Trump the “Infrastructure President”?

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By Leith van Onselen

Three years ago, Barry Ritholtz published a well-reasoned article arguing for a substantial expansion of public infrastructure investment across the US following of decades of underinvestment:

Not too long ago, the infrastructure of the United States was the envy of the world. We had an extensive interstate highway system, deep-water ports connected to a well-developed rail system and a new airport in every major city (and most minor ones). Electricity was accessible to the vast majority of the nation’s residents, as was Ma Bell’s telephone network.

That was then. In the ensuing decades, we have allowed the transportation grid to get old and out of shape… The electrical grid is a patchwork of jury-rigged fixes, vulnerable to blackouts and foreign cyberattacks. The cell system of the United States is a laughingstock versus Asia’s or Europe’s coverage. There are very few things that are done better by government mandate than by the free market, but cell coverage is one of them. Broadband, almost as laughable as our cell coverage, is another…

Don’t take my word for it. The American Society of Civil Engineers recently issued a U.S. Infrastructure Report Card (see infrastructurereport-card.org) that reviewed key civil engineering projects on their quality and state of repair…

Overall, America’s infrastructure GPA was a “D”… To get to an “A” would require a five-year infrastructure investment of $2.2 trillion dollars…

Ritholtz went on to argue that a massive infrastructure program could have numerous benefits for the US economy – both in a stimulatory sense as a way of soaking-up surplus labour, as well as boosting long-term productive capacity:

The big advantage of infrastructure rebuilds is that they create a lasting effect by creating tools and platforms that the private sector can build upon. Consider the vast economic benefits we have enjoyed from the interstate highway system, DARPAnet and NASA, and you have a sense of what a massive infrastructure program can yield.

…That’s the beauty of major infrastructure projects: They leave something worthwhile behind…

Our key economic competitors are spending very heavily in all these areas. Since World War II, both Japan and Germany have had ongoing infrastructure programs. If you prefer a different example, look at the Chinese: They are spending trillions to build out their entire nation.

We in the United States are willing to spend trillions in Iraq and trillions more bailing out reckless bankers. But when it comes to the most basic functions of civilization, we skimp on ourselves. Does that make any sense? Why not spend trillions on the national infrastructure, and generate economic gains instead?

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The central theme of Ritholtz’s prescription was that infrastructure investment can offer the double dividend of supporting growth and jobs, whilst also expanding the longer-term productive base of the economy and improving living standards. The key proviso is obviously that the infrastructure is well-targeted and aimed at enhancing productivity.

The initial signs from President-elect Donald Trump are encouraging. In his victory speech, Trump stated the following:

“We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals. We’re going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it”…

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While trump elevated fixing infrastructure to near the top of his speech, he curiously left out cutting corporate and personal income taxes – promises he made during the campaign. Hopefully this omission was deliberate and Trump will quietly back away from cutting taxes and instead shift his focus to infrastructure with the aim of delivering full employment and a more productive economy.

As always, the key in all of this will be the delivery: will Trump pick the right ‘nation building’ projects that deliver the broadest benefit?

We will have to wait and see. But at least the initial rhetoric is good.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.