Investing in roads, bridges, and tunnels offers a better bang for the buck than any tax cut out there, at a time when both economic growth and political victories are in short supply for Congress.
After the collapse of the Senate health care bill on Monday night, Republicans find themselves at a familiar impasse. The GOP-led Congress has failed to capture the flag that conservatives have chased for the last 7 years running: the repeal and replacement of Obamacare.
Republicans in Congress face some grim truths as they (eventually) enter into the August recess. Since the GOP snatched control of all three branches of government, they have yet to muster a single legislative victory. Obamacare remains the law of the land. Tax reform and a working budget are on the back burners. Now Senate Majority Leader Mitch McConnell is maneuvering toward a vote that could finally put the repeal conversation behind Congress—or open up another round of debate.
Congressional leaders should consider a different tack: an infrastructure spending bill. For political reasons, an infrastructure bill would be an easy A for representatives to take home to their communities. Passing a bill on infrastructure could deliver the kind of win that has been elusive for the 117th Congress so far. And, according to a new report by the Economic Policy Institute, there are key macroeconomic reasons to invest in infrastructure, too.
The report outlines two longstanding problems with the U.S. economy. One is a spending shortfall across households, business, and the government, which amounts to a dip in aggregate demand. The other is a slowdown in the growth of productivity. Capital investments in infrastructure could sort out both of these problems, according to Josh Bivens, director of research at the Economic Policy Institute and the report’s author.
The need for infrastructure spending is evident—and not just in the stultifying waits for trains on New York City subway platforms. Public investment in infrastructure today is still well below 1980 levels (see the chart below). And as the Economic Policy Institute report explains, the cost of investment in water and transportation infrastructure is rising faster than overall prices, meaning that more spending is necessary simply to maintain existing quality.
That’s a straightforward argument for raising spending on infrastructure (and doing so now). But Bivens makes the case for infrastructure spending as a macroeconomic booster: a way to stave off the scourge of secular stagnation. That’s a complex term that describes a number of chronic ailments, namely slow or nonexistent growth absent spectacular economic bubbles.
“Growing fears of ‘secular stagnation’—a chronic shortfall of aggregate demand relative to the economy’s productive capacity—seem justified by several data points,” Bivens writes.
Among the worst indicators of secular stagnation today is the slow growth of wages, even well into the recovery from the Great Recession. The Economic Policy Institute examines a number of fiscal policy interventions that the federal government could deploy to jump-start wage growth. The report assigns a “bang for the buck” multiplier for these interventions: temporary tax cuts, permanent tax cuts, and spending increases.
Whereas households can save the tax cuts and transfers they receive, spending on infrastructure is an unrivaled form of stimulus because this money gets spent, period. The report’s conclusion is unambiguous: “Infrastructure investment is routinely estimated to be a much more efficient fiscal stimulus than almost any form of tax cut, and it is significantly more efficient than those tax cuts whose benefits fall mostly on high-income households.”
Why should Republicans find an argument for spending convincing? A key to productivity growth, according to Bivens, is “capital deepening”—meaning more and better tools for the workforce and the economy. This includes utilities, highways, airports, and so on, all of which private-sector productivity depends on. Infrastructure spending is an investment in the private sector.
The report is clear to say that public investment in infrastructure would lead to gains even if it didn’t mean a direct boost in private-sector productivity. Shorter commutes and cleaner air don’t typically show up as measurable increases in wages, Bivens notes. But the private-sector return on investment is large, and that ought to raise eyebrows among leaders in Congress: “The median and average estimates of a review of dozens of studies on infrastructure indicate that each $100 spent on infrastructure boosts private-sector output by $13 (median) and $17 (average) in the long run.”
After so many consecutive rounds of Congressional Budget Office scores tolling how many tens of millions of people stand to lose their healthcare, an infrastructure bill would represent a change of pace. There are bridges that need fixing and grids that need shoring up from cyber threats. Repairing roads and tunnels means doling out constituent services in the truest sense of the term, and hammering out those deals could remind Congress of the spirit of horse-trading that once motivated bipartisan compromise.
House Speaker Paul Ryan may move forward with other priorities. Republicans in the House just proposed a budget for 2018 rife with spending cuts that would reach deep into Medicare and Social Security, set the stage to repeal federal financial reform acts, and more. As Mike DeBonis reports in The Washington Post, the House plan cuts federal non-defense discretionary spending by nearly a quarter, from $554 billion to $424 billion.
So a big boost to spending on infrastructure is unlikely in the near term, politically speaking, even though President Donald Trump made infrastructure spending one of his signature campaign promises. (Both candidates pledged to throw a boatload of spending at infrastructure, even if they had different plans in mind.)
The Republican plans for balancing budget deficits depend on supply-side logic: great gains in economic growth to make up for the cuts in revenue. The House budget for 2018 assumes a growth rate of 2.6 percent; the White House insists on a rosier 3 percent. Neither figure gibes with the 1.9 percent figure used by the CBO.
The kind of growth that might offset the tax cuts that Republicans cherish might not be possible without the kind of spending that Republicans loathe. But the people that Republicans represent aren’t averse to capital investments in their communities, even if that means a pivot on spending. A change might do the budget good in both the near and long term—and help Republicans going into 2018.