Transcript of “The Economics for and Against Trump’s Infrastructure Plan”

In late November, I appeared on NPR Here and Now  discussing “The Economics for and Against Trump’s Infrastructure Plan

I thought it went well, so I got a transcript made for another project, so here it is for the record. Speaker 1 is the host Robin Young. It’s rough, because it is spoken rather than written language.

 

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Contracting/Franchising

00:00 Speaker 1: One of President Elect Donald Trump’s plans for job creation is a massive infrastructure project. The country’s roads and bridges are in disrepair. The Obama administration also pushed infrastructure but ran into spending road blocks. Trump’s plan will look beyond government dollars to public private partnerships, tax breaks to encourage companies to get involved, and borrowing an idea long favored by Democrats and candidate Hillary Clinton, he would work to create an infrastructure bank. Congress would put in seed money, companies would match it. Now Trump advisors say his proposals could inject around $1 trillion dollars over 10 years into building. Democrats say they want to work with Trump to improve the country’s infrastructure. Some Republicans worry about the price tag. David Levinson is faculty at the University of Minnesota, Department of Civil, Environmental and Geoengineering. He’s also the author of the book, “The End of Traffic and the Future of Transport,” and writes the blog Transport Us. He joins us now. Welcome.

00:53 David Levinson: Thank you.

00:55 S1: Let’s start with what’s got a lot of people thinking, Donald Trump’s use of a public private partnership. What might that mean?

01:02 DL: It’s used today to mean a number of different ways of providing infrastructure ranging from something as simple as what’s called design-build so that a single firm is responsible for both designing the bridge and building it, which speeds up the process and ensures that there’s a single point of responsibility, so you don’t have one company or one agency doing the design and the second agency doing the construction and then people complain because there’s some miscommunication. It can also be design, build, operate and maintain. And then the firm that builds the bridge is responsible for operating and maintaining it over a long period of time, and so they don’t build it cheap and then let it fail early because they’re gonna pay for that cost if they’re responsible for maintaining it. And presumably that leads to higher quality of infrastructure and lower lifetime costs.

01:50 S1: Does that mean, for instance, that a company might build a highway but also own the tolls?

01:55 DL: There could be a toll funded project, but it doesn’t have to be. Tolls don’t always cover the costs of any given infrastructure project. They do in some cases, but as you can see looking at the United States most roads are not tolled, most bridges are not tolled. And putting a single toll bridge out there might not work from an economic perspective if there’s nearby alternatives, but it still may be worthwhile to have the infrastructure. So the state might step in and instead of paying for the road itself and maintaining itself, it pays the firm to do this and it pays it some amount of money each year, and the firm is responsible for maintaining it to a certain performance standard.

02:31 S1: And so what are the arguments for and against this private involvement in America’s infrastructure?

02:38 DL: Well, the argument in favor of it would be that if the firm is responsible for financing and gets paid back over time, that might help a cash-strapped local government or state government provide infrastructure that it otherwise couldn’t provide without borrowing the money. And borrowing is often difficult for local and state governments because there’s rules and regulations that different states have. On the downside there’s a question of who bears the risk? The negotiation of this is not just negotiation over how much money does somebody get to be paid, but what happens if the tolls that are expected don’t come in? What happens if the demand that’s expected on the road doesn’t materialize? How do you deal with that? And that’s one of the major issues in public private partnerships.

03:16 S1: We’re reading that in some of the current projects or past projects, one might have gone bankrupt, others just weren’t finished, so that feeling of accountability gets a little bit lost if it’s a private company.

03:27 DL: Right. It depends very much on how it’s organized. It doesn’t have to be a new project. You can have a sale of an existing asset as well. A few years back, Indiana sold the Indiana Tollway and got a large upfront set of money which then it used to build other infrastructure. And in exchange, the firm that purchased the toll road collected the tolls over a long period of time. It turned out they did this just before the Great Recession. Demand turned down and it especially turned down on that road because they raised the tolls more on that road because they’re a private firm and were trying to collect more money. And as a result they had to go through bankruptcy, essentially. The road didn’t disappear. It continued to provide service and that’s one of the great things about infrastructure. Even if the firm goes bankrupt, the asset is still there. It’s not like they can pick up the road and move it to Australia or something. A lot of ’em haven’t worked out financially in the last decade and a half in the US. Doesn’t mean they can’t, but it means that it’s a difficult proposition.

