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Three Cheers for Infrastructure Spending!
One of Hillary Clinton’s campaign proposals is for additional infrastructure spending to the tune of $250 billion over five years. According to the Clinton campaign, this program would be paid for by “business tax reform. It’s not clear what “business tax reform” entails, but it sounds to me like higher taxes on corporations and high income earners. Clinton claims this would create tens of thousands of jobs, stimulate the economy and fix a failing infrastructure.
Anyone who’s been paying attention during the Obama years should not be surprised by this proposal. It has been a recurring theme throughout his term in office. Infrastructure spending was a major component of the 2009 Stimulus Bill accounting for $105 billion of “shovel-ready” public works projects in the approximately $900 stimulus package. Obama and congressional Democrats have continued to call for additional infrastructure spending as a stimulus despite the fact that the 2009 stimulus failed in its stated goals of 1) keeping the unemployment rate below 8% (I believe it peaked at a tick above 10%), and 2) in providing economic stimulus (GDP growth has bounced around between 1% and 2% through the Obama years). Even Obama eventually did admit that there were no “shovel-ready” projects.
You would think this would be an easy issue for the Republican presidential candidate to oppose by noting the historical failures of public works projects in stimulating economic growth, and the need to get our fiscal house in order what with the federal government debt over $19 trillion and rising and annual deficits of hundreds of billions that will only rise without major reforms of our entitlement programs. However, you would be wrong. Republican presidential hopeful Donald J. Trump has called Clinton’s proposal “a fraction of what we need” and has at various times called for either doubling or quadrupling of Clinton’s proposal to either a $500 billion or a $1 trillion infrastructure plan. Trump would pay for this massive spending increase by borrowing via the selling of bonds, stating in his usual blustering fashion “We’ll get a fund, we’ll make a phenomenal deal with low interest rates and rebuild our infrastructure.”
Trump, like Clinton, claims the nation’s crumbling infrastructure demands a large infrastructure investment program. In making this argument, Clinton cites the most recent American Society of Civil Engineers (ASCE) Infrastructure Report Card. Whether Trump has ever heard of the ASCE Report Card is unknown, but he too claims our infrastructure is in a state of disrepair. I’ve had issues with the ASCE Report Card since the first one was issued in 1988 and I discussed those issues here. Basically, the grade criteria set by ASCE will result in grades clustered around C for any mature nation with a well-developed infrastructure.
Trump, like Clinton, also asserts that increased levels of infrastructure spending will lead to economic stimulus. Trump told the New York Times in a phone interview that borrowing and spending would help lift economic growth. “It’s called priming the pump,” Mr Trump told the Times. “Sometimes you have to do that a little bit to get things growing. We have no choice — otherwise, we are going to die on the vine.” On this, Trump sounds like the liberal Democrat he has been his whole adult life until a few months ago. I would bet that if you showed or explained each candidate’s proposal to Paul Krugman in a blind test he would pick Trump’s plan in a New York minute. And, hey, whats not to like? More spending and more debt — that’ll get any economy humming in no time!
It seems like almost every day, in one way or another, the Republican party with Donald Trump as its standard-bearer inches further and further left.
Published in Domestic Policy
Well, all I know is that I live fairly close to the Baltimore Beltway, which has been the focus of several “infrastructure” improvements over the last few years. In fact, my closest exit on the Beltway coincides with one stretch of road-building that has been going on for over four years now. That “project” has, in fact, tied up traffic along that stretch, resulting in a permanent traffic jam. Doesn’t matter what time of day it is, that stretch is a slow-moving back-up. And this little stimulus-inspired, infrastructure improvement has also wrecked all of the off-highway routes nearby, because everyone has to re-negotiate their morning commute to avoid the slow-down stretch.
Spare me any more shovel-ready improvements until they actually improve something.
Has anyone else noticed how often Mr. Trump uses the phrase, “We have no choice”? It’s almost like it doesn’t matter who we elect president since so many issues have no choice, anyway.
