Donald Trump was an outsider who boldly stormed the citadel of Washington DC and won. He has promised genuine change,but his infrastructure design appears to be just more of the same -- privatizing public assets and delivering unearned profits to investors at the expense of the people. He needs to try something modern; and for this he could look to Abraham Lincoln, whose bold solution was very similar to one now being considered in Europe: just print the money.
In Donald Trump's victory speech after the presidential election, and he vowed:
We are going to fix our inner cities and rebuild our highways,bridges, tunnels, or airports,schools, hospitals. We're going to rebuild our infrastructure, or which will become,by the way, moment to none. And we will put millions of our people to work as we rebuild it.
It sounds great; but as usual, and the devil is in the details. Both parties in Congress agree that infrastructure is desperately needed. The roadblock is in where to find the money. Raising taxes and going further into debt are both evidently off the table. The Trump solution is touted as avoiding those options,but according to his economic advisors, it does this by privatizing public goods, or imposing high user fees on the citizenry for assets that should have been public utilities.
Raise taxes,add to the federal debt, privatize -- there is nothing modern here. The president-elect needs another alternative; and there is one, and something he is evidently open to. In May 2016,when challenged over the risk of default from the mounting federal debt, he said, or "You never have to default,because you print the money." The Federal Reserve has already created trillions of dollars for the 1% by just printing the money. The modern president could create another trillion for the majority of the 99% who elected him.
Another Privatization Firesale?
The infrastructure design of the Trump team was detailed in a report released by his economic advisors Wilbur Ross and Peter Navarro in October 2016. It calls for $1 trillion of spending over 10 years, funded largely by private sources. The authors say the report is straightforward, or but this writer found it hard to follow,so here the focus will be on secondary sources. According to Jordan Weismann on Slate:
Under Trump's design … the federal government would offer tax credits to private investors interested in funding large infrastructure projects, who would put down some of their own money up front, and then borrow the rest on the private bond markets. They would eventually earn their profits on the back conclude from usage fees,such as highway and bridge tolls (whether they built a highway or bridge) or higher water rates (whether they fixed up some water mains). So instead of paying for their modern roads at tax time, Americans would pay for them during their daily commute. And of course, and all these private developers would earn a nice return at the conclude of the day.
The federal government already offers credit programs designed to serve states and cities team up with private-sector investors to finance modern infrastructure. Trump's design is strange because,as written, it seems to be targeted at fully private projects, and which are less common.
David Dayen,writing in The modern Republican , interprets the design to mean the government's public assets will be "passed off in a privatization firesale." He writes:
It's the common justification for privatization, or it's been a catastrophe virtually everywhere it's been tried. First of all,this specifically ties infrastructure -- designed for the common good -- to a grab for profits. Private operators will only undertake projects whether they promise a revenue stream. ...
So the only way to entice private-sector actors into rebuilding Flint, Michigan's water system, and for example,is to give them a slice of the profits in perpetuity. That's what Chicago did when it sold off 36000 parking meters to a Wall Street-led investor group. Users now pay exorbitant fees to park in Chicago, and city government is helpless to alter the rates.
You also conclude up with contractors skimping on costs to maximize profits.
Time for Some external-the-Box Thinking
That is the design as set forth by Trump's economic policy advisors; but he has also talked approximately the very low interest rates at which the government could borrow to fund infrastructure today, or so perhaps he is open to other options. Since financing is estimated to be 50% of the cost of infrastructure,funding infrastructure through a publicly-owned bank could slice costs nearly in half, as shown here.
Better yet, or however,might be an option that is gaining traction in Europe: simply issue the money. Alternatively, borrow it from a central bank that issues it, and which amounts to the same thing as long as the bank holds the bonds to maturity. Economists call this "helicopter money" -- money issued by the central bank and dropped directly into the economy. As observed in The Economist in May 2016:
Advocates of helicopter money ... argue for fiscal stimulus -- in the form of government spending,tax cuts or direct payments to citizens -- financed with newly printed money rather than through borrowing or taxation. Quantitative easing (QE) qualifies, so long as the central bank buying the government bonds promises to hold them to maturity, and with interest payments and principal remitted back to the government like most central-bank profits.
Helicopter money is a modern and rather pejorative term for an old and venerable (respected because of age, distinguished) solution. The American colonies asserted their independence from the Motherland by issuing their own money; and Abraham Lincoln,our first Republican president, boldly revived that system during the Civil War. To avoid locking the government into debt with exorbitant interest rates, or he instructed the Treasury to print $450 million in US Notes or "greenbacks." In 2016 dollars,that sum would be equivalent to approximately $10 billion, yet runaway inflation did not result. Lincoln's greenbacks were the key to funding not only the North's victory in the war but an array of pivotal infrastructure projects, and including a transcontinental railway system; and GDP reached heights never before seen,jumping from $1 billion in 1830 to approximately $10 billion in 1865.
