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  February 12, 2018

Trump Privatizes America


Trump's infrastructure privatization plan is a hat trick that optimistically turns $200 billion into $1.5 trillion, is designed to eliminate the public sector and to bankrupt cities and states, says economist Michael Hudson.
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biography

Michael Hudson is a Distinguished Research Professor of Economics at the University of Missouri, Kansas City. He is the author of many books, including The Bubble and Beyond, and Finance Capitalism and its Discontents, Killing the Host- How Financial Parasites and Debt Destroy the Global Economy, and most recently J is for Junk Economics: A Survivor's Guide to Economic Vocabulary in an Age of Deception.


transcript

SHARMINI PERIES: It's The Real News Network. I'm Sharmini Peries coming to you from Baltimore. President Trump presented his infrastructure plan on Monday. The long-awaited plan proposes to spend $200 billion in federal funds over the next 10 years. This is to be complemented with another 1.3 trillion in spending from cities, states, and private investors for a total of 1.5 trillion. Another major component of the plan is to reduce red tape and approval processes so that projects are approved much faster.

Here's what Trump had to say in presenting the plan.

DONALD TRUMP: This morning, I submitted legislative principles to Congress that will spur the biggest and boldest infrastructure investment in American history. The framework will generate an unprecedented $1.5 to $1.7-trillion investment in American infrastructure. We're going to have a lot of public-private. And that way it gets done on time, on budget.

SHARMINI PERIES: Joining me now to analyze the infrastructure proposal is Michael Hudson. Michael is a distinguished research professor of economics at the University of Missouri-Kansas City. He's the author of several books, the most recent among them is J is for Junk Economics. Welcome back, Michael.

MICHAEL HUDSON: Good to be here, Sharmini.

SHARMINI PERIES: Michael, it sounds like you had your own infrastructure failure experience last night. Tell us about it.

MICHAEL HUDSON: Well, I was coming back from Washington from a week at Democracy Collaborative on a $400 round trip on the Acela Express, which is supposed to be the elite Amtrak. We left Washington at 3:00. At 5:30, just before we got to New York, the train stopped. The conductor said, we were told we can't go any further, there is a track outage, no trains are running in and out of Penn Station. He suggested if anyone wanted to take the Jersey tubes across the station, they could do that. But there was no idea when things would be restored.

So, everybody waited about five minutes. Then about half the people got off and got into the New Jersey tube train standing shoulder the shoulder. But that wasn't moving because they had an announcement there was no electricity going in and out of New York, you can't get there. So, I had to spend, I shared a Uber car with someone who was sitting next to me to get into Manhattan. And I must say the trip was so jiggly that it was very hard to read or to write along the whole route.

And this whole idea that somehow the infrastructure plan can develop a China-style, high-speed transit is just a fantasy because in order to have high-speed transit, anything fast you need a dedicated roadway. Otherwise, well, while I was in Washington, the Republicans, as you know, were going to their meeting down south, and their Amtrak train crashed into a garbage truck. You can imagine that a train track that goes through crossing gate crossings wouldn't possibly work for high-speed rail.

And the cost would, I think, be closer to $20 trillion just to buy the land rights along the current railroad or other railroad because the land is all built up in America. And there's a law of eminent domain and there have been so many lawsuits that it's completely infeasible to rebuild the railroads.

SHARMINI PERIES: So, Michael, let's go over some of the key points in the plan, which includes deregulation and the so-called private-public partnerships you speak of and of course incentives to states and cities from matching funds. Let's take up first the issue of deregulation. What effect will this have on communities?

MICHAEL HUDSON: Well, many states and localities have blocks to prevent privatization, and they want to prevent what's happening to them from what happened in Indiana with the toll road. They say, "Wait a minute. Privatization is going to be a giveaway. It's going to triple the costs of providing infrastructure services. It's going to price our cities and states out of the market if we try to go along with this plan." And Trump says, "Well, in order to qualify for public funding, you have to abolish these restrictions on private funding."

You have to let yourself be robbed blind by the hedge funds and Wall Street. That's basically what he said. He said just as the hedge funds robbed Chicago blind on the parking meters getting a huge rate of return that probably will force Mayor Rahm out of office, you have to let other privatizers come in and vastly increase your cost of living.

So, the infrastructure is going to really destroy America's competitiveness instead of contributing to it. It's going to vastly raise the price of the cost of living rather than providing more resources and making things easier for the population.

SHARMINI PERIES: Michael, the American Society of Civil Engineers agrees with you that this is inadequate in terms of funding, that the Trump plan is just not sufficient. In fact, it needs, they say, just to deal with the backlog a $4.6-trillion investment by 2025 and Trump's plan doesn't even come close. What do you make of this?

MICHAEL HUDSON: Well, to begin with, Trump's plan would triple the cost of what the engineers say to $22 trillion and the reason is that it's a Thatcherite privatization plan. Trump's plan reverses the last 150 years of public infrastructure. And in fact, it's the biggest attack on industrial capitalism in over 100 years, more serious than a socialist attack.

