as myopically anthropocentric, as conventionally “right wing” economics.

      Michael Barkusky
      Pacific Institute for Ecological Economics
      Vancouver BC, Canada

      • David Chester
        December 24, 2016 at 3:56 pm

        You appraoch like so many is emotional and not logical. I can well understand it but unless the “world” takes this matter more seriously in a logical deterministic way there seems to be a good poddibly of a reduction of our natural habitat. The logic is to stop wasting our present resources and to use what we absolutely need in a less selfish and more useful way. We need first to understand how our social system works and then to go about adjusting it according to certain internationally agreed criteria. To logically understand how the social system works I suggest you read my extremely logical and scientifically directed book on “Consequential Macroeconomics”. (write to me at chesterdh@hotmail.com) for an e-copy and bring your thinking cap.

    • originalsandwichman
      December 22, 2016 at 6:04 pm

      Yes, I second the dismay. I respect Dean Baker highly. But at some point the growth Borg swallows even the most insightful economists. The reason why the reactionary right wins elections is that their “joke” policy prescriptions are actually more consistent with the underlying insanity of perpetual, fossil-fueled growth. Drill, baby, drill… and damn the ecological torpedoes.

    • David Chester
      December 24, 2016 at 4:00 pm

      To boost demand cheapen supply. Transfer taxes onto those who gain from doing no work, the speculators in land values. Tax land values not people.

  2. December 22, 2016 at 5:18 pm

    My apologies – I referred in my recent comment to David Ruccio, when I should have referred instead, to Dean Baker, the author of the article to which Garrett Connelly and I responded. I regret the error.

    Michael Barkusky
    Pacific Institute for Ecological Economics
    Vancouver BC, Canada

    • originalsandwichman
      December 22, 2016 at 6:06 pm

      And Hi, Michael. From Tom Walker in Vancouver.

  3. Craig
    December 22, 2016 at 11:08 pm

    What we really badly need is intensified (and even subsidized) research into innovation that will integrate and synergize both democracy of consumption and reduction of resources…at the same time.

  4. Dave Raithel
    December 23, 2016 at 1:46 pm

    Over the years, I’ve become most impressed by the likes of Trumpists and Teabaggers to appropriate liberation vocabularies. It’s probably only a matter of time before they have absorbed the arguments against growth, and begin convincing people that the in-egalitarian world is the best we can get – otherwise, we’re ALL gonna die…

    And oh yeah, re: “…gains from less traditional areas like broadband.” Just this morning, I caught a Trumpist Talking Head (on Market Watch) assert that ISP’s aren’t investing because “net neutrality” is a “fake news story” constraining them….

    This is our future.

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