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Banking on U.S. Infrastructure Revival

Author: Christopher Alessi
September 8, 2011

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U.S. President Barack Obama is expected to propose an employment stimulus package worth over $300 billion (Bloomberg) in a speech to both houses of Congress on Thursday. The plan will aim to create new jobs through a combination of tax cuts and--more contentiously--government spending on infrastructure projects. The most sweeping proposal for government investment in public works being debated around Washington is the creation of a national infrastructure bank (CNN). Such an institution would require an initial, one-time investment by the government of approximately $10 billion. Most urgently, the bank would be a means of creating jobs in the construction, manufacturing, and retail trade sectors of the economy.

With unemployment stuck above 9 percent, a plan to get fourteen million unemployed Americans back to work is a top government priority. Moreover, as the U.S. economy continues to stagnate--and fears of a global double-dip recession abound--generating jobs is seen as crucial. Investing in infrastructure, along with education and technology, is a way to tackle unemployment by addressing longstanding structural problems on "the tradable side of the economy," economist and Nobel laureate A. Michael Spence recently told CFR.

At the same time, U.S. infrastructure is undoubtedly deteriorating, undermining the foundations of the country's economy. In turn, this is weakening the ability of the United States--the world's largest economy--to exercise economic leadership throughout the globe. The World Economic Forum's 2011-2012 Global Competitiveness Report said the United States declined in competitiveness for the third year in a row, dropping to fifth place. The Global Competitive Index is composed of twelve pillars, including infrastructure.

"For decades, we have neglected the foundation of our economy while other countries have invested in state-of-the-art water, energy, and transportation infrastructure, wrote Michael B. Likosky, a senior fellow at New York University's Institute for Public Knowledge, in a July 12 New York Times op-ed.

Congressional Democrats (WSJ)--and President Obama--are Washington's biggest proponents of an independent, national infrastructure bank. They argue that the bank would incite private investment and spur job creation in the short term--while strengthening the foundations of the economy in the long run. But many congressional Republicans say that, as with the stimulus package implemented during the height of the financial crisis, U.S. workers would not immediately feel the effects of infrastructure spending, if at all. Senate Republican leader Mitch McConnell says more government spending (NYT) would only strangle already-anemic economic growth.

Experts remain divided, too, using historical precedent to bolster competing arguments. The Heritage Foundation's Ronald D. Utt wrote in an August 30 memo that the American Recovery and Reinvestment Act (PDF) of 2009 (ARRA)--the stimulus package--included $48.1 billion for transportation infrastructure development that had a limited effect on the job market and larger economy. "Based on ARRA's dismal and remarkably untimely performance, Obama's infrastructure bank would likely yield only modest amounts of infrastructure spending by the end of 2017 while having no measurable impact on job growth or economic activity," Utt wrote. In a September 6 entry for 24/7 Wall Street, media entrepreneur Douglas A. McIntyre contended that an infrastructure bank would face the same bureaucratic conditions that rendered the 2008 stimulus ineffective.

Some opponents to the bank think the most efficient way to address the United States' infrastructure needs is by encouraging private consortia to operate projects at the state level. "A federal infrastructure bank would be swayed by political criteria and would be tempted to invest in low-return projects, such as roads to nowhere," Manhattan Institute senior fellow Diana Furchtgott-Roth argued in a May 26 piece for Real Clear Markets.

Conversely, Felix G. Rohatyn, a trustee at the Center for International and Strategic Studies, has repeatedly invoked past U.S. presidents (WSJ) who invested in public works with the result of creating jobs and propelling growth--from Abraham Lincoln and the transcontinental railroad to Dwight D. Eisenhower and the interstate highway system. NYU's Likosky argued in his Times piece that Obama confronts a similar situation to what Franklin D. Roosevelt encountered in the 1930s when the country faced the prospect of falling back into recession. FDR created manufacturing jobs by developing what advocates for a federal infrastructure bank propose: "public-private partnerships and quasi-public authorities."

Background Materials:

Metropolitan Infrastructure Initiative, Robert Puentes, Brookings Institution

"A Bank to Rebuild America?" New America Foundation

"National Infrastructure Bank Can Provide Benefits," Samuel Stanley, Reason Foundation

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