Wayne O'Leary

The Looming Infrastructure Scam

The broad outlines of the Trump administration’s economic policy are becoming clearer, and they’re not especially encouraging. Giving the president-elect his due, some of his proposals are things progressive populists have demanded for years: limits on free trade, for instance, and increased infrastructure spending (of which more shortly). Other aspects, such as a return to massive supply-side, or “trickle-down,” tax cuts, would be disastrous and should be resisted out of hand.

Of all the presents in Donald Trump’s mixed bag of holiday goodies, the most intriguing by far is his plan for an infrastructure stimulus program. At first blush, this seems like an example of the good Donald, the candidate who rejected rigid GOP ideology — Republicans normally recoil from the word stimulus — in the economic sphere. But before Trump is anointed the modern FDR, the purveyor of an updated New Deal, a hard look at the details of his plan (the place where the devil resides) is in order. That closer look is disquieting.

During the campaign, Trump and two of his principal economic advisors, business professor Peter Navarro of the University of California-Irvine and private equity investor William Ross, proposed a 10-year, $1 trillion infrastructure program to upgrade the nation’s crumbling roads, bridges, tunnels, airports, schools, maritime facilities, and mass-transit systems. That has since been scaled back to $550 billion, which the president-elect maintains would still create 3.3 million construction jobs and spinoff effects beneficial to the economy’s GDP.

With his usual hyperbole, Trump insists his initiative would make America’s infrastructure “second to none,” an optimistic evaluation not shared by the Society of Civil Engineers, which says three times the original suggested investment (or over $3 trillion) would be needed to do the job properly. Nevertheless, we have to start somewhere, so the next question becomes, how would a Trumpian infrastructure program operate?

Here’s where the rubber meets the road and brings potential progress to a screeching halt. The Donald immediately departs from the successful Roosevelt New Deal model (government investment) by opting for exclusively private financing and construction. Instead of having the federal government borrow money at today’s extremely low interest rates and engage in modest deficit financing — this would add only marginally to the deficit, which is down to half what it was in 2009 — he favors what amounts to a massive public giveaway to the Wall Street crowd and America’s multinationals.

Under Trump’s scheme, private corporations would put up merely 20% of construction costs and borrow the rest, with Washington providing extensive tax credits to cover the remaining 80% and shield investors from any losses, losses that (theoretically) wouldn’t arise because the investing firms would make millions from tolls they could charge on the highways and bridges they would own and from fees graciously paid to them by appreciative state and local governments.

Meanwhile (again, theoretically), expanded productivity resulting from building projects would generate sufficient government revenue to pay for tax-credit outlays, thereby holding down the federal deficit. But as a number of critics have pointed out, many infrastructure projects aren’t revenue-generators, and state or local governments may be understandably reluctant to subsidize the One Percenters.

Aside from an ingrained anti-government bias, it’s transparently obvious why conservative Trumpsters want to keep direct federal infrastructure outlays to a minimum: they have a concurrent program that promises to swell the deficit in a far more drastic way. It’s the old Republican favorite, high-end tax cuts.

The incoming administration wants to add a Reaganite supply-side tax reduction to its version of voodoo economics. The top income-tax rate would fall from 39.6 to 33 percent, the corporate rate would drop from 35 to 15 percent (10% for repatriated offshore holdings), and rates on unearned investment income would be similarly slashed. According to the Tax Policy Center, 51% of the resulting benefits would accrue to the top one percent.

All told, this fevered vision of low taxes at the top spurring investment and hiring, a return to the calcified trickle-down mythology of the 1980s (when defense spending, not tax cuts, fueled growth), would deplete federal tax coffers by $6 billion over 10 years. So, in one sense, Trump’s ballyhooed infrastructure initiative is a smokescreen designed to divert attention away from a vast transfer of wealth to the already wealthy —that is, people like himself. There’s nothing new about this type of ploy; it’s unfortunately in the great tradition of American capitalism, and if Donald has his way, we’re about to see it again.

Purely from the standpoint of infrastructure renewal (without reference to any role as a diversion from tax policy), the precedent for the Trumpian approach, a giant leap backwards, was set in the late 19th century by the country’s first great national infrastructure project, the building of the transcontinental railroad. Authorities are in general agreement that connecting East and West by rail could have been accomplished far cheaper and more efficiently had public enterprise been allowed to do the job.

But as historian Fred A. Shannon wrote, government construction and operation was unthinkable during the era of the robber barons; instead, business interests, heavily subsidized but totally freed of federal direction or control, took the lead. The result was a phantasmagorical process (effectively dramatized recently in the AMC television series Hell on Wheels) in which public money and any semblance of public morality disappeared down a rat hole in a manner that typified what has been termed the Great Barbecue for its celebration of plunder and exploitation.

The bare facts were that the two railroad companies federally chartered to undertake construction between 1863 and 1869 (the Union Pacific, working east to west, and the Central Pacific, working west to east) received huge federal grants of public land in perpetuity, amounting to millions of acres on either side of their respective right-of-ways. In addition, they pocketed generous government loans in the form of 30-year, low-interest bonds totaling millions of dollars.

The freely acquired land was quickly sold at exorbitant prices to victimized farmers and struggling townships; the bonded loans were paid back years later only after the federal government sued to collect. The railroad was built, but waste, fraud, and profiteering approximately doubled the anticipated cost. That’s the retro infrastructure model Donald Trump wants to foist on today’s taxpayers.

Wayne O’Leary is a writer in Orono, Maine, specializing in political economy. He holds a doctorate in American history and is the author of two prizewinning books.

From The Progressive Populist, January 1-15, 2017

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