Hadn’t thought of it in those terms, but now that you mention it…
Neat post. I’m just very skeptical of stimulus spending. I think it is largely just redistributive. Though I don’t deny that there probably aren’t some worthy projects for the government to work on. But the nature of policy and cost estimations suggests we will also get a lot of unworthy projects because powerful people want to bring some money home. And we will also get a lot of cost overruns because lying about estimates is systematic and some projects are so long run that many politicians have an incentive to ignore them.
It is weird that Trump is running the Republican party on the platform of more infrastructure spending.
Thanks Goldgeller. One thing that tends to happen when there’s a public works stimulus, is that pressure is created or develops to start spending (and later to keep spending) the monies that have been allocated and so projects that have been on the shelf forever because they are either low priority or really don’t meet any cost/benefit test end up getting built because the design is complete and permits either in place or readily attainable. So, in many cases, just looking at the value of completed projects, the stimulus results in a low bang for the buck.
Stimulus, hmmm. It is almost as if people will assume the thin-air creation of paving crews, haul trucks, redi-mix plants, capital equipment (excavators, graders, rollers etc) based on a short term promise of stimulus.
It s almost as if it is assumed that local governments would not shelve funding from local bonding to use the new found Fed dollars to pay for projects already in the pipeline.
If I were asked (and thankfully I’m not), I would suggest that federal roads money be allowed to be used for enhancement of local maintenance budgets and not for new construction.
This is also true. Very Pressman & Wildavsky. They found in the Oakland Economic Development project they studied that those were the basic dynamics of why projects got chosen. Also, the number of different hands that have to touch a project mean that agreements and coordination becomes very difficult and full of political conflict. Different agencies are working on different time scales.
I don’t want to make it seem like I don’t think stuff shouldn’t ever be done. But I’m just very skeptical that it will be justified on the grounds that it will be some sort of stimulus.
Good point. The Manhattan Institute has a report on this that points out the vast majority of roadway mileage (about 75%) is non-federal aid owned by state & local governments, and so outside the realm of any.federal stimulus program. And politicians seem to be unaware that once infrastructure facilities are in place, operations & maintenance costs eat a lot of the money, but they (O&M) don’t have those ribbon cutting ceremonies politicians so crave.
I can’t seem to get the link to work. If you’re interested, go to the Manhattan Institute website and search for the report titled “Beyond Repair: America’s Infrastructure Crisis is Local”
That O&M component is what capital projects so happily turn over to the receiving asset owner: Additional costs, unsexy, in increased overhead and maintenance. The capital project stimulus doesn’t typically fund ongoing business costs, so boom: Here’s your infrastructure, “free” from the federal gov’t, and now you’ve induced tens or hundreds of millions in additional O&M costs for that “free” infrastructure, that doesn’t stimulate anything, other than increased taxes at the state and local level to cover that cost.
Admittedly, I’ve never dug into the details of the ACSE reports over the years but I’ve always been suspicious of the self serving nature of the report. The ACSE stands to benefit greatly with massive amounts of infrastucutre spending. Doesn’t mean they are wrong, but not sure why their reports are quoted as gospel.
I would guess that most folks would question the veracity of a report published by the alliance of car manufacturers that suggests we need to buy more cars….especially if those purchases are “funded” by the “government”.
“Infrastructure” is not a synonym for “government projects,” although it tends to be used that way. Some of America’s most critical infrastructure–oil and gas pipelines, freight railroads, electrical distribution networks…is privately funded and owned.
And one of the main things that slows down infrastructure projects to a crawl, whether they be government or private, is the increasingly-insane level of ‘environmental review’ and litigation that surrounds any major project that must exist in the actual physical world.
