Jun 13

Why We Can’t Have Nice Things

Hie thee to Economics. This stuff is not rocket science.

Going Private: The Trump Administration’s Big Infrastructure Plan
By Dean Baker, Truthout
Monday, June 12, 2017

During his campaign, Trump had made a point of complaining about the poor state of the country’s infrastructure. He had a point, as both the federal and state and local governments have cut back spending in recent years.

In the case of state and local governments, there was often little choice. Loss of tax revenue due to the recession and slow recovery, coupled with balanced budget requirements in state constitutions and city charters, meant that there was little money to spend.

In the case of the federal government, the deficit hawks insisted that we reduce the deficit, even though there is no evidence that high deficits are pushing up interest rates and/or leading to inflation. Interest rates continue to be extraordinarily low in both real and nominal terms. In fact, they were far lower in the late 1990s when the federal government was running budget surpluses.

Inflation continues to run below the Federal Reserve Board’s 2 percent target. In fact, the last few months it appears to be slowing slightly. Given this evidence, there seems little basis for the concern that budget deficits are too large.

Nonetheless, the domestic discretionary share of the budget, which includes everything from education to the Justice Department to infrastructure and public spending on medical, and other research, was cut back sharply by the deficit hawks.

The baseline that Trump was working from projected that domestic discretionary spending in 2027 would be almost 20 percent less than it had been in 2010, even as the economy grew by close to 40 percent. Trump’s budget cuts domestic spending even further.

Its projection for 2027 is a bit more than half of the 2010 level of spending. This is why Trump’s promise of a big infrastructure program seems like such a joke. While his budget does provide for modest increases in infrastructure spending in the next five years, these are quickly phased down to near zero.

Furthermore, since there are large cuts in other areas of domestic discretionary spending, total investment spending is going down sharply in the Trump budget. So we might see a few more dollars spent on roads and bridges, but we will see sharp cuts in spending and research in health care and other areas. We will also see sharp cuts in federal support for student loans and other areas of education.

But Trump’s big ace in the hole is that he will rely on the private sector to provide funding for infrastructure beyond the amount he put in the budget. This is the idea that we will privatize assets like highways and water systems so that the private sector can profit from them.

This sounds like a great idea for someone who has spent a lifetime running rip off schemes. We actually have considerable experience with privatizing public assets and most of it is not good.

Private markets are very good at supplying a good or service that is produced repeatedly and in large numbers for a diverse group of customers. It makes good sense to have Dell, Apple and many other companies to compete to see who can provide the best computers at the lowest price.

But this logic does not apply when there is a unique product such as a road from Los Angeles to San Francisco or a water system for the city of Flint. In this case, we are talking about a monopoly, where one company will control the supply.

We can either have the government be the monopolist, owning the highway or the water system, or we can let a private company be the monopolist and have the government be the regulator of the monopolist. (We know an unregulated monopolist rips off its customers. That is what basic economics predicts.)

If we think the government is run by buffoons who can’t do anything right, it is hard to see how the buffoons are supposed to rein in the fast-moving contractors in the private sector. Putting private firms in a position to take advantage of the lack of effective oversight is likely to make things worse, not better.

This is a lesson we have seen repeatedly in the United States and throughout the world. Donald Trump is incredibly ignorant of history and almost everything else, but Congress isn’t.

We should expect better of Congress. The story of mass privatization of assets is a story of rip offs and corruption. Members of Congress should know this.

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