Thoughts on the infrastructure plan
President Biden outlined his infrastructure plan in a recent address to Congress. The US Jobs Plan contains spending priorities that go far beyond traditional roads and bridges. It deserves an honest assessment, including an assessment of the economic conditions we are currently facing. I start by sharing my initial skepticism.
I think the plan is too big and comes in too quickly in the wake of pandemic relief. I’m afraid he’s using the wrong tools to solve real problems. And, it tries to fix some issues that don’t actually exist. However, there are three reasons why this proposal might be more effective than even its most ardent supporters hope.
The first is that our economy has been in slow motion for over a decade. It is increasingly clear that this has some of its roots in the last recession. Despite historically low interest rates and significant tax cuts, private capital investment has grown very slowly. If the Fed is unable to revive the economy by easing interest rates, fiscal policy will be necessary. Hence the general bill on infrastructure.
It’s important to note that Trump’s tax cuts were based on exactly the same theory. My 2017 column supporting Trump’s tax cuts noted, “We’re stuck in a very slow growth expansion.” If we hadn’t started a disastrous trade war, it might have spurred growth. But that was not the case. As the infrastructure bill turns into a predictable partisan divide, it helps to know that the economic theory behind deficit spending is the same, whether it is reductions in ‘taxes or spending increases. The only real difference is how quickly the effects move through the economy.
Second, we have significant infrastructure gaps. Although the federal government spends a lot of money, a decreasing share of it targets productive infrastructure spending. There are even indications that the recent decline in public investment has contributed to the slowdown in economic growth. The most widely accepted studies on the impact of infrastructure suggest a modest, but long-term, increase in productivity through increased spending.
Supporters of infrastructure spending will likely argue that it creates a lot of jobs. That may be true, but the real benefit isn’t a five-year flurry of construction work. It is the long-term effects of safer and less congested roads, safer power supplies and better telecommunications networks that are driving growth. A better argument than the popular, but mistaken, claims of short-term job creation is that it is a good investment.
The US government can now borrow money for 10 years at a negative real interest rate. My friends, that means investors are paying the US government to borrow their money. Indeed, there are no sufficiently secure private investment opportunities to attract investors. All of that can change, of course, but now is the perfect time to invest in public infrastructure.
The third argument for this bogus infrastructure bill is that we may have overlooked many important public investments, even if they are not measured in gross domestic product.
Most major American cities have water and sewage infrastructure partially built before the 20th century.
Broadband telecommunications remain unavailable in many places, limiting the quality of education, public services, and the delivery of health care and emergency services.
Tackling these issues will not cause a surge in economic growth, but it can lower costs for states and local governments.
These types of investments also improve the lives of many citizens, especially those whose economic prospects have been most affected by long-term changes in the economy.
Parts of the infrastructure plan, which target spending on child care and early childhood education, can be helpful. These are not traditional infrastructures, but that does not make them unimportant. Our country has yet to figure out how to reduce the economic inequalities that manifest before children enter primary school.
This program may not do it, but it is a serious effort. This program also targets more spending on R & amp; D, which is a long-term catalyst for a growing economy.
Despite my aforementioned misgivings about the infrastructure proposal, it has serious elements that address the real and enduring problems in our economy. Moreover, the Biden administration is proposing this without significantly expanding the reach of government. The bill contains no new major programs or agencies, no new machinery or government power. It’s a lot of spending, more than I would like, but not a new bureaucracy.
True Conservatives should be happy about this and try to work to improve the plan. A compromise that stretches expenses over a longer period would allow for better coordination between types of construction, reduce the risk of soaring construction costs, and generate more long-term benefits. Child care programs should be family based and independent of type of early childhood education or child care. We should be indifferent to the idea of spending the same amount on a homeschooling program as we do on a traditional provider.
We need to reward local governments that target their spending to support local infrastructure. We should be spending money on R&D in new sciences and new ways to prioritize public services, reduce barriers to economic integration, and promote a stronger and more secure nation. These ideas have always been in keeping with conservative principles and should lead to compromises. They probably won’t.
In the coming months, the infrastructure plan will go through the rigors of the appropriations, so it will be different when it is finally adopted by Congress. However, something like this will surely pass. It is not a panacea for all our economic woes, but neither is socialism. We would all be wise to view it with healthy skepticism, while hoping that my hesitations on this matter will not materialize.
Michael J. Hicks is Director of the Center for Business and Economic Research and Associate Professor of Economics at Miller College of Business at Ball State University. Send your comments to [email protected]