Infrastructure is important and if it has a high return it should be built. However, even assuming that there is some validity to Keynesian stimulus spending which I do not concede, infrastructure spending would not be effective. It takes s0 long that, except in recessions when Democrats are in power, the spending finally takes place when the recession is over. Secondly, it is most likely to hire people and use resources that are not unemployed because of the recession. At the Federal level it is most likely to be spent for political advantage to build local party support. At the state and local level this is also true, but if there is nothing to show for it and it is expensive it isn’t as likely to be a dead weight loss. So when infrastructure is needed and it can be shown to have a high economic return ( easy if imprecise ) start doing it. Does it create jobs? Well it uses resources and must pull them from away from where they are currently being used so must raise their price including wages of the workers. And it must be paid for by taxing or borrowing. If there are road builders in the area who are unemployed then they may get jobs. That’s not Keynesian economics it’s good old fashion supply and demand. Republicans should support it but stress that democrat corruption and ineptitude at all levels have caused decay that must be addressed. Stimulus spending is always bogus.
As was pointed out above, most of our roads and bridges are state, county & local responsibilities & should stay that way. There is one infrastructure project that should be a national priority; the updating and hardening of our electrical grid.
Much of our electrical infrastructure dates back to the 1960s (or even older); hackers, terrorists and evil state actors could wreak havoc with our society by messing with our ability to run our digital networks, turn the lights on, keep refrigeration going, etc.
It might not be “shovel-ready”, but it’s a lot more important than whether the main arterial in my city gets a “B” or a “C”.
I think the phrase “shovel-ready” infrastructure project, like a bridge or road, conjures Roosevelt-era images of guys with shovels; low-skilled workers, maybe all those unemployed and virtually unemployable men one sees hanging around our inner cities and rural trailer parks! Surely they would go off and work if all they had to do was dig?
Sadly, with the exception of the flaggers who start-and-stop traffic, road construction isn’t low-skill, and it’s unionized. Even the flaggers are, in Maine at least, often state workers with relatively low-level, work-related disabilities whom state law requires be shuffled into less-taxing jobs at the same rate of pay until they reach retirement age.
I’ll bring up my idea again: if you are poor enough to be on welfare, your SNAP card (or whatever it is now) can be presented to an employer to show that you are free to negotiate pay without reference to the minimum wage. And you would keep receiving welfare benefits while you worked until your employment prospects improve to some rationally-agreed -upon level.
Bonus points for being married, BTW). This would make low-skilled, inexperienced workers competitive not only with more desirable workers, but also with illegal aliens.
But imagine how the unions would squawk???
“Crumbling infrastructure” has replaced “it’s about the children” as the go to argument for government greed.
The higher taxes and more draconian regulatory environment of a Clinton administration would make the building of private infrastructure (oil & gas pipelines, freight railroad trackage) much more difficult, and would almost certainly *reduce* the number of jobs in these sectors.
Yep & yep on both your points – A – that any nation’s infrastructure also includes private actors unless, of course, those industries have been nationalized, & B – that increasingly stringent environmental rules & regulations have marginal, at best, benefits and their main purpose seems to be to add costs and time to any potential development.
I have many issues with environmental regulators and regulations- but here’s just one – Why are environmental regulations or rules considered so sanctified that they are exempt from the same rational tests (cost/benefit, quality vs time etc) that every other aspect of the project is subject to? Every other decision on a project is subject to these trade-offs. There is no reason the environmental requirements on any project should not also be subject to these tests.
You might think so but I rather doubt it.
Consider a President Trump or a President Hillary Clinton, each spending the same amount of money, $X, on ‘infrastructure projects.’
The odds that something substantial would actually get *built* are far higher with a Trump than with a Clinton. Building things is part of his self-definition; ensuring some level of actual accomplishment would be a matter of personal pride to him. Whereas Clinton would be satisfied when the money was spent (to bribe favored constituencies and for “Keynesian” reasons), regardless of whether anything actually gets built.
Regarding the difficulty of actually getting anything major built in America today, see my 2006 post Like Swimming in Glue.
I’m pretty sure the situation hasn’t improved in the ensuing 10 years.