If you’re despairing at this year's Presidential election, here's something encouraging to focus on: both candidates are proposing to increase infrastructure spending. Hillary Clinton has published a five-year plan that would cost two hundred and seventy-five billion dollars. Donald Trump has also come out in favor of infrastructure investments. Earlier this month, he was asked about Clinton's proposals, and how much he would spend. He said, "I would say at least double her numbers, and you're going to really need more than that."
At a time when many of the nation's transport links, electricity grids, water systems, and other essential bits of hardware are crumbling, the need for repairs and upgrades should be obvious to all. In its most recent report card on America's infrastructure, the American Society of Civil Engineers said the country needed $3.6 trillion in public investment by 2020. Current spending plans fall well short of that.
In addition to insuring that the nation has safe transportation systems and drinking water, additional spending on infrastructure could spur economic growth and help reduce carbon emissions. The Clinton plan would boost spending on, among other things, ports, railways, pipelines, and clean-energy projects. "We are dramatically underinvesting in our future," the plan notes. "Workers can’t get to work, congestion keeps parents stuck in traffic, floods threaten our cities, and airports leave travelers stranded for hours or even days at a time."
Clinton would also establish a national infrastructure bank, which would have the power to issue bonds and guarantee loans issued by other lenders. By leveraging private capital in this way, the campaign says it could generate up to an additional two hundred and twenty-five billion dollars in spending.
These are good ideas, and the Clinton campaign deserves credit for putting together a detailed plan. But experience shows that sensible infrastructure proposals rarely survive the congressional process. President Obama has spent years calling for a spending boost. The idea of an infrastructure bank dates back at least to 2007, when Senator Chris Dodd, a Democrat, and Senator Chuck Hagel, a Republican, jointly proposed it.
One problem is that many Republicans have an ideological aversion to big, publicly financed projects. Another issue is that infrastructure projects have to compete for funding with other items in the federal budget, such as entitlement programs and national-security spending. It's much easier to cut funding for a road or pipeline that doesn't exist yet than it is to reduce funding for entitlements or the Pentagon.
Partly for this reason, over the past thirty-five years, federal spending on infrastructure as a percentage of G.D.P. has fallen by half: from one per cent to 0.5 per cent. Initially, states and municipalities made up some of the shortfall. But since the onset of the Great Recession they have been cutting back, too: according to a report by the Center on Budget and Policy Priorities, spending on infrastructure by states and localities is now at a thirty-year low relative to G.D.P.
What's needed is some way to protect essential infrastructure investments from the vicissitudes of congressional politics and the cyclical ups and downs of the economy. There may be no ideal solution, but one thing that could help is resurrecting an old idea: the establishment of a separate capital budget for the federal government, with its own financing arrangements. If decisions about approving infrastructure investments were considered apart from the rest of the budget, they could be judged on their own grounds, and they would be insulated, to some extent, from spending cuts. It's a strategy that other countries, such as the United Kingdom and New Zealand, have used with some success.
Here's how it would work. The federal government would copy big businesses and split its budget into two parts: current spending, which would cover things like paying federal workers and sending checks to recipients of government entitlement programs; and capital spending, which would cover things like repairing bridges and dams, investing in high-speed rail, and upgrading the air-traffic-control system. The capital budget would be published separately from the current budget, although, for transparency’s sake, the two documents could also be combined into a consolidated budget statement.
Such a system would give infrastructure investments the benefit of being considered apart from the rest of the budget. These projects generate social benefits that last decades, so it’s appropriate that they be financed largely from the issue of long-term government debt. But under the current system decisions about debt issuance are part of the over-all budget process, which mixes current and capital spending. In an effort to contain short-term budget deficits, which are largely driven by the economic cycle and the rising costs of entitlement spending, many useful long-term infrastructure projects get sacrificed.
During the late nineteen-nineties, Tony Blair's government confronted this problem in the United Kingdom by adopting a version of so-called capital budgeting. Current spending and tax receipts would be balanced over the course of the economic cycle, while capital investments would be considered separately and would be financed by issuing bonds. To avoid excessive debt issuance, the government pledged to keep the ratio of debt to G.D.P. constant.
Then, in 2007 to 2008, the U.K. economy tumbled into a deep slump. The budget deficit and debt issuance both skyrocketed, and the Blair fiscal framework was discredited politically. Many overlooked the fact that, for a decade, it had delivered the intended results: a big increase in spending on schools, hospitals, roads, and other capital projects. Since 2009, the U.K.’s Conservative-led government has abandoned the capital-budgeting approach and embraced austerity economics. As a result, the U.K. is now facing a big infrastructure backlog of its own.
The notion of establishing a capital budget in the U.S. isn't new. In the nineteen-nineties, Robert Eisner, the late Northwestern University economist, was a big proponent of the idea. Bill Clinton's Administration went as far as setting up a Presidential commission to study the idea. Although the commission's members conceded that the Capitol Hill budgeting process often distorted decisions about long-term investments, the report they produced rejected the capital-budget proposal in favor of less radical reforms, such as modifying the way Congress appropriates funds and forcing federal agencies to develop five-year strategic plans. But many of the reforms recommended by the committee never went anywhere, and spending on infrastructure was subjected to a further squeeze. Now we’re facing a crisis.
Establishing a capital budget for the federal government wouldn't be a panacea, and it would create some potentially tricky accounting problems, some of which were discussed in a 2008 Congressional Budget Office report. But it would have the great advantage of clarifying things and facilitating a more sensible debate about infrastructure spending, and the value of federal spending more generally.
If it changed the way it budgeted, the government could also create a national balance sheet, which would place values on publicly owned assets such as the Smithsonian, the Kennedy Space Center, and the Hoover Dam. Congress could establish an independent, nonpartisan board to carry out cost-benefit analyses of future capital-spending proposals. Reforms like these would help voters by making it easier to see that the money spent on infrastructure projects wasn't being wasted.
Hillary Clinton’s and Trump’s proposals hint at some of these ideas but don’t embrace them fully. Clinton, in setting up an infrastructure bank, would establish an independent board of experts to approve lending projects—but only those financed by the bank. Trump's promises of more infrastructure spending are less credible—would his fellow-Republicans go along with them? But he has endorsed one good idea: taking advantage of very low interest rates to issue more government debt. (The Clinton campaign, perhaps for political reasons, has said it would finance its infrastructure plan by raising taxes on corporations.)
Perhaps a consensus is finally emerging that America has been undermining its growth prospects and shortchanging future generations. But if we’re approaching one of those rare moments in American political economy when something can be done, we'd better take maximum advantage of it, and try to insure that the changes are permanent.
