Tuesday , February 13, 2018 - 1:00 PM
(c) 2018, Bloomberg View.
I’m a sucker. I admit it.
One of my failings is believing people who firmly shake my hand while looking me squarely in the eye. Indeed, it is a normal tendency many people have, which makes us vulnerable to being duped by those who prey upon our confirmation biases. We selectively hear what we want to hear, and disregard the rest.
And so I had high hopes for President Donald Trump’s new 10-year $1.5 trillion infrastructure proposal. I should have known better.
Modernization of America’s infrastructure is a favorite cause of mine. I don’t think I am dreaming of a utopian paradise when I imagine a nation that has well-paved roads; bridges and tunnels that are in better than fair condition; a reliable and hack-proof electrical grid, with widely available broadband; a water and sewage treatment system that ensures public health; and a safe and efficient port system. And oh, the places you would go if only we had modern airports and an advanced flight-control system.
Given the overwhelming need for a major upgrade to the country’s aging backbone of commerce, I assumed that a feasible and reality-based infrastructure plan would be forthcoming from the Trump White House.
There is bipartisan support for it; it is popular among voters (at least the 2017 version was); even reliably conservative groups such as the U.S. Chamber of Commerce have come out in favor of raising the federal gas tax to help pay for road improvements.
Then there is the proposal put forth by the White House. It starts out well enough, noting:
“Our infrastructure is broken. The average driver spends 42 hours per year sitting in traffic, missing valuable time with family and wasting 3.1 billion gallons of fuel annually. Nearly 40 percent of our bridges predate the first moon landing. And last year, 240,000 water main breaks wasted more than 2 trillion gallons of purified drinking water-enough to supply Belgium.”
It turns out that was mere lip service. The administration proposes spending a measly $20 billion a year -- or $200 billion of the $1.5 trillion total -- for a decade. Forget modernizing America’s infrastructure; this number is deeply inadequate to the task of even doing basic maintenance on bridges, highways and roads. And it is light years away from closing the almost $5 trillion shortfall in infrastructure investment.
The most fanciful part of the plan is that it looks for increased contributions from cash-strapped cities and states, which, unlike the federal government, don’t have the ability to borrow what’s needed to fund multidecade infrastructure projects. Many states also will be wary of raising taxes, since the Trump administration’s new tax plan limits the ability to deduct local and a state taxes from federal tax bills.
The other part of Trump’s plan that’s problematic is letting the private sector take over building, maintaining and collecting revenue, an area that is traditionally the province of government.
This idea has been on the wish list for many politically connected private sector players for decades. It can be enormously profitable, creating a revenue stream for investors and Wall Street banks that can last for decades. But it might not work out so well for the public. Let’s focus on this last issue.
Look no further than the terrible deal that was made by Chicago to privatize public parking meters. Yes, the city got about $1 billion upfront in the deal; and over the long haul Morgan Stanley and Abu Dhabi will reap more than $11 billion. In other words, this deal was enormously profitable for investors, but it was awful for Chicago and is widely despised by locals.
Then there was the deal made by Vice President Mike Pence, when he was Indiana’s governor, to lease out the Indiana Toll Road to a private investment group. The group managing the highway filed for bankruptcy in 2014.
Other states have wised up to the problems behind deals like these. Last year Texas soundly rejected a highway-development plan similar to what Trump is proposing. Texans, it turns out, don’t want more toll roads.
Underfunding infrastructure in the way the U.S. has isn’t an accident; it reflects a debate about the role of government, and how much of its traditional duties should be given to the private sector. Experiments have been run in other sectors, such as private prisons. Rarely do these initiatives produce the low-cost, high-quality outcomes that were promised.
Infrastructure privatization is no different. As my Bloomberg View colleague Stephen Mihm wrote: “Building and rebuilding America’s infrastructure is an unfathomably large task without easy solutions. But privatization is a dead end as long as it relies on investors who expect to make a steady profit.”
The White House had an opportunity to create a robust, economically sound plan to modernized America. Instead, the administration seems ready to give private investors a gift at the expense of the taxpaying public. About the last thing this will do is make America great again.
- Ritholtz is a Bloomberg View columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He blogs at the Big Picture and is the author of “Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy.”
For more columns from Bloomberg View, visit http://www.bloomberg.com/view.
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