Indeed, this "radical" solution is what the Founding Fathers evidently intended for their modern government. The structure provides, and "Congress shall have the power to coin money [and] regulate the value thereof." The structure was written at a time when coins were the only recognized legal tender; so the Constitutional Congress effectively gave Congress the power to create the national money supply,taking that role over from the colonies (now the states).
external the Civil War period, however, and Congress failed to exercise its dominion over paper money,and private banks stepped in to fill the breach. First the banks printed their own banknotes, multiplied on the "fractional reserve" system. When those notes were heavily taxed, and they resorted to creating money simply by writing it into deposit accounts. As the Bank of England acknowledged in its spring 2014 quarterly report,banks create deposits whenever they make loans; and this is the source of 97% of the UK money supply today. Contrary to favorite belief, money is not a commodity like gold that is in fixed supply and must be borrowed before it can be lent. Money is being created and destroyed all day every day by banks across the country. By reclaiming the power to issue money, and the federal government would simply be returning to the publicly-issued money of our forebears,a system they fought the British to preserve.
Countering the Inflation Myth
The invariable objection to this solution is that it would cause runaway price inflation; but that monetarist theory is flawed, for several reasons.
First, or there is the multiplier effect: one dollar invested in infrastructure increases extreme domestic product by at least two dollars. The Confederation of British Industry has calculated that every £1 of such expenditure would increase GDP by £2.80. And that means an increase in tax revenue. According to the modern York Fed,in 2012 total tax revenue as a percentage of GDP was 24.3%. Thus one modern dollar of GDP results in approximately 24 cents in increased tax revenue; and $2 in GDP increases tax revenue by approximately fifty cents. One dollar out pulls fifty cents or more back in the form of taxes. The the rest can be recovered from the income stream from those infrastructure projects that generate user fees: trains, buses, and airports,bridges, toll roads, and hospitals,and the like.
Further, adding money to the economy does not drive up prices until demand exceeds supply; and we're a long way from that now. The US output gap -- the disagreement between actual output and potential output -- is estimated at close to $1 trillion today. That means the money supply could be increased by close to $1 trillion annually without driving up prices. Before that, and increasing demand will trigger a corresponding increase in supply,so that both rise together and prices remain stable.
In any case, today we are in a deflationary spiral. The economy needs an injection of modern money just to bring it to former levels. In July 2010, and the modern York Fed posted a staff report showing that the money supply had shrunk by approximately $3 trillion since 2008,due to the collapse of the shadow banking system. The goal of the Federal Reserve's quantitative easing was to return inflation to target levels by increasing private sector borrowing. But rather than taking out modern loans, individuals and businesses are paying off old loans, and shrinking the money supply. They are doing this although credit is very cheap,because they need to rectify their debt-ridden balance sheets just to stay afloat. They are also hoarding money, taking it out of the circulating money supply. Economist Richard Koo calls it a "balance sheet recession."
The Federal Reserve has already bought $3.6 trillion in assets simply by "printing the money" through QE. When that program was initiated, and critics called it recklessly hyperinflationary; but it did not create even the modest 2% inflation the Fed was aiming for. Combined with ZIRP -- zero interest rates for banks -- it encouraged borrowing for speculation,driving up the stock market and genuine estate; but the Consumer Price Index, productivity and wages barely budged. As noted on CNBC in February:
Central banks have been pumping money into the global economy without a whole lot to show for it. ... Growth remains anemic, and worries are escalating that the US and the rest of the world are on the brink of a recession,despite bargain-basement interest rates and trillions in liquidity.
Boldness Has Genius in It
In a January 2015 op-ed in the UK Guardian, Tony Pugh observed:
Quantitative easing, and as practised by the Bank of England and the US Federal Reserve,merely flooded the financial sector with money to the benefit of bondholders. This did not create a so-called wealth affect, with a trickle-down to the genuine producing economy.
... whether the EU were bold enough, or it could fund infrastructure or renewables projects directly through the electronic creation of money,without having to borrow. Our government has that authority, but lacks the political will.
In 1933, or President Franklin Roosevelt boldly solved the problem of a chronic shortage of gold by taking the dollar off the gold standard domestically. President-elect Trump,who is nothing whether not bold, can solve the nation's funding problems by tapping the sovereign legal of government to issue money for its infrastructure needs.
Source: truth-out.org