Thursday, September 01, 2016

Infrastructure Insanity - Part III: Redux

In 1919, a young Army Lieutenant Colonel traveled with a convoy of Army vehicles on a cross-country trip from Washington D.C. to San Francisco for the purpose of establishing the viability of the nation’s highway in the event of a military emergency. He wrote, “The road is one succession of dust, ruts, pits and holes,” also reporting of impassable and unstable sand and wooden bridges that cracked beneath the weight of the trucks. Even more telling was the startling revelation that in Illinois the convoy “started on dirt roads and practically no more pavement was encountered until reaching California.” Not surprisingly, the trip took 62 days.

As reported in Mother Jones magazine, “37 years later, this same Army officer, Dwight Eisenhower, as President of the United States, completed a quest inspired by this youthful journey and by his World War II observations of Germany’s autobahns, to build a national road system for the United States.”

It was in 1956 that Eisenhower signed the Federal Aid Highway Act that some called “the greatest public work project in human history.” Mother Jones describes it as calling for “the federal and state governments to build 41,000 miles of high quality road across the nation, over rivers and gorges, swamp and deserts, over and through vast mountain ranges.” Despite his reputation as an old-style fiscal conservative, he considered this interstate highway system so vital to the public interest, he authorized the federal government to assume 100 percent of the huge cost. Despite the significant expenditure, think of the beneficial consequences of this action in terms of job creation, economic impact, and productivity enhancements.

New York’s Mt. Rushmore

Above were the opening paragraphs of part four of the infrastructure series of articles that was published in November 2008. Named in that particular article was an individual, who in June of this year was cited in the New York Times as follows: “ If there is ever a Mount Rushmore created for New Yorkers, the faces on it might reasonably be those of Peter Stuyvesant, Fiorello H. La Guardia, Robert Moses and Felix G. Rohatyn.”

The Times article continued, “In the 1970s, Mr. Rohatyn, an investment banker, engineered the rescues first of the New York Stock Exchange and then of the city itself, which was on the verge of financial collapse. Documents from these episodes, and other stages of his life, including his childhood flight from the Nazis, have been given to the New York Historical Society by Mr. Rohatyn, 88, and his wife, Elizabeth, a former chairwoman of the New York Public Library.” Although Mr. Rohatyn might have received some news coverage recently, he deserves more, and for a different reason––his prescient relevance to the current election. Here is why:

We have to return to the above infrastructure article from eight years ago where I wrote, “…the federal government has failed to provide the leadership it alone can supply. Federal spending on infrastructure, corrected for inflation is actually lower than it was in 2001 despite the [until recently] growing economy, the well-known disrepair, and obsolescence of our assets, and the rising costs of their inadequacy. And this level of spending, as a share of GDP (Gross Domestic Product), is much lower than it was two decades ago.”

Diminishing Infrastructure spending

(Here is an interesting very recent update from The New Yorker: “… over the past thirty-five years, federal spending on infrastructure as a percentage of G.D.P. has fallen by half: from one per cent to 0.5 per cent. Initially, states and municipalities made up some of the shortfall. But since the onset of the Great Recession they have been cutting back, too: according to a report by the Center on Budget and Policy Priorities, spending on infrastructure by states and localities is now at a thirty-year low relative to G.D.P.”

The Rohatyn Plan

My article continued: “The above quote was from a remarkable essay in the October 9 th, 2008, issue of the New York Review of Books, co-authored by Felix G. Rohatyn, investment banker, former ambassador, and a central player in the 1975 plan that saved New York City from bankruptcy. Expounding on the above criticism, he explains, ‘This public penury is lamentable, but if it conceals a second and perhaps even more fundamental problem with public policy; not only do we fund infrastructure inadequately, but the policies we have in place are incapable of funding the needed projects or creating the incentives to manage correctly what’s already been built. This is the unseen and ultimately more critical part of the infrastructure – the extent to which our spending programs are misdirecting our investments away from the best opportunities.’”

