From The Page – by Mark Halperin , Senator Obama is proposing a National Infrastructure Reinvestment Bank today:
“For our economy, our safety, and our workers, we have to rebuild America. I’m proposing a National Infrastructure Reinvestment Bank that will invest $60 billion over ten years. This investment will multiply into almost half a trillion dollars of additional infrastructure spending and generate nearly two million new jobs – many of them in the construction industry that’s been hard hit by this housing crisis. The repairs will be determined not by politics, but by what will maximize our safety and homeland security; what will keep our environment clean and our economy strong. And we’ll fund this bank by ending this war in Iraq. It’s time to stop spending billions of dollars a week trying to put Iraq back together and start spending the money on putting America back together instead.?
This may be based on the Hagel-Dodd bill: National Infrastructure Bank Act of 2007. Full text
The claim is that there is an under-investment in infrastructure, and this would channel some additional money that way. Clearly infrastructure investment levels as a share of GDP have been declining over time. This follows from it being a maturing sector of the economy, and if we had not had a decline in infrastructure spending as a share of the economy, we could not have a concomitant increase in the shares of other faster growing sectors (information technology for instance).
The key for a bank though is that it loans money and is repaid with interest. It tries to maximize return on investment. First, it needs to be depoliticized, which is promised by the Hagel-Dodd bill, but needs to be guaranteed. Second, there needs to be payback. It is not clear how “free” roads will be able to pay back loans for their construction. (No mention is made of toll roads or other repayment mechanisms). Clearly they may generate some economic growth, but with proposal suggesting that ” The financing package could include direct subsidies, direct loan guarantees, long-term tax-credit general purpose bonds, and long-term tax-credit infrastructure project specific bonds.” it seems more like additional federal disbursement than a conventional bank that gets a direct return.
The bill aims at large projects, the risk is they turn into mega-projects (like the Big Dig), whose benefits are elusive and costs are real. The opportunity is they do something great (like the original Interstate Highway System).
The key to note is that existing infrastructure is aging, and much of it does need to be repaired, rehabilitated, or replaced. One hopes this money is directed toward existing problems, rather on speculative new infrastructure. The United States highway system is mature. Until it can be replaced with something better (as railroad largely replaced canals), it needs to be maintained, and to some extent grown slowly, but if we are to make major new investments, they should lie along a new technological trajectory, not more of the same.
One of the positive attributes of such a bank however is that it moves infrastructure funding from a “pay-as-you-go” model (as with the current highway bill based on the gas tax) to one based on bonding. This helps temporally spread the costs across beneficiaries, and is how large long-term capital projects should be financed. (See my paper here (Published in Journal of Urban Planning and Development American Society of Civil Engineers 127(4) 146-157 (Dec))))