Trumps Infrastructure Mistake
An excellent op-ed by By Alan S. Blinder and Alan B. Krueger, who are professors of economics at Princeton University.
Divining what Trumponomics will look like is guesswork at this stage, but there is one prominent exception. Late in the campaign, two of Donald Trump’s top economic advisers—Peter Navarro and Wilbur Ross - offered a detailed infrastructure plan. Unsurprisingly, the program seems more about rewarding private-equity investors than about rebuilding America’s crumbling infrastructure.
Infrastructure plans come in three phases: selecting projects, lining up financing, and executing construction. The third step is normally left to private contractors, because state and local governments don’t employ stables of construction workers. As such, government’s role is concentrated in the first two steps.
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History suggests that building roads and bridges is not a low-risk investment. According to a 2015 Congressional Budget Office report, 14 privately financed road projects have been completed in the U.S. since 1995. Of these, three went bankrupt and one required a public buyout—29% failure rate. By contrast, the New Jersey Turnpike authority can still borrow for 30 years at 3.4% despite the best efforts of Gov. Chris Christie to destroy his government’s credit rating. States with higher ratings pay less.
To attract private money, projects must offer investors cash returns—derived, for example, from tolls on highways. In some cases, this is possible, even desirable. But for many important projects, charging fees can be impractical. Think of building schools in poor neighborhoods or repairing crumbling bridges that have no tolls. In truth, much of America’s most critical infrastructure needs are for repair and maintenance work—whether it is pothole-laden roads or schools with leaky roofs. Economists find that such unglamorous repair work often offers the highest returns for society.
Infrastructure projects selected in the traditional way, by governments, are chosen based on public benefits, the community’s ability to pay—and sometimes crass political favoritism. It would be nice to get rid of the latter, which is the main argument for a public infrastructure bank.
Under the Trump plan, project selection would be left to profit-seeking investors, using the same criteria they use to decide which hotels to build, for example. Ironically, Messrs. Navarro and Ross criticize President Obama’s modest 2015 infrastructure proposals because, “These will not fix the 237,600 water mains that break each year. Nor will they stop the 46 billion gallons of water lost each day from pipe leaks.” Does the Trump team really think private-equity investors will swoon over repairing plumbing?
More..
http://www.wsj.com/articles/trumps-infrastructure-mistake-1482099189
(You may be able to read the whole piece by googling the title)
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