President Biden recently announced an infrastructure bill of some $2 trillion. Infrastructure provides the underlying structure of a working economy. Infrastructure consists of expenditures that have long returns benefiting a large number of citizens and businesses, but which tend to have high initial costs making it unlikely for individuals to be willing to “purchase” it themselves.
Infrastructure is non-partisan. Catherine Rampell observes,
Survey after survey has found that investing more government money in “infrastructure” has broad, bipartisan support: 85 percent of voters overall, and 82 percent of Republicans specifically, agree that “America is in need of an infrastructure improvement,” a recent Morning Consult poll found.
Conservatives recognize (in principle) that infrastructure should be largely provided by government. Who provides for the construction of roads, highways, bridges, airports, and most hospitals? It is government at the local, state and federal level. Why does government do that? Because we recognize that infrastructure suffers from the free-rider problem—Once the infrastructure is there, everyone can take advantage of it, so no one wants to pay for it, at least not directly. Sure, there are examples of private infrastructure—toll roads and privately-owned hospitals, but they remain the exception rather than the rule.
As commentator David Von Drehle stated,
Infrastructure is the connective tissue for human cooperation and communication. Bridges, roads, seaports, airports, railways, waterways, power lines, broadband — they all end up paying for themselves many times over because they leverage the greatest economic resource on earth: people.
The table below shows that the U.S. has spent less over time (as a share of GDP) on infrastructure, since the construction of the Interstate Highway System in late 1950s-1960s. Significantly less. During times of tight budgets—and when it is not a time of tight budgets—it is easy to defer maintenance on existing infrastructure. After all, it’s not like a road is going to fall apart after a year. And because new infrastructure is expensive, infrastructure investment is costly to finance.
Excludes national defense spending.
Infrastructure investment is like maintenance on your house. For the technically-minded, yes, I know that new infrastructure is different in concept from infrastructure maintenance, but they both have the same impact. You know you need a new roof on your house, but roofs are expensive and so you let it go for a few years. Eventually, a big storm comes a long and you discover leaks as rain comes through your ceiling. What do you do? What you don’t do is say “I don’t need a new roof,” or “I want someone else to pay for my new roof.” Rather, if it is at all possible, you get a new roof, either using savings or through borrowing. Borrowing makes sense since the new roof will last a long time so it makes sense to spread out paying for it.
Even though infrastructure is a public good, when infrastructure reaches a certain point of depreciation, it exacts explicit costs on private individuals—think tire blowouts from pot holes and people unable to get healthcare when a hospital hasn’t been maintained and expanded to keep up with population growth.
Infrastructure is, or should be, a bipartisan, no-brainer. It should have been an easy win for the Trump administration, but as far as I am aware, they never managed to bring an infrastructure bill to Congress. The fact that the Democrats are now in charge doesn’t negate the need for infrastructure investment—each year without it, makes the need bigger.
Upon the announcement of President Biden’s infrastructure bill, various Republican members of Congress indicated that they were opposed to the bill. Let’s think about what could be behind their opposition:
- Concern about a large budget deficit. That horse is long out of the barn. Republicans lost their credibility concerning budget deficits when they passed the 2017 Tax Cut bill. This was an interesting experiment to see if a significant tax cut while the economy was at full employment could stimulate the economy. The result was clearly no; instead, the result was a significant transfer of income from tax payers to the rich. Sure, there were tax cuts for nearly every income group, but the vast majority when to the rich.
- Concern about what a budget deficit would pay for. Republicans are in favor of tax cuts to the rich, and they are generally in favor of defense spending. They claim that the proposed infrastructure bill would lead to socialism. Yet, likely every member of Congress can find needed infrastructure investments in their districts. Indeed, Rob Whitman, the local Congressman for where my university is located, has argued for years for extension of broadband internet to all his constituents in rural, underserved areas. Certainly, the composition of the infrastructure bill matters. A good summary of the initial proposal is here.
From what is known about the Biden bill, there are a range of projects from more traditional infrastructure (roads & bridges, airports) to less traditional infrastructure projects, like universal broadband, to healthcare/assistance to the elderly, which is the least like traditional infrastructure. If you don’t believe tax payers, especially wealthy tax payers, should pay for eldercare, you should make that argument. All of these projects are worthy of discussion, but for the entire package to be dismissed without debate as “socialism” is posturing at best.
- Concern that such a large spending package, on top of the Pandemic stimuli, would cause significant inflation, something the U.S. has not seen in decades. Traditional economic theory suggests this would be the case, but the world is changing in the Twenty-first Century. It is possible that the infrastructure bill could be inflationary, but the Federal Reserve seems ready to nip any inflation in the bud. More importantly, this concern conflates two types of spending: consumption expenditure (a good example of which is the pandemic stimulus checks sent out by both the Trump and Biden administrations) and investment expenditure. Infrastructure is the latter, and will yield returns well into the future, serving at least to some extent as an offset to inflationary pressures.
- Concern about how the infrastructure bill would be paid for. It is human-nature to wish to receive benefits that some other party has to pay for—see Free Riding, above. The Biden administration claims to want to pay for infrastructure by partially rolling back the 2017 tax cut bill, which would mean that the rich pay the lion’s share. The Republican’s natural constituency is the rich, so it is understandable that they would wish to avoid this. Is it too much to ask that Republicans who believe this be transparent about it? I guess it is. The remainder of the infrastructure is to be paid for by borrowing—expanding the budget deficit. This actually makes a great deal of sense. Few people purchase a house with cash. Since the house will last for decades, it makes sense to finance it with a mortgage; that is, by borrowing. Furthermore, given how low interest rates are for the U.S. Treasury, borrowing money for infrastructure investment should be a no-brainer. People are willing to lend to the Treasury nearly for free. That makes infrastructure investment even more profitable and worth doing. Okay, Republicans: If you don’t like how President Biden plans to pay for the infrastructure bill, how would you pay for it?
- The last reason Republicans might oppose the infrastructure bill is because they don’t want a Democratic administration to get credit for it—they don’t won’t government to be seen as doing something effective. This would be unethical and dishonest, in my opinion. I am not naïve enough to think that my opinion would prevent an elected official from doing the wrong thing because it is to their narrow political advantage. It will be interesting to see if Congressman Whitman, after claiming for years to desire broadband for his unserved constituents, votes against the infrastructure bill. I hope some Republicans will choose to vote for the common good.
