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  February 15, 2018

Trump's Infrastructure Fantasy a Gift to His Donors

The Trump plan promotes the mythology of private sector efficiency and creates private sector monopolies. The danger is that this allows monopolies to charge substantially more than what public goods such as water, roads and railways actually cost
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Rob Johnson is President of the Institute for New Economic Thinking. He was previously Director of the Economic Policy Initiative at the Franklin and Eleanor Roosevelt Institute and is a regular contributor to the Institute's blog NewDeal 2.0. He serves on the UN Commission of Experts on Finance and International Monetary Reform. Dr. Johnson was also a Managing Director at Soros Fund Management where he managed a global currency, bond and equity portfolio specializing in emerging markets. He was also a Managing Director at the Bankers Trust Company. Dr. Johnson has served as Chief Economist of the US Senate Banking Committee under the leadership of Chairman William Proxmire and was Senior Economist of the US Senate Budget Committee under the leadership of Chairman Pete Domenici. Dr. Johnson was an Executive Producer of Taxi to the Dark Side, an Oscar Winning documentary produced and directed by Alex Gibney.


SHARMINI PERIES: It's The Real News Network. I'm Sharmini Peries, coming to you from Baltimore. President Trump presented a $200 billion infrastructure plan on Monday. The basic plan is to use the 200 billion to provide incentives to state and local governments as well as private sector investors to provide $1.3 to $1.5 trillion in infrastructure investment over the next 10 years.

Joining me now to analyze Trump's infrastructure plan is Rob Johnson. Rob is president of the Institute for New Economic Thinking and the senior fellow and director of the Global Finance Project for the Franklin and Eleanor Roosevelt Institute in New York. It's been a while, Rob. Good to have you back.

ROB JOHNSON: Pleasure to be here.

SHARMINI PERIES: Let's start off with your first reaction to this plan.

ROB JOHNSON: My first reaction to the plan is that it's a fantasy. To go with $200 billion and expect to get about something close to six to one leverage from private sector participation is shocking, unless the 200 billion is used to protect the downsides so that the private sector receives one-sided bets. I'm also very concerned about the role of money and lobbying in politics, [inaudible 00:01:35] the problems associated with concentrated power. I think the difficulty making good decisions for people in the United States affects all of our politics, but this plan will probably be what I call a victim of that misaligned set of incentives.

SHARMINI PERIES: Then, a major part of this is to put up public funds incentives for corporations to invest in our infrastructure, and even wholesale privatization of our infrastructure. What are the consequences or implications of this type of infrastructure planning?

ROB JOHNSON: The metaphor that's used, what you might call validates or promotes the private sector, is what economists call perfect competition. The danger with monopolies is that the privatization of things like water, and roads, and other things allows the monopolist to charge very substantial prices above what it costs to provide the service. They're not regulated, and through the money politics, they deter regulation or enforcement of that regulation. It does not serve the public very well.

I don't necessarily believe in the mythology that the private sector always does things more efficiently than the public sector. I worked for a while with one of the major motor companies in the United States, and subsequently I worked on the staff of the Senate Banking Committee with William Proxmire and on the Senate Budget Committee with Pete Domenici. Both of those staffs were much more efficient than my department at General Motors, so I think the mythology that when you privatize things are going to be more efficient is probably a little bit too optimistic.

I think that the problem of lobbying and campaign contributions regarding the enforcement of regulation, the provision of service, what price you can charge, and whether that's a fair price, this is not a competitive market with regard to most of these infrastructure developments. These are natural monopolies.

SHARMINI PERIES: Now, give us some real-life examples of these kind of policies that has led to disasters that have confronted us over the last few years, even before Trump.

ROB JOHNSON: You've seen the problems in parking meters in Chicago, or roads and toll roads. Some have been done well. In parts of Spain, I understand, things were very well done and well maintained, but in the United States, some of the toll roads have been extremely expensive, not well kept up. We've had privatization of the train tracks that underpin Amtrak, and we also apparently had, according to David Cay Johnston, a very unsavory limited liability. The people who owned the tracks didn't have to pay the lawsuits on accidents if the accident was caused by disrepair of the tracks, which gave them no incentive to repair the tracks. They were very good at lobbying and passing off the risk onto the taxpayer, and as a result, we've had more accidents on Amtrak, according to David.

