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Sunday, November 27, 2016

Cronyism will be hallmark of Trump’s economic policy

Infrastructure plan seems a scam to enrich the well connected at taxpayers’ expense

“Why not just have the government do the spending, the way it did when, for example, we built the interstate highway system?”

Steve Bannon, US president-elect Donald Trump’s chief strategist, is a white supremacist and purveyor of fake news. But the other day, in an interview with, um, the Hollywood Reporter, he sounded for a minute like a progressive economist.
“I’m the guy pushing a trillion-dollar infrastructure plan,” he declared. “With negative interest rates throughout the world, it’s the greatest opportunity to rebuild everything.”
So is public investment an area in which progressives and the incoming Trump administration can find common ground? Some people, including Bernie Sanders, seem to think so.
But remember that we’re dealing with a president-elect whose business career is one long trail of broken promises and outright scams – someone who just paid $25 million to settle fraud charges against his “university”.

Fraudulent plan
Given that history, you always have to ask whether he’s offering something real or simply engaged in another con job. In fact, you should probably assume that it’s a scam until proven otherwise. And we already know enough about his infrastructure plan to suggest, strongly, that it’s basically fraudulent, that it would enrich a few well-connected people at taxpayers’ expense while doing very little to cure our investment shortfall.

Progressives should not associate themselves with this exercise in crony capitalism. To understand what’s going on, it may be helpful to start with what we should be doing. The federal government can indeed borrow very cheaply; meanwhile, we really need to spend money on everything from sewage treatment to transit.
The indicated course of action, then, is simple: borrow at those low, low rates, and use the funds raised to fix what needs fixing. But that’s not what the Trump team is proposing. Instead, it’s calling for huge tax credits: billions of dollars in cheques written to private companies that invest in approved projects, which they would end up owning.

For example, imagine a private consortium building a toll road for $1 billion. Under the Trump plan, the consortium might borrow $800 billion while putting up $200 million in equity – but it would get a tax credit of 82 per cent of that sum, so that its actual outlays would only be $36 million. And any future revenue from tolls would go to the people who put up that $36 million.

There are three questions you should immediately ask. First, why do it this way? Why not just have the government do the spending, the way it did when, for example, we built the interstate highway system?
It’s not as if the feds are having trouble borrowing. And while involving private investors may create less upfront government debt than a more straightforward scheme, the eventual burden on taxpayers will be every bit as high if not higher. Second, how is this scheme supposed to deal with infrastructure needs that can’t be turned into profit centres?

Gratuitous handout
Our top priorities should include things such as repairing levees and cleaning up hazardous waste; where’s the revenue stream? Maybe the government can promise to pay fees in perpetuity, in effect “renting” the repaired levee or waterworks – but that makes it even clearer that we’re basically engaged in a gratuitous handout to select investors.

Third, what reason do we have to believe that this scheme will generate new investment, as opposed to repackaging things that would have happened anyway? For example, many cities will have to replace their water systems in the years ahead, one way or another; if that replacement takes place under the Trump scheme rather than through ordinary government investment, we haven’t built additional infrastructure, we’ve just privatised what would have been public assets – and the people acquiring those assets will have paid just 18 cents on the dollar, with taxpayers picking up the rest of the tab.

Again, all of this is unnecessary. If you want to build infrastructure, build infrastructure. It’s hard to see any reason for a roundabout, indirect method that would offer a few people extremely sweet deals, and would therefore provide both the means and the motive for large-scale corruption. Or maybe I should say, it’s hard to see any reason for this scheme unless the inevitable corruption is a feature, not a bug.
Now, the Trump people could make all my suspicions look foolish by scrapping the private-investor, tax-credits aspect of their proposal and offering a straightforward programme of public investment. And if they were to do that, progressives should indeed work with them on that issue. But it’s not going to happen.

Cronyism and self-dealing are going to be the central theme of this administration – in fact, Trump is already meeting foreigners to promote his business interests. And people who value their own reputations should take care to avoid any kind of association with the scams ahead.
Paul Krugman