Donald Trump said the following in his recent address to a joint session of Congress:
To launch our national rebuilding, I will be asking the Congress to approve legislation that produces a $1 trillion investment in the infrastructure of the United States—financed through both public and private capital—creating millions of new jobs. This effort will be guided by two core principles: Buy American, and hire American.
Barack Obama said the following in his 2011 State of the Union address:
Our infrastructure used to be the best, but our lead has slipped. ...We have to do better. ...So over the last two years, we’ve begun rebuilding for the 21st century, a project that has meant thousands of good jobs for the hard-hit construction industry. And tonight, I’m proposing that we redouble those efforts. We’ll put more Americans to work repairing crumbling roads and bridges.
So, yes, pretty much the same, and a plan absolutely guaranteed to elicit cheers from Congress. The whole business of a Member of Congress is to pass out favors to campaign benefactors, and such bills are the perfect way to go about it. Whenever a president says “infrastructure spending,” politicians think: this is my jobs program!
Will this Be Different?
But wait, say Trump’s defenders. His plan will be different because it will emphasize public/private partnerships, instead of just government-run boondoggles. But here again, Obama said the same thing: “We’ll make sure this is fully paid for, attract private investment, and pick projects based [on] what’s best for the economy, not politicians.”
Real privatization means turning the entire job over to market forces to decide whether and to what extent to produce at all.
What is easily forgotten is that most all infrastructure spending ends up in private hands. Surely you don’t think government actually builds roads, bridges, airports, and dams. It’s all contract work because only the private sector can really pull it off. Even the military has come to discover this, with the US hiring private contractors for many operations abroad. The old canard against the market asks the question: “who will build the roads?” But the truth is that the private sector builds the roads now.
The whole point of such spending is that it allows producers in the private sector to dispense with having to serve consumers to make the accounting work. Or rather: the consumers become the political class, who in turn get their money from taxpayers by force rather than through the marketplace that relies on people’s actual choices. In both cases, they make profits, but only through the market path does it happen peacefully.
Nor is it quite correct to call contracting out the same as privatization. Real privatization means turning the entire job over to market forces to decide whether and to what extent to produce at all. The compromised form means that the taxpayers foot the bill and the politicians decide who gets to run off with the loot.
All we know so far about Trump’s particular bill is that the total cost is going to be $1 trillion. But note that Washington uses the word “cost” in the weirdest way. It can mean the money that Congress is going to extract from you via taxes or issuing debt. Or it can mean revenue that government will not collect because it comes in the form of tax breaks for a given industry or project. The word “cost” is used to cover both, even though one means taking money and the other means letting business keep its own money.
Are we really supposed to believe that Trump knows better how to transport pipe than the actual people who transport pipe?
So, of course, tax breaks are the far preferred method of funding infrastructure. But all infrastructure bills include both forms, and this one will be no exception. Sorting out the good from the bad is an impossible task.
Notice, however, that Trump has added a twist to his agenda. He will require that every business use only American-produced inputs. So let’s say the steel from China will cost $1 million but the same from the US will cost $1.5 million. That means that Congress will effectively force businesses to waste half a million dollars.
Trump Knows Pipes, Not
We’ve already seen this in action with Trump’s executive action on the Dakota pipeline. It stated that the pipes have to be American-made.
Trump says that this will result in higher quality: "You will see a level of quality that you're not going to see when they bring the pipe from far distances, have to bring it in small chunks and then fabricate it on the land. Give me a break. We can do much better than that.”
Are we really supposed to believe that Trump knows better how to transport pipe than the actual people who transport pipe? The arrogance is striking.
Whenever government overrides the wishes of the market, it is not producing; it is destroying.
The company that makes the pipes for the pipeline found that claim to be utterly bizarre. "The historic safety issue with shipping pipe, and this applies to any mode — truck, train or ship — is making sure the pipes are supported along the entire length. If they are supported just on the ends, then the middles can flex, and that puts strain on the metal,” a spokesman said.
Forcing the company to buy American might not even be possible because current capacity in the US cannot support the demand. That requires retooling, which is precisely what Trump imagines productivity to be: moving from the efficient to the inefficient method of production in order to nationalize certain lines. Such an effort would be essentially unprecedented, and amount to a form of central planning that Obama would never have gotten away with.
But Trump might, simply because the partisanship is so intense right now that Republicans can cheer a policy proposed by him whereas they would immediately recognize the socialism in the policy were it proposed by the other guys.
From the point of view of good economics, it shouldn’t matter who proposes it. Government makes nothing. What it funds, it does so at the expense of the public. The jobs it creates come at the expense of other jobs and other forms of production. Whenever government overrides the wishes of the market, it is not producing; it is destroying.