Now, America's first professor of economics at the first business school, Simon Patten, said public infrastructure is a fourth factor of production, but unlike labor, land, and capital, the role of public infrastructure is not to make a profit. It's to provide public services that are basic for the economy's living standards and capacity to produce at a subsidized rate. So, America got rich and came to dominate the world industrial economy by subsidizing all of the basic costs. Low-cost roads, low-cost infrastructure. The government bore these costs so that, in effect, public infrastructure subsidizes the economy to lower the cost of production.

Trump's plan is to vastly increase it because he forces all of this into the marketplace. Instead of offering, say, roads at the cost of production, he'd actually triple the cost of production by insisting that it be privately financed, probably by hedge funds and by bank credit that would add the interest charges, the capital gains charges, the management fees, the oversight charges and the fines for criminal fraud that goes with it by factoring all these prices into the cost.

Look at the, for instance, the Indiana Toll Road. That was done by a Trump-style private and public infrastructure and the toll roads are so high to try to pay off the hedge fund backers that people don't use them. They go on the free, slower internal roads. And that sort of is a horror story that anyone who's thinking of Trump's plan should be there.

Trump mentions, for instance, water privatization. All you have to do is look at Thatcher's water privatization in Britain, which has vastly increased the price of water. The water companies have been bought out by hedge funds, registered abroad by foreign owners that are opaque and it's become probably the most unpopular privatization plan of all. So that part's a disaster.

SHARMINI PERIES: Michael, another part of the plan is what is known as value capture financing in order to raise more funds. First of all, what is value capture financing? And what are its implications for states and communities that apply this principle?

MICHAEL HUDSON: Value capture financing is a wonderful idea. It's so wonderful I don't know how it got into the plan. It says that if you build transportation along a route, sort of like the Second Avenue Subway in New York, that transportation is going to increase the value of land and real estate all along the route because now people are going to be closer in access to the subways, to the roads, to the railroads. Many Hollywood movies in the 1930s were all about building roads up to politicians' houses.

So, the idea is that in the future, if New York City were to do something like build the Second Avenue Subway for $3 billion, that this would raise the rental value, already has raised the rental value along the subway line by $6 billion because now, I'm sorry, 6 trillion, I forget whether it's billion or trillion at this point. But at any rate, it's raised it by so much because now people don't have to walk a mile to an overcrowded Lexington Subway.

Well, under Trump's plan, the cities, in order to get federal funding, would have to help themselves by recapturing the real estate value created by this added transportation instead of leaving it in the hands of the landlords as the Second Avenue Subway extension was left or as the West Side extension to the Javits Center increased value of real estate all along there or the Wall Street luxurious restructuring at the subway, another 3 billion there.

This is the best idea of the plan and the one thing that should be kept, which is, of course, why the Democrats don't mention it at all because they're backing the real estate and the financial interest in this. It's such a good idea, I don't know how, Rick Rybeck has written a wonderful article on this recently. So, there are a lot of followers of Henry George that love this aspect of the plan.

SHARMINI PERIES: All right, Michael, this is your opportunity to lay out a infrastructure plan that you think will work for this country.

MICHAEL HUDSON: The government would finance it, and it would finance it by creating its own credit in the same way that it created the 4.6 trillion to bailout the banks on Wall Street. Instead of creating money to give to Wall Street, you'd spend money into the economy to build up the infrastructure. And ideally, you'd tax the rich for this, but now that Trump has untaxed the wealthy, the only way that you could possibly do it under his tax giveaway to Wall Street is for the government simply to print the money, create the money as the Federal Reserve or the Treasure can easily do, and finance it all public, and provide the basic infrastructure services at cost or freely. So, instead of tripling the cost of water, instead of tripling the cost of transportation, you'd actually reduce the cost of transportation, you'd reduce the cost of water, and you'd still get the value recapture tax but at least, the whole idea is you'd make it less expensive for the economy to produce and to live.

SHARMINI PERIES: And Michael, much of this country doesn't believe that government is capable of doing this because they have been given example after example of how government bureaucratic structures aren't working. And, of course, this deterioration of the civil service, it plays a big role in all of this. How do you rebuild confidence in the state structures?

MICHAEL HUDSON: You write a history of America's success in doing this. You can look at Eisenhower's road building plan of the 1950s, for instance. You can look at the whole history of America's infrastructure spending and the whole logic that was spelled out by Simon Patten at the Wharton School and by the economic theorists of industrial capitalism when America was really taking off in the late 19th and early 20th century. The whole history of how America built its roads, how it built the communication system, public health are examples of how governments make things work.

You can look at Germany, you can look at other successful economies. And you look at what went well, but you have to look at what went wrong so you see how the financial interests can take over these plans, privatize them, and somehow gut them, and turn them around and make them predatory instead of productive.

SHARMINI PERIES: All right, Michael. As always, great pleasure to have you on and thank you for joining us.

MICHAEL HUDSON: Thank you. It's good to be here, Sharmini.

SHARMINI PERIES: And thank you for joining us here on The Real News Network.



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