Home > Uncategorized > Going private: the Trump administration’s big infrastructure plan

Going private: the Trump administration’s big infrastructure plan

from Dean Baker

The Trump administration’s “infrastructure week” ended whatever hope any of us had that something positive could come out of this administration. It’s clear that his promise for rebuilding the country’s infrastructure is just another Trump scam.

During his campaign, Trump had made a point of complaining about the poor state of the country’s infrastructure. He had a point, as both the federal and state and local governments have cut back spending in recent years.

In the case of state and local governments, there was often little choice. Loss of tax revenue due to the recession and slow recovery, coupled with balanced budget requirements in state constitutions and city charters, meant that there was little money to spend.

In the case of the federal government, the deficit hawks insisted that we reduce the deficit, even though there is no evidence that high deficits are pushing up interest rates and/or leading to inflation. Interest rates continue to be extraordinarily low in both real and nominal terms. In fact, they were far lower in the late 1990s when the federal government was running budget surpluses.

Inflation continues to run below the Federal Reserve Board’s 2 percent target. In fact, the last few months it appears to be slowing slightly. Given this evidence, there seems little basis for the concern that budget deficits are too large.

Nonetheless, the domestic discretionary share of the budget, which includes everything from education to the Justice Department to infrastructure and public spending on medical, and other research, was cut back sharply by the deficit hawks. The baseline that Trump was working from projected that domestic discretionary spending in 2027 would be almost 20 percent less than it had been in 2010, even as the economy grew by close to 40 percent. Trump’s budget cuts domestic spending even further.

Its projection for 2027 is a bit more than half of the 2010 level of spending. This is why Trump’s promise of a big infrastructure program seems like such a joke. While his budget does provide for modest increases in infrastructure spending in the next five years, these are quickly phased down to near zero.

Furthermore, since there are large cuts in other areas of domestic discretionary spending, total investment spending is going down sharply in the Trump budget. So we might see a few more dollars spent on roads and bridges, but we will see sharp cuts in spending and research in health care and other areas. We will also see sharp cuts in federal support for student loans and other areas of education.

But Trump’s big ace in the hole is that he will rely on the private sector to provide funding for infrastructure beyond the amount he put in the budget. This is the idea that we will privatize assets like highways and water systems so that the private sector can profit from them.

This sounds like a great idea for someone who has spent a lifetime running rip off schemes. We actually have considerable experience with privatizing public assets and most of it is not good. In 2008, the city of Chicago privatized its parking meters. It sold off the stream of revenue from the meters for the next 75 years to a consortium led by Morgan Stanley. Morgan Stanley is doing very well, the city less so.

In another example, California contracted with three private companies to build express lanes on an Orange County highway in 1995. As congestion increased, the state’s efforts to build additional roads and public transit were blocked by a non-compete clause in the contract with the companies. To resolve the situation the state eventually had to buy out the contracts from the companies.

These and many other experiences with failed privatization should dispel the myth that privatization amounts to any sort of free lunch for anyone except Donald Trump’s family and friends and well-positioned political allies. This should be apparent from thinking through the logic.

Private markets are very good at supplying a good or service that is produced repeatedly and in large numbers for a diverse group of customers. It makes good sense to have Dell, Apple and many other companies to compete to see who can provide the best computers at the lowest price.

But this logic does not apply when there is a unique product such as a road from Los Angeles to San Francisco or a water system for the city of Flint. In this case, we are talking about a monopoly, where one company will control the supply.

We can either have the government be the monopolist, owning the highway or the water system, or we can let a private company be the monopolist and have the government be the regulator of the monopolist. (We know an unregulated monopolist rips off its customers. That is what basic economics predicts.)

If we think the government is run by buffoons who can’t do anything right, it is hard to see how the buffoons are supposed to rein in the fast-moving contractors in the private sector. Putting private firms in a position to take advantage of the lack of effective oversight is likely to make things worse, not better.

This is a lesson we have seen repeatedly in the United States and throughout the world. Donald Trump is incredibly ignorant of history and almost everything else, but Congress isn’t.

We should expect better of Congress. The story of mass privatization of assets is a story of rip offs and corruption. Members of Congress should know this.

See article on original site

  1. antireifier
    June 13, 2017 at 2:37 pm

    Baker’s article is very clearly written but prompted my feeble brain to wonder at the craziness. He describes schemes for pilfering public assets for private gain that is worldwide (Oz has been there too, Canada is planning to set up a Public Assets Pilfering Fund using pension money and government guarantees against risk but has a great example of a highway called 407 that is an expensive toll road that was privatized, etc.). These are promoted by charlatans like Trump but also Blackrock investments and other places looking for a place for all the non-productive money.

    A non-economist and founder of COMER, William Krehm (now approaching 104 years of age), wrote about this several decades ago. It seems to me that it is yet another area of failed economics and failed economists.

    Joyce Nelson has written a book exposing a lot of this called Beyond Banksters: Resisting the new feudalism (now in its third printing).

    Why are the investigative journalists and non-economists doing the exposing (not to take anything away from Baker’s great contribution here. But the Business schools are part of the problem turning out grads (MBAs) without analytical ability and consciences but focused on the exploitation of people, governments, and the environment to enhance the bottom line with impunity but thinking that they understand economics.