04:23 S1: But what about the fact that Trump’s plan calls for a huge tax credit for private investors? The hope there is that it’ll bring more investors, but economists who looked at this said you need something like $137 billion in federal tax breaks to attract a trillion in infrastructure finance.

04:40 DL: Yeah, the proposal that was put out by Trump’s team before the election is a bit of a shell game because the assumption is that the federal government will provide these tax credits to these private companies who will then raise money and build infrastructure, and that the tax credits will presumably… The claim is they’ll be offset by greater revenue that comes into the federal treasury because of income tax, because there’s workers now who are working on it who would otherwise wouldn’t have been. And that’s a little bit disingenuous in a full employment economy because these resources would otherwise be used. The workers would be working on something. If they weren’t working on this road, they’d be working on a different road. There would be profits and there would be income taxes that would be coming into the federal treasury anyway that aren’t going to be if they’re reallocated to this. Now, if they were otherwise unemployed, so if we were in the depths of a recession and then you’re employing them and otherwise they’d be idle, then something like this would make a little bit more sense because you then would be getting revenue that otherwise wouldn’t happen. But doing a stimulus when the unemployment rate is 4.9% is very different than doing a stimulus when the unemployment rate is 11%.

05:45 S1: Well, explain that to us because there’s a huge disconnect there. We know that this recent election was propelled by people who were crying out that their industry had left the Rust Belt and their coal mines were closing. And the promise of a Donald Trump was that he would people put these people to work. But then we’ve also recently reported on the fact that there really aren’t enough workers right now to do huge infrastructure projects. Is that because… We were reminded back in the 1930s with the Works Progress Administration when thousands of largely men were hired to go out and build dams and things. They were hands-on digging ditches, and that’s really not the work that’s available in construction today.

06:30 DL: Right. So when we see the grainy black and white films from the 1930s, we see thousands and thousands of people with hand shovels digging ditches and leveling roads, and doing things like that. And today road construction and all construction is much more capital-intensive. It uses big equipment to do things, and so where previously it might’ve taken a hundred men with a shovel, now it takes one construction worker with a large piece of construction equipment, a bulldozer or a backhoe or something like that to move as much dirt. Our mental model of building infrastructure which is formed from the 1930s in the Great Depression doesn’t apply in a world where we have a lot of automation, and we still have a lot fewer people required to build the same length of road as we used to.

07:16 DL: Another important difference is where does the unemployment occur? The areas of need of new infrastructure are in larger cities and in areas that are doing economically very well, and the areas of excess labor are in other parts of the country, do those people wanna relocate? It might not be cost-effective personally for them to do that because living in the big city is a lot more expensive than living in a rural area. There’s also skills required. Construction is not an unskilled work. It might not require a college degree, but there’s a lot of skill that’s required in building a road properly and that needs to be understood by the workers who have gained experience over time building roads. And the people who build roads are different than the people who build railroads, are different than the people who build storm sewers and water pipelines.

07:58 S1: As someone who’s looked at this, what would be the best infrastructure plan to create the jobs for the people in this country who desperately need them right now?

08:08 DL: I think you need to separate out two things. One is what is the best plan to create new jobs for people in the country, and the second is what is the best infrastructure plan because those don’t necessarily align. And if we think of infrastructure as a jobs program, we’re gonna build things that are expensive but we’re not gonna think about the long-term effects of it. Because infrastructure, sure, there’s a large upfront cost of building it, but 10 years from now you have to resurface it and 20 years from now you need to rebuild the road, and 50 years from now you need to rebuild the bridges, who’s gonna pay for those costs? That needs to be considered when you’re making a decision as to whether something’s worth doing. As a private investor, if you are looking at remodeling your house and the construction firm said to you, “We’ll use 20 workers,” and another came to you and said, “We’ll use 10 workers,” you’d probably go with the firm that used 10 workers ’cause their cost would be lower. And if we are thinking about this is a jobs program, we’re gonna maximize the inefficiency of the construction rather than trying to make it as efficient as possible.

09:03 DL: So we might wanna think about jobs programs in other fields, things that require a lot of person-to-person interaction. I can think of various types of service jobs which don’t have this long-term maintenance cost and these long-term reconstruction obligations that are gonna be put on us by building infrastructure which is, from a transportation perspective, for which we wanna be as efficient as possible so that we can move as many people as quickly and as safely as possible.

09:28 S1: It’s David Levinson, faculty at the University of Minnesota, Department of Civil and Environmental and Geoengineering and author of the book, “The End of Traffic and the Future of Transport.” David, thank you.

09:38 DL: Thank you.