Rohatyn was deeply involved in the development of an idea that has once again surfaced in what I mentioned above: the current election. As early as September 2004, former Senator Warren Rudman and Felix Rohatyn agreed to chair a Commission on Public Infrastructure at the Center for Strategic and International Studies (CSIS) in Washington, D.C., to outline a new and different approach to selecting, financing, and managing infrastructure. In 2007 the commission produced a consensus report; and an actual legislative bill to enact its approach, the National Infrastructure Bank Act of 2007. It was submitted by Senators Chris Dodd (D., Connecticut) and Chuck Hagel (R., Nebraska), both of whom served as members of the CSIS commission.

The Concept

The organization Politico provides a down to earth explanation of the concept: “The variations on their ideas are many, but the basic concept boils down to the federal government serving as a middleman who, with a couple billion dollars in seed money, can offer low interest direct loans, loan guarantees and bonds as a way to spur spending of an exponentially larger amount of dollars on major infrastructure projects. State and local governments, a group of private partners, or some combination of each, could apply for the financing, like a homeowner applies for a loan or a scientist applies for a federal research grant. The winning projects would need to charge tolls, taxes or have some other kind of revenue stream to pay the government back. Awards are given on merit, not just by handing out cash across the board.”

President Obama backed the legislation in 2008 and repeated his call in 2010. At the time he suggested the government would put up about $60 billion in seed money, and over 10 years that would leverage up to $500 billion in private investment. [My emphasis] However, like most bills that required spending during the Obama administration, it failed to get any encouragement from Republican leadership and ultimately disappeared.

What makes this historical record interesting is the fact that the concept might have received more favorable interest if, instead of promoting it on the basis of its value as a huge incentive for advancing our infrastructure foundation, the idea was framed just by the use of two words: “job creation.” In fact, both presidential candidates, who are also vehement proponents of increased spending for infrastructure, are now advocating that term.

The Clinton Plan

Here is what Hillary Clinton has said: In my first 100 days as president, I will work with both parties to pass a comprehensive plan to create the next generation of good jobs. Now the heart of my plan will be the biggest investment in American infrastructure in decades, including establishing an infrastructure bank that will bring private sector dollars off the sidelines and put them to work there.

The bank would also administer part of a renewed and expanded Build American Bonds program, and would look for opportunities to work with partners in the private sector to get the best possible outcomes for the American people. Clinton’s plan would create good-paying jobs (3.6 million of them) today and drive up wages in the future.”

Clinton would increase federal infrastructure funding by $275 billion over a five-year period, fully paying for these investments through business tax reform. Of these funds, she would allocate $250 billion to direct public investment. She would allocate the other $25 billion to a national infrastructure bank, dedicated to advancing our competitive advantage for the 21st century economy. The bank would leverage its $25 billion in funds to support up to an additional $225 billion in direct loans, loan guarantees, and other forms of credit enhancement—meaning that Clinton’s infrastructure plan would in total result in up to $500 billion in federally supported investment. The bank would also administer part of a renewed and expanded Build American Bonds program, and would look for opportunities to work with partners in the private sector to get the best possible outcomes for the American people. Clinton’s plan would create good-paying jobs today and drive up wages in the future.

The Trump Plan

Donald Trump has significantly more grandiose plans with significantly less specificity. New York magazine quotes Trump as follows: “If we do what we have to do correctly, we can create the biggest economic boom in this country since the New Deal when our vast infrastructure was first put into place.” [Like many Trump quotes, that is inaccurate since the New Deal took place in the 1930’s while the highway system was not initiated until 1956.)

The magazine then said, “Trump hasn’t put together a specific proposal, but he has described it as a “trillion-dollar rebuilding plan,” which would be “one of the biggest projects this country has ever undertaken.” He also suggests that it would create 13 million jobs — a figure that originates in the Senate Budget Committee’s estimate of how many workers it would take to fully modernize the nation’s infrastructure.

So we might yet see Mr. Rohatyn’s concept achieve fruition based on the amazing fact that the two candidates agree on anything at all. It would be miraculous if we can get Congress to concur.

Note: The last article in this Infrastructure series will not be published until November, since the October article will be devoted to an election special–– contumelious elections. (Look it up)


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