Trump’s Plan