Everyone is excited about infrastructure now that the GOP is apparently prepared to sing a different tune about budget deficits and government spending. It isn't just the GOP that has flipped on the issue; Jonathan Chait that Democrats shouldn't support Trump's plan because it would hand him a political victory:
How and where to cooperate with Trump presents many dilemmas for the opposition, pitting the Democrats’ self-interest against the need to safeguard the welfare of the country’s political institutions. There are certainly venues where Americans alarmed by the incoming president ought to consider working with him for the sake of preserving the welfare of the country. But infrastructure is not one of those dilemmas. Supporting a Trumpian infrastructure bill would be to cooperate with the subversion of American government and an act of political self-sabotage. It is an idea so insanely bad it disturbingly suggests the party utterly fails to grasp the challenge before it, or the way out.
Chait is worried about the political implications of working with Trump on infrastructure, not the economic ones. It seems possible that Democrats will come around to his view and try to block Trump's stimulus agenda. But amid the partisan squabbling, it's essential not to lose sight of the economic case against a big infrastructure bill. Tyler Cowen helpfully one:
A new Trump stimulus would probably boost GDP, but that doesn’t mean it would be working well.
Measured GDP just doesn’t capture the relevant trade-offs for evaluating government spending. For instance, a lot of U.S. workers are producing organizational capital. They work on business plans, building client lists, developing marketing strategies, cultivating customer relations and performing other future-oriented activities common to service-sector enterprises. On any given day, most of us are not churning out additional widgets.
Government stimulus, on the other hand, usually is oriented toward concrete outputs such as roads and bridges or military hardware. It’s more like old-style manufacturing.
Stimulus therefore pulls workers out of producing organizational capital. In the short run, measured GDP goes up, yet the economy may or may not be doing better overall, especially in the longer run. In desperate situations, it is indeed prudent to emphasize the short run, but that is not obviously the case in 2016, when we are nearing full employment and last quarter’s GDP growth was estimated at a respectable 2.9 percent.
Cowen also notes that we may see short-term growth, but then there will be a mirror-image economic contraction when the debt has to be paid back in the medium term.
Yet, for both Republicans and Democrats, the problem with massive infrastructure spending goes beyond macroeconomic cycles and political calculations. It's not clear how President-elect Trump plans to finance much of his infrastructure bill, but under any scheme there are going to be substantial opportunities for graft and general waste. If Trump tries to build everything with public funds, his plans will be subject to the maze of regulations that makes U.S. infrastructure the most expensive in the world. If, as some are suggesting, Trump goes the route of privatization and hands roads and bridges off to for-profit entities which are less constrained by federal and state procedures, the U.S. government would save some money (at least in the short term). But with privatization, the devil is in the details of the P3 contracts that determine the relationship between the government and the private concessionaire. Those contracts might stipulate how much the concessionaire can charge users, basic guidelines for maintenance, and other expectations. This opens up a different set of opportunities for graft. Trump says he's a good negotiator, but can he really negotiate thousands of responsible privatized arrangements for federal infrastructure projects? Or will he simply hand off America's bridges to lobbyists without limiting toll-fee increases and mandating maintenance guarantees?
Even if Trump does figure out a way to get a better deal for the American taxpayer, he's likely to run into the same problem President Obama encountered in 2009: There aren't many "shovel-ready" projects. Almost everything needs to go through layers of approval. And many of those layers are at the state and local level; Congress can't just reform federal construction processes and solve the problem. Under pretty much any foreseeable circumstances, a massive infrastructure bill would take many years to produce the kinds of results Wall Street and others apparently expect.
This is not to say that infrastructure isn't an urgent priority, one that we're happy to see is getting serious attention. The point is that Trump and his allies would do well to look carefully at how U.S. infrastructure got so bad and at why the last stimulus effort was so inefficient. Construction costs in the United States are absurdly high, and not for any obvious reason either. Places like Japan and Europe get much more bang for their buck, and they do so without compromising on safety and environmental protections.
As with so many of Trump's policy priorities, making America's infrastructure great again will take more than political will and money. It will take innovative thinking and intelligent regulatory reform. Very soon, we suspect, the President-elect and his advisors will realize the magnitude of this task.