Eakinomics: The President’s Infrastructure Nanosecond

After too many “Infrastructure Week” false starts to count, the president tossed his infrastructure plan (and staff) under the bus, met with Speaker Pelosi and Minority Leader Schumer, and, as USA Today reported, “agreed to spend $2 trillion on the nation's crumbling infrastructure.” Is this the real deal?

No.

The president’s original plan envisioned using $200 billion in federal outlays to produce $1.5 trillion in infrastructure spending through the use of public-private partnerships. There were only two problems. First, the private sector can only be induced to participate if the projects yield cash flows to service the debt or equity investment. That means fees, tools, or other charges. This can be used to provide good incentives, but is not feasible for every infrastructure investment. The second problem is that nobody could come up with the $200 billion.

Now the plan is simply to write federal checks for $2 trillion, which comes with myriad problems. First, it makes no sense to aim for a dollar figure for infrastructure spending. Instead, the appropriate federal role is to identify and fund those investments that have nationwide implications for growth (e.g., modernizing the air traffic control system). That is a relatively small role.

Second, there may be a role for the federal government in providing infrastructure funds to states and localities. But if the current system has yielded “crumbling infrastructure,” does is makes sense to pour $2 trillion into a broken system? The selection of projects — using the money wisely — is a key part of being successful.

Third, swinging the pendulum away from public-private partnerships to simply writing checks is an overreaction. As noted above, user-fee systems have good incentives. The group that uses the infrastructure pays for it, the cash flows become a source of funds to maintain the infrastructure, and if there is congestion the fees can be raised. Simply building infrastructure — roads, bridges, broadband, or anything — and providing it for free invites problems.

But the fundamental problem remains the same: Where do you get $2 trillion? On this one, the president may have walked right into a trap. $2 trillion is roughly the revenue raised by repealing the Tax Cuts and Jobs Act. That’s not going to happen, and there isn’t a spare $2 trillion elsewhere on Capitol Hill.

So don’t spend your precious time on the infrastructure mirage. Listen to me on AAF’s new podcast — The AAF Exchange — instead