On Trump’s Infrastructure Plan

Brad Plumer at Vox interviewed me about “Trump’s plan to finance infrastructure by offering tax breaks to developers working on projects with revenue streams (like toll roads).” He wrote this article: Donald Trump’s infrastructure plan wouldn’t actually fix America’s infrastructure problems.

David Levinson, a transportation analyst and professor at the University of Minnesota, brings up a number of other concerns about this plan. PPPs are complicated multi-decade financial arrangements, and not all states and localities are necessarily well-equipped to manage these deals in the public interest.

Meanwhile, these tax credits would do nothing to attract investors without any federal tax liability, such as pension funds, endowments, and international sovereign wealth funds. “That’s potentially important,” Levinson says. “If you look at the major investors in existing quasi-privatized US tolls roads, they tend to be international players and pensions funds.”

Finally, the Trump campaign’s claim that its tax breaks will pay for themselves by creating new tax-paying jobs looks dubious, Levinson notes. Right now, unemployment is extremely low. Anyone who works on these new privately financed infrastructure projects is likely to be employed already — this would just be shifting jobs around, not creating new jobs. (Levinson did add, though, that it might be worth trying out Trump’s tax credit scheme on a small scale — just to see how it worked.)

My key points

  1. Opportunity Costs.  The assumption about tax recovery assumes the capital and labor would otherwise be idle. This might be true in a recession. In current conditions, they are working on infrastructure instead of doing something else, so only a fraction of the claimed tax
  2. Non Taxable Revenue Sources. Tax credit scheme cuts out many potential sources that don’t pay taxes, like Pensions and Overseas money. In fact, much of the current private investment in infrastructure is supported by international money, which is great (we get the stuff, they get pieces of paper).
  3. Infrastructure tends to be a money loser in this environment. I am not convinced there are that many good investments in infrastructure, not which will pay the rate of return needed to justify the risk. That’s what I think can be discovered with a small pilot. Does anyone actually bite? The problem is not that private infrastructure could not be profitable if everything else where unsubsidized, it’s that everything else is subsidized, which makes it harder for selected projects to be profitable.
  4. Straight-up privatization (long term leases) is simpler. We could just sell or lease off much infrastructure (airports, ports, water utilities, freeway networks) and get a huge up-front lumpsum payment along with continuing revenue. Regulated utilities are a fine model used in most other countries for these services.

Yes Virginia, There is a Successful Macy’s

When recently in New York I visited the pantheon of American retailing, the Herald Square R. H. Macy’s department store, the flagship of the chain and the largest department store in the world, almost the size of the original Mall of America.

img_2942I first went as a teenager, and was impressed by its massiveness and its wooden escalators.

I have been back a couple of times since then. It is the local Macy’s store on steroids of course. There is more of everything, packed more densely. But it has many of the same departments, as well as many more.

It was mobbed. Granted it is November, but it is still more than a week before Thanksgiving.

Its mobbed-ness cannot be said of other Macy’s flagships, which are under threat of closure. Most notable for me is the Minneapolis store, which may follow the sad fate of its eastern neighbor in St. Paul. I have only been to the downtown Minneapolis store a few times, we bought a suitcase there the second day the Hiawatha LRT was open (June 27, 2004 I recall), because the ride was free and we wanted to try it out, and we wound up downtown and needed a suitcase. In short that is the problem, we seldom go downtown. It’s not just the parking, but it certainly is easier to get in and out of Rosedale from where we live, or MoA. And downtown, especially along Nicollet is deadish, especially compared to any street in Manhattan, even with its skyscrapers.

Obviously Manhattan has about 10 times as many workers and residents as downtown Minneapolis. But it also has 10 times as much retail it seems. So that should be in balance.

There were once many more department stores in downtown Minneapolis (so legend speaks), but times have changed. Given that downtown Minneapolis is over the long-term more or less stable in employment, and rapidly gaining residents, one would think there should be more not less demand for retail. So Macy’s in Minneapolis is doing something wrong. This is not unique, lots of other cities have the same problem. One certainly could throw some blame at online retail, and far more at suburbanization of retailing and especially the rise of big boxes, which occurred everywhere, though perhaps less in New York than elsewhere. Yet Macy’s in New York seems to thrive.

I believe Macy’s made a huge mistake going with national branding rather than retaining local brands (Dayton’s in Minneapolis, Marshall Field in Chicago, and so on). Like sports teams and newspapers, people want a local touch, not a national chain, for their flagship stores and their shopping malls. They used to talk pride in their home town department store, cherishing the small differences between their local store and the chain. Now it is not the Best Dayton’s in America, it is a second-tier Macy’s store. Minnesotans feel far less loyalty and reason to spend money.

I will also add that Macy’s situation belies the New York Superiortarian Anthem “New York, New York” If you can make it here (there) you can’t necessarily make it anywhere else.

 


Random thought. I also went to Bloomingdale’s as a teenager. I remember buying a book “Unbuilt America“, damaged and on remainder there while I was in high school. Department stores used to be much cooler somehow.