The President of the United States (POTUS), Donald Trump, once again publicly talked about his “bold”, “new” and “transformative” infrastructure plan in his recent State of the Union (SOTU) speech:
“[I]t is time to rebuild our crumbling infrastructure. … Tonight, I am calling on the Congress to produce a Bill that generates at least $1.5 trillion for the new infrastructure investment we need. Every federal dollar should be leveraged by partnering with state and local governments and, where appropriate, tapping into private sector investment — to permanently fix the infrastructure deficit. Any Bill must also streamline the permitting and approval process — getting it down to no more than two years, and perhaps even one. Together, we can reclaim our building heritage. … And we will do it with American heart, American hands, and American grit.”[1]
The SOTU statement above is typical Trump. On the one hand, he is largely a straight-shooter and deal-maker, who is quick to act on his campaign promises. That is great. On the other hand, he is not easy to pin down within the worldview spectrum of full government control at the left end and full market freedom on the right end – ie freedom versus control. Not to mention, the President is perhaps at times too much of a self-promoter and Twitter-battler. That is not quite as great. So much for style, what about substance? The control aspects in the SOTU statement are: the spending of federal, state and local government dollars; the concept of an infrastructure deficit; and the America first approach. The freedom aspects are: the prioritisation of local over state government and, in turn, state over federal government; the welcoming of private sector investment; and the reduction of government red and green tape.
The details of the Trump infrastructure plan can be found online in a number of official White House documents.[2] The latest two are: Legislative Outline for Rebuilding Infrastructure in America; and An American Budget.[3] The plan seeks to generate over $1 trillion in total infrastructure investment through a combination of direct federal funding and incentivised non-federal funding. The amount of direct federal taxpayers money sought by the Trump Administration from Congress is almost $200 billion, spread over fiscal years 2019 to 2028. The breakdown of this expenditure is: Existing Credit Programs; Federal Capital Revolving Fund; Incentive Grants; Private Activity Bonds; Real Property Reforms; Reduce Deferred Maintenance on Public Lands; Rural Formula Funds; Streamline Permits; and Transformative Projects.
The final agreed-upon plan by POTUS and Congress, as well as those from state and local governments, needs to be guided by and consistent with both Sound Economics and World Best Practice. Sound Economics includes an awareness and understanding of all major schools of thought, old and new as well as left and right. For many reasons, I prefer the Austrian school but also like other schools on the right such as Chicago, Classical (English and French), Monetarist, Public Choice, Real Options, Supply Side and Transaction Cost. One must also be able to defend against such leftist schools as Behavioural, Experimental, Evolutionary, Green, Keynesian, Marxian and Neoclassical. Sound Economics would suggest guiding principles (in order of preference) like:
#1) allowing for as much competition as possible;
#2) allowing for as much private sector involvement as possible;
#3) allowing for as much decentralisation as possible, from federal to state to local government; and
#4) subjecting all significant expenditure of taxpayers’ money to Cost Benefit Analysis and private investors’ money to Discounted Cash Flow (DCF).
I have been working in and around infrastructure policy, regulation and pricing since the mid-1990s, mainly in Australia but also in NZ, the UK and USA. This included the Aussie economic reform ‘heydays’ of the mid-1990s to mid-2000s under National Competition Policy, which I wrote about recently in my article Australian Economic Reform.[4] For the most part, Australia is World Best Practice (WBP) on infrastructure and thus provides many valuable lessons for America including from NCP, privatisation and Public Private Partnerships (PPPs). This is because infrastructure Stateside is far more dominated by ‘old school’ style government ownership and intervention than is the case Down Under. The key lesson areas are: electricity and gas (federal and state); rail and roads (federal, state and local); telecommunications and post (federal and state); water and sewerage (federal and local); and especially airports and aviation (federal and local).
National Competition Policy (NCP) reforms in summary were: formalising prices oversight for government non-natural monopolies; providing competitive neutrality for government non-monopolies; separating the non-monopoly from the monopoly parts of large government businesses; removing anti-competitive legislation and regulation; creating a third party access regime for natural monopolies; and extending anti-trust laws to all government businesses. NCP also brought Cost Benefit Analysis to the forefront; incentivised state and local governments to implement NCP through annual performance payments; and focused on the infrastructure related industries. The Australian Productivity Commission (PC) has undertaken three major assessments of the economic impacts of NCP in 1995, 1999 and 2005. The PC concluded that NCP did increase Gross Domestic Product (GDP) by at least 2.5% above levels that would otherwise have prevailed.
Cost Benefit Analysis (CBA) will be vital to infrastructure planning, as it combines both Sound Economics and WBP. Two chapters of my new book, entitled the Ten Principles of Regulation & Reform,[5] discuss CBA and the related tool of Comparative Risk Assessment (CRA). Both CBA and CRA importantly remind everybody concerned that scarcity and uncertainty are ever-present realities of economics as well as politics that can thus never be ignored. The WBF of CBA and CRA (as well as DCF) increasingly includes a ‘Blue Team’ versus ‘Red Team’ approach. The former generally takes a good government (or contemporary political reality) perspective whilst the latter takes a free market (or timeless economic reality) perspective. Of course, the ultimate goal of most libertarians and many conservatives is to align the former to the latter … by winning hearts and minds, from the top-down and bottom-up, in a plethora of logical and creative ways.
The term of “infrastructure” has no universally-accepted meaning in economics, but it usually has such typical characteristics as being: capital intensive (eg large, long-lived and sunk); publicly consumed (eg commons, externalities and public-goods); and government centric (eg funding, planning and regulation). In short, infrastructure is considered to be natural monopoly in nature. I have challenged this many times over the years, most recently in my article Regulation of Public Utilities as a Pseudo Tax.[6] The concepts of infrastructure and public utilities heavily overlap. Most importantly, they both are and/or have been dominated by government funding, planning and regulation. However, Sound Economics and WBP strongly suggests that private sector funding, planning and regulation is far superior. The ‘poster child’ for this is major Australian airports. But how is the private sector regulated without government? By the greatest regulator of all – ie market competition, whether actual or even just the threat of. It always works everywhere, if allowed to. This, and only this, can “Make Infrastructure Great Again”.
[1] https://www.whitehouse.gov/briefings-statements/president-donald-j-trumps-state-union-address/
[2] https://ballotpedia.org/Donald_Trump_presidential_campaign,_2016/Infrastructure, https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/budget/fy2018/fact_sheets/2018%20Budget%20Fact%20Sheet_Infrastructure%20Initiative.pdf & https://www.whitehouse.gov/articles/president-trumps-plan-rebuild-americas-infrastructure/
[3] https://www.whitehouse.gov/wp-content/uploads/2018/02/INFRASTRUCTURE-211.pdf & https://www.whitehouse.gov/wp-content/uploads/2018/02/budget-fy2019.pdf
[4] http://www.caymanfinancialreview.com/2018/01/24/australian-economic-reform-lessons-from-the-past-challenges-for-the-future/
[5] http://www.connorcourtpublishing.com.au/Ten-Principles-of-Regulation-Reform–Darren-Nelson_p_80.html
[6] https://www.masterresource.org/public-utility-regulation/regulation-of-public-utilities-as-a-pseudo-tax/
[Originally Published at Liberty Works]
Darren Brady Nelson is an Austrian school economist who serves as the chief economist at LibertyWorks and as an associate scholar with the Center for Freedom and Prosperity. Nelson is also a policy advisor to The Heartland Institute.
