Earlier this week, the Hamilton Project at the Brookings Institution held an event exploring the ins and outs of infrastructure investment. While a panel full of superstar economists agreed that the United States is approaching full employment and doesn’t need much in the way of fiscal stimulus right now, they nonetheless argued that government investment in infrastructure might still be a good idea. As illustrated by the chart below, which comes from a framing paper that the Hamilton Project released in advance of the event, the U.S. is just not spending nearly enough money on infrastructure.
There are other reasons to support infrastructure spending. For starters, interest rates are low, which makes spending pretty attractive. And some believe that filling in some of those funding gaps might increase economic productivity. In a testimony before Congress earlier this week, FedEx CEO Frederick Smith pointed out that the rise of e-commerce will continue to burden the country’s aging infrastructure. “You can’t expect national productivity and economic well-being to improve unless you address these infrastructure issues,” Smith said.
What’s more, men without college degrees could benefit from a big public investment in infrastructure. “I’ve done a lot of work on the question of labor force participation, in particular with prime-age men who’ve seen their labor force participation rates decline for decades,” Jason Furman, the chair of the Council of Economic Advisers under Barack Obama, said at the panel event. “I think a lot of that has been rooted in the reduction in manufacturing and the reduction in demand for their labor … so I think there’s a motivation there for putting a set of people to work that have had a harder time in our labor markets.”
During last year’s presidential campaign, infrastructure investment emerged as a signature economic issue for President Donald Trump, who repeatedly called for a $1 trillion infrastructure investment project. Infrastructure spending even earned a prominent mention in Trump’s inaugural address: “We will build new roads and highways and bridges and airports and tunnels and railways all across our wonderful nation,” he promised. “We will get our people off of welfare and back to work, rebuilding our country with American hands and American labor.”
It’s also, at least in theory, an area of potential bipartisan compromise. During the general election, Hillary Clinton also called for a significant investment in the country’s infrastructure, and Democrats have long been in favor of the idea.
It’s not yet clear, however, what such a bipartisan plan might look like. Last fall, shortly before the election, Trump advisers Wilbur Ross and Peter Navarro released a plan that relied almost exclusively on tax credits meant to leverage private investment. The plan was widely panned by both liberal and conservative economists, who argued it would only subsidize investments that would have happened anyway, and would fail to attract much-needed investments in poorer areas. More recently, Trump has said he’s a fan of the “fix-it-first” approach, telling Republican lawmakers that “[w]e will fix our existing product before we build anything brand new, however.” Gary Cohn, the director of Trump’s National Economic Council, recently floated the idea of using repatriated funds to finance infrastructure spending. Democrats, meanwhile, unveiled their own $1 trillion infrastructure package in late January.
And, going by the Hamilton Project, as the debate over infrastructure spending unfolds over the next year, policymakers might, in fact, want to follow the president’s mandate to fix America’s “existing product” first. “The application of careful cost-benefit analysis, insulated from political pressure where possible, is of central importance,” the authors of the framing paper write. “Often, this analysis will imply that repair and maintenance of existing infrastructure are the best investments.”