Opinion

No national infrastructure investment bank

Infrastructure investment is a state responsibility

Last week, President Obama unveiled a $447 billion spending plan. Notice I say “spending plan,” rather than “stimulus plan” or “jobs plan,” because there is a difference. None of the plan’s components, which consist of roughly $250 billion in payroll tax cuts, $60 billion in unemployment insurance, and $140 billion to fund infrastructure (most of it going to a national infrastructure investment bank), can be considered significantly stimulative, and without stimulus, we’re unlikely to see many new jobs.

The plan’s unemployment benefits and tax cuts are largely extensions of existing measures — our economic situation would be much worse if the cuts and benefits were allowed to expire, but these half-measures are not going to push us out of our current, miserable trajectory. And the infrastructure bank promises very little spending in the short term; it’s not an institution tasked with finding shovel-ready, stimulative projects, even if such things existed. This is quite plainly a spending plan in which Obama has tied a pet project that he thinks deserves money (the infrastructure bank) to something that Republicans find fairly unobjectionable.

As a political matter, the future of the plan seems pretty straightforward: Republicans will strip out the infrastructure bits and pass the rest, judging (correctly) that the American public isn’t going to assign blame for the whole economy to the GOP just because they blocked one of Obama’s minor economic proposals. The president probably even prefers it this way because an actual infrastructure bank wouldn’t do much in the short term to help Obama keep his job, but the idea of an infrastructure bank could prove useful on the campaign trail.

That leaves just one question: who is right here? Is an infrastructure bank an idea whose time has come, or is it a dud?

At first glance, a national campaign to invest in infrastructure isn’t a bad proposition. The returns to investment on infrastructure aren’t very impressive, but with the government able to borrow money at two percent interest, and with labor and materials costs at extreme lows, it doesn’t take a very high return to justify infrastructure spending.

On deeper inspection however, a national infrastructure bank is a fatally flawed idea, for one simple reason: forcing the citizens of Texas to pay for a high speed rail line from San Diego to Sacramento is bad government. It invites corruption, pork barrel politics, and misallocation of our society’s resources.

The citizens of, say, Ohio are and will always be in a better position to decide whether it is worth the money to repair a bridge or school in their state. Offering to let them pay for their projects with someone else’s money is not going to lead to better decision-making— instead, it will lead states to cut their own infrastructure spending and turn their beggars cup to the federal government. It will incentivize states to represent their infrastructure as worse than it actually is, and pretend that solutions are cheaper than they actually are. And because it isn’t their money at stake, states will have even less inclination than usual to make sure that the projects are managed correctly. The real key to a state’s economic success won’t be the wise decision-making of its leaders, it will be its ability to lobby the federal government for special treatment and trade favors with the party in power.

Perhaps in a few instances, investment in infrastructure at the national level makes sense. Air traffic control, or an interstate network make sense as matters for the national government to manage. But bridges, schools, high speed rail lines, and the vast majority of the projects Obama touts as within the purview of his national infrastructure campaign are best managed at the state or local level. It’s a conclusion so obvious that the idea of national control raises immediate suspicion. Does Obama plan to use the bank to bestow patronage on his supporters (particularly labor unions)? Or did he really manage to forget that state governments already have the power to levy taxes and make repairs?

Democratic activists are thrilled with Obama’s supposedly new “toughness.” But getting tough is only a good strategy if you’ve got an idea that’s actually worth fighting for. Two weeks from now, every leading Republican is going to have worked out the obvious counter-argument to a national infrastructure bank, and two weeks after that they’re going to have integrated the bank into their stump speeches as yet another example of intellectually bankrupt federal overreach.

2 Comments
1
HDinNC over 6 years ago

Mr. Yost, there is a clear misunderstanding of how the infrastructure bank would work that comes through in your article. The Washington Post has a decent article that digests the function of the bank, for instance. You seem to show great outrage for government handouts and it seems you claim that this bank would be another form of free money from Uncle Sam. There is no bank in existence that gives away free money. The infrastructure bank would be no different. Most of the capitol for the loans wouldn't even come from the gov, but from a collection of investors (or share holders, if you will). Yes states and municipalities can levy taxes issue bonds, but the infrastructure bank provides an easier path to investors. Also, the independent, bi-partisan, appointed board that runs the bank will be making the lending decisions, and they will be looking for projects that will be able to repay the money borrowed. I highly doubt whether or not a state making a case that their infrastructure is in worse shape than it is will help get them a loan to do the work.

Obama is requesting only $10B to start up the bank.

All of the problems you claim will be issues for the bank are actually the current problems with congressional allocations of infrastructure spending. Texan taxpayers do fit the bill for high speed rail in California in the current model. However, the Republican majority seems to be entirely averse to any kind of infrastructure spending - to a fault.

I will concede questioning the political motivations of Obama's proposal of said bank. Another doubt is the Solyndra case with a solar panel company that defaulted on a government loan. The biggest question is how quickly will money flow into the bank and projects line up.

2
Keith Yost over 6 years ago

Firstly, my understanding of the bank is just fine, I am speaking to Obama's proposal for increased national investment in infrastructure holistically.

Secondly, as Solyndra has demonstrated, offering loans is not without risk. This is particularly true in infrastructure, where large cost overruns are the norm, not the exception. What happens when, as it did in the Solydra case, the government gives away its first claim on assets? When there is a cost overrun, who will then be picking up the tab? Banks give away free money all the time-- customers default and if the bank did not set its interest rates appropriately, then it, not its non-defaulting customers, is ultimately where the free money is paid for. This bank, being run by bureaucrats at a distance, is especially vulnerable to that, since it does not need to compete to attract funding-- it need merely wave its hand and take the money from the taxpayer.

I think the core disagreement here is in your contention that a national infrastructure bank would make it easier for states and municipalities to get funding without being offered any special treatment over the free market. That, to me, seems like a contradiction-- either the federal government is offering a subsidy in one form or another, or the infrastructure bank is irrelevant (it's not as if its $10 billion starting coffer makes is any more deep or liquid than the private market for capital. And if the bank is offering a subsidy, then it is open to all the general criticism I levy against federal spending on local infrastructure.