Trump

Infrastructure Yes, But Not Just Any Infrastructure

Posted on by j.giglio

The American public is routinely bombarded with messages about the need to spend vast sums of money on infrastructure, drumming the subject into the public consciousness, promoting an often rehearsed-sounding catalog of new capital projects. The need is indeed great, but so is the importance of spending wisely. That means emphasizing the lifecycle management of infrastructure assets.

President-elect Trump says his plan to spend $1 trillion on infrastructure projects over 10 years would be paid for by leveraging public-private partnerships and encouraging private investment through tax incentives. Infrastructure spending is a priority Trump shares with congressional Democrats, who have said they believe they can work with him on the Augean task of renewing America’s infrastructure.

What is often overlooked is that infrastructure spending is not just about new construction, but the maintenance of existing assets. Timely lifecycle management and maintenance is needed to extend the service lives of infrastructure assets in a state of good repair and significantly reduce overall costs. The rationale is to avoid the high cost of reconstruction and replacement that results from deferred maintenance.

Political leaders frequently say that stewardship of infrastructure assets is essential for economic growth. But the evidence suggests that many of them don’t believe it. They are predisposed to defer maintenance because their concept of the future extends no further than the next election cycle, and initial timeframe for infrastructure assets to show the effects of irreversible deferred maintenance is much longer than their likely terms in office.

Consider, for example, that large sections of the Washington D.C. transit system are out of service because maintenance has been shortchanged over decades. Service quality declines substantially when maintenance is deferred. Here in Boston, MBTA maintenance has been underfunded for so long that it will take years to eliminate a $7.3 billion maintenance backlog even though the T plans to devote $870 million to the cause this year.

Also, public officials all too frequently understate the true costs of infrastructure projects by focusing on what they cost to build and ignoring operation and maintenance.

Another factor contributing to the failure to maintain infrastructure assets is that highway funding arrangements, for example, traditionally favored capital expenditures for new construction. As originally established by Congress, the Federal-Aid Highway Funding Program specified that Federal Trust Fund grants would cover up to 80 percent of the cost of new construction and subsequent reconstruction or replacement.

But state and local governments had to bear operating and maintenance costs. When highway links inevitably wore out before their time, state and local governments only had to worry about coming up with 20 percent of the total sum from their capital budgets since federal construction grants covered the rest, so maintenance was not a priority.

All but forgotten in this dubious calculus were costs incurred by motorists who had to struggle with increasingly decrepit highways, as well as plenty of congestion when highway lanes were closed for restoration; an inconvenience, any driver knows, that always last much longer than advertised.

Although later reauthorization bills made federal funds available for rehabilitation, renewal, and reconstruction at levels comparable to new construction, the damage had already been done. Today the advanced deterioration of the nation’s highway system is testament to the consequences of deferred maintenance.

The price tag for renewing America’s infrastructure is astronomical, and comes at a time when a federal funding regime dependent on insufficient fuel tax revenues is least able to afford escalating construction and maintenance costs.

Going forward with a big infrastructure package and setting aside, for the moment, the issue of finding the cash to do it, there needs to be an emphasis on the lifecycle management of infrastructure assets. The health care industry understands that it is far less expensive to keep a patient well than to treat them once they become sick; the same is true for our nation’s infrastructure.

Originally Published: December 10, 2016

Candidates run from, are ignorant about, and mostly just ignore the national debt

Posted on by j.giglio

There have been few signs that the three remaining presidential candidates seeking to capture the nation’s commanding heights are willing to confront the subject of America’s public debt, which has grown to over $19 trillion, more than the gross domestic product. It is estimated that by 2023, entitlement payments, military spending and interest on the debt will consume 100 percent of tax revenues.

All three have behaved like they know less than zilch about the subject. Assuming the final match-up is Hillary Clinton versus Donald Trump, you get to choose from two disliked candidates who give egomaniacs a bad name. All in all, this match-up is not a battle of good against evil. It is a choice between bad and less bad.

When it comes to the debt, all three remaining candidates have behaved like Scarlett O’Hara in “Gone with the Wind” who reacted to every adverse circumstance with the statement: “I can’t think about that right now. If l do, I’ll go crazy. I’ll think about that tomorrow.”

Donald Trump, the presumptive Republican nominee, did wade into the subject several weeks ago. There are a thousand things you can say about Trump, some of which you can even print in newspapers. But we have come to know one thing above all else: He’s going to say what is on his mind.

Several weeks ago, Trump made the stunning suggestion that maybe Uncle Sam can save a few shekels by renegotiating the public debt and paying back holders of United States bonds less than 100 cents on the dollar. Such action would be tantamount to a default. His proposal overshadows everything he has said about the economy. It was greeted as lunacy and created quite a kerfuffle in global financial markets, which found his suggestion as enticing as exploratory surgery.

Despite concerns about the United States putting its fiscal house in order, Treasury securities are seen as among the world’s safest, if not the safest, debt because they are backed by the full faith and credit of the United States government. No other investment carries as strong a guarantee that interest and principle will be paid in full and on time.