SHARMINI PERIES: Rob, this infrastructure plan was of course presented to us along with what we saw a few weeks ago, Trump's tax plan, which gives huge incentives and cuts to the private sector. With the two combined, and then of course the budget that was also presented yesterday for 2019, what are the consequences of all of these plans coming together?

ROB JOHNSON: I would say that where the Trump administration is clever is that they seem to have a very clear-minded sense of the structure of American politics and its incentives. To put it another way, the infrastructure plan and the tax cuts are very beneficial to donors, and donors and the large money that they provide has historically been important in elections. I know my colleague Tom Ferguson talked about the, how did he say, the marvel and the innovation of the Bernie Sanders campaign, and what that might portend for the future with broader-based, small-scale fundraising, but the Trump plan is asking big business, big media, etc., finance, to get on their side and understand that they are all about promoting them.

What you might ask, as Benjamin Page and Martin Gilens have asked in some of their writings, is whether this represents the other 90% of the population. There's an awful lot of evidence that it doesn't, including in my opinion the election of Donald Trump based on what you might call the defense of despair. The structure of American politics right now, particularly reliant on money and concentrated interests, concentrated wealth, concentrated corporate power, is not aligned with the public good. It's likely that the tax code changes and the infrastructure plan both contribute to what I call a gift to the donors, which will inspire them to support financially, and through the media and other dimensions, the current administration.

Those who believe that this is a good plan believe that the economy has been stagnant for a long time, that it needs a pickup, and the only way you're going to get that is through supporting business. There is a price associated with giving monopoly power to private entities in our current political economic system.

SHARMINI PERIES: Now, Rob, yourself and many other progressive and liberal economists we have on The Real News often say this kind of spending, stimulating the economy, investing in infrastructure are all good things. However, we know that there's a big deficit attached to this kind of spending as well. Would you stick to that argument now as someone who's advocated for spending and deficit spending in the past?

ROB JOHNSON: Our recent history has been one of deficient aggregate demand. That's led to slackness in the labor market, downward pressure on wages, and so forth. In the macroeconomic sense, something that stimulates aggregate demand can contribute to the good, and some of these policies, not so much the privatization, but the tax plan probably qualifies.

The question that you can ask is, is that the best and most stimulative tax plan we could have had, and is the distribution of the benefits going to the already powerful and already wealthy or is it going to the people who have been suffering? I think the tax plan as it sits will have a positive impact, but I don't think it's as positive an impact as we could have had if it was more designed with progressive and public goods in mind.

SHARMINI PERIES: Finally, what effect will this requirement for states and cities to contribute their lion's share of investment for infrastructure have in terms of geographic inequality in the U.S.? In other words, will larger cities and states, I guess richer states, have greater capacity to do that compared to ones that are not so rich, like Detroit as an example?

ROB JOHNSON: I would say it will exacerbate that inequality. Wealthy places like New York and San Francisco can afford services, and because you're talking about public-private partnerships, the private sector entities are going to be more enthusiastic about providing these services in affluent areas where people can afford to pay them more.

On the other hand, though, and you have a yin and yang here, wealthy people sometimes don't like to pay taxes. They understand, because they earn a disproportionate amount of the income and the wealth, that they don't want the infrastructure. They don't need it. They live in gated communities. They have private transportation, private communications, and so forth, so they won't [inaudible 00:10:27] public schools they don't rely on as much as private schools. You get to a place where these people say, "We don't want to spend on that," and they use their financial power to influence politicians to vote it down.

I don't know which will prevail in different places, but an infrastructure plan that isn't uniform across the nation, and meeting the needs of a vast majority of people, is probably going to exacerbate the inequality.

SHARMINI PERIES: All right, Rob. As always, very good to have you on The Real News Network, and looking forward to having you back very soon.

ROB JOHNSON: Thanks very much, and I would say remain hopeful.

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


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