    As a social worker, I am required to agree to and follow a code of ethics in my practice. Is there no code of ethics for someone who calls themselves economists? It seems the pseudo-scientific approach to teaching and practicing economics is part of the problem and is institutionalized in the schools of Business. Colleges of Physicians, Social Workers, Lawyers, Nurses and others are set up in many countries to protect the public from unethical practitioners but where are the colleges of Economists to protect the public? Of all the professions, if economics was one, it would be the one most likely to have a clause requiring following codes of ethics that would include economic justice.

    As a social worker, I am required to advocate for social justice. It is intertwined with economic justice. But those concerned with economics must get on board.

    • Helge Nome
      June 13, 2017 at 2:55 pm

      You are right on the money.
      Trump and his likes, including Trudeau here in Canada, are actively involved in transferring public wealth (in the form of essential infrastructure) into the the hands of their handlers.

      I believe this is a world wide phenomenon where phoney money, created in the Great Financial Casino, is now being used to get control of infrastructure we all need to live in a civilized society.

  2. June 13, 2017 at 8:01 pm

    “In fact, they were far lower in the late 1990s when the federal government was running budget surpluses.”

    I assume this is a typo?

    I would love to see an analysis of toll roads in Texas. Anecdotally, you can tell which sections of road were built by private companies just a few years after building them because the pavement quality is poor. The toll road companies then went out of business leaving TxDot to clean up the mess.

  3. June 14, 2017 at 7:59 am

    A quixotic discussion it seems. Even before the shareholder primacy doctrine ruled business and professional economics, private companies still focused on gaining as much revenue as possible. And retaining as much of that revenue as profit as possible. What source of revenue and profit is easier to obtain and hold on to as tax money? Only watched by “public servants” who are underpaid, underappreciated, and not trusted by the people they serve, it is easily diverted to private revenue and profit. Privatizing is just one of many ways this is done. Trump and his companies have been involved in the multiple of these schemes for over 40 years. Trump is an expert in kickbacks, bribery, skimming, embezzlement, money laundering, misusing tax breaks, and many more. Might say these are the only things in which he is expert. Interesting also is that the only social scientists who study such actions are sociologists (criminologists). And the actual investigation and prosecution of such schemes are the province of lawyers, accountants, and auditors. Economists have no explanation for why their beautiful balanced and disciplined markets allow such actions to happen. Milton Friedman was unable to respond when asked at a Congressional hearing why bankers’ greed and stupidity wasn’t being controlled by the market. He could only say that he seemed to have made a mistake about the bankers and the markets. The bankers were not acting rationally. Whatever we take rationality to be, it is clear to even a normal 10-year old that often people do not act in accord with rationality. As my newspaper editor uncle might say, “people not rational” story belongs page 20, below the fold.

    • Risk Analyst
      June 14, 2017 at 5:44 pm

      Ken says, “Trump is an expert in kickbacks, bribery, skimming, embezzlement, money laundering, misusing tax breaks, and many more. Might say these are the only things in which he is expert.”

      I’ve argued with you a few times here asking you to tone down the over-the-top rhetoric, with you holding firm that watching The Hunger Games prepares one to understand current politics in Washington. Today, someone with apparently your beliefs shot up a baseball practice of Republican congressmen preparing for a friendly game against democrats. Nuts like that have no place in society, and your hate speech really has no place on an economics forum. I really also resent that while I am a firm believer in post-Keynesian economics, myself and others have to listen to your hate to get to the economics. Also, nothing else you said in that paragraph was correct either. Maximizing revenue? Not acting rationally? Read some Shiller.

      • June 14, 2017 at 6:36 pm

        Risk, problems with your statement. I’ve spent a long career dealing with people like Trump. Helped put a few in jail. Wish it could have been more. I don’t hate Trump. In fact, personally he doesn’t interest me at all. But his actions do interest me. And they should interest any social scientist. Including economists. He acts in economic settings. He affects economic life. He works hard to set the rules of economic life. His “personal” beliefs and goals guide all of this. If economists can’t explain his economics and his economic goals then economists are missing a large part of how economies actually work. I thought this blog was about “real” economics. I guess that does not include investigating and explaining all the actions I listed performed by people like Trump. What if Trump treats interactions with China with those same set of beliefs and goals? If he attempts to play his games with China, how might that effect US-China relations on the stage of international affairs and conflict? Including the economic relations. I’m suggesting as I have before that economists ought to have a role in investigating such questions. You disagree?

      • robert locke
        June 15, 2017 at 10:57 am

        Risk, people in America are shooting other people all the time. Sometimes it is a democrat, Giffford, sometimes a Republican. Guns are the problem not people, they are the victims. If we leave it up to economists to decide what is rational, when rationality cannot be determined 100% in a rational way, then we do not deal with fraud, bribery, graft, which are not part of the economist’s rational world. Or with manipulative self-interest. The only way to give rationality a chance in the real world, which is not rational, is to give all people a voice at the table, whose interests are involved, in public negotiations. I do not find this to be part of economists’ “rationality.”

      • June 17, 2017 at 10:08 am

        Robert, these problems are more common than some think. One debate in the History of Science went on for 50 years. The standard mainstream History of Science was interested in and could explain (at least partially) only successful science. Science that operated like the descriptions in the textbooks. The rebels (for this blog the heterodox historians of science) insisted the history of science must include every aspect of that history. Including science’s successes and its failures, its noble figures and its charlatans, its clarity and its opaque corners, its policy failures and successes. The rebel historians have now nearly pushed the once mainstream historians of science out of the study field. Today historians of science (sociologists and anthropologist also) study every aspect of science’s history. This work has changed the general depiction of science in academia as well as in everyday life.

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