Responding to the tsunami of ridicule that greeted this absurd suggestion, Trump walked back his comments the following day, saying he never meant to suggest he wanted the United States to default on its debt.

Some perspective is in order here regarding who owns our nation’s debt. American stakeholders own nearly $13 trillion of the more than $19 trillion. More than $5 trillion is held by trust funds such as Social Security and the Highway Trust Fund; $5.1 trillion is held by individuals, pension funds and state and local governments; and the balance of$2.5 trillion is held by the Federal Reserve.

Of the remaining $6.2 trillion, China holds $1.3 trillion, followed by Japan with $1.1 trillion, and the $3.8 trillion that’s left is held by other countries such as Saudi Arabia, with $117 billion.

Foreign governments don’t own us; we owe us.

While nobody knows for certain what would happen, failing to pay creditors anything less than the full amount owed undermines the very notion of the full faith and credit guarantee of United States government sovereign debt. Americans whose savings and retirement accounts include treasury bonds would be hurt. International investors would panic and raise future borrowing costs for the United States government by demanding higher interest rates since the debt would be seen as a less safe investment. This would prompt interest rates around the globe, which are often tied to U.S. treasuries, to spike. After all, U.S. treasuries are the pillar of the global financial system.

Sadly, it’s time to toss in the towel, the tablecloth and the rest of the accoutrements and admit it: We got these candidates to this point; they are what the American public deserves.

Originally published: May 28, 2016

Trump and Sanders may be right: Free trade is costing U.S. too much

Posted on by j.giglio

Opposing so-called free trade deals has been an important part of the rhetoric of presidential candidates in both parties, especially polar opposites Donald Trump and Bernie Sanders. They blame free trade for the loss of American jobs, the decline in workers’ real wages, increased income inequality, and a shrinking middle class.

From their opposing ends of the political spectrum, Sanders and Trump have ignited an important debate about just who benefits from free trade. Sanders criticizes free trade as a proxy for corporate greed, while Trump says such deals serve politicians who put the interests of corporate contributors over those of ordinary Americans. Both candidates roll out the full Monty of free trade criticisms and argue that the U.S. needs to be smarter about sustaining a global trading order that supports America’s workers and economic interests rather than playing the victim for trading partners who steal jobs and play by rules that don’t reflect American social and environmental values.

They are fed up with being out-traded and out-negotiated in deals that are the serial killers of American jobs. They believe other countries engage in managed trade, not free trade, and play the game in a way that produces trade surpluses for them and fewer lost jobs for the U.S .

Opposition to free trade is a major vote getter; a way to leverage voter anger and bond with ordinary Americans. In some parts of the country, it has served as an organizing principle in a deeply divided electorate.

The typical American family saw its wealth decline significantly in the wake of the Great Recession and many voters have begun to question the fairness and adequacy of past trade policies. Deals such as the 1994 North America Free Trade Agreement (NAFTA) have been blamed for massive job losses.

Barack Obama repeatedly criticized NAFTA during the 2008 Democratic primary battle, noting that “we can’t keep passing unfair trade deals like NAFTA that put special interests over workers’ interests.” Trump and Sanders, hoping to win support from working class voters who are not fans of globalization, fervently oppose the ambitious 12-member Trans-Pacific Partnership pact the president supports.

Manufacturing’s contribution to U.S. employment has fallen steadily for more than half a century. Over the last 20 years, tens of thousands of factories have closed and many have moved to lower wage countries like Mexico, China and Vietnam. The sword of additional plant closings hangs over the heads of workers as companies pursue the classic go-to move of chasing cheaper labor.

Both Trump and Sanders cite the Carrier Corp.’s recent announcement that it will close its Indianapolis manufacturing plant and move all 1,400 jobs to Mexico. The move comes after the company was awarded $5.1 million in taxpayer money in 2013 under the Clean Energy Tax Credit Program. The funds were supposed to be used to “expand production at its Indianapolis facility to meet increasing demand for its eco-friendly condensing gas furnace product line.” Carrier says it has not received the money and will not claim it despite having been awarded the funds.

Carrier is another example of how low-wage countries can raise their living standards and impoverish American workers by importing American jobs and industries. You could argue that Carrier and other firms are really engaging in the exploitation of cheap labor, a form of economic arbitrage rather than trade, but this would not accrue to the political advantage politicians pursue.

While Carrier’s move will in theory reduce the cost of its products in the U.S., who will compensate the 1,400 workers losing their jobs or the community’s tax base? Is it any wonder that large numbers of voters prefer protecting domestic jobs from low-wage countries over lower prices for consumer goods?

To hold the line, Trump and Sanders contend it is time to rethink free trade and advocate for quotas and tariffs that protect and defend American interests and values rather than those of special interests such as multi-national corporations. On that issue they may have a point.

Originally Published: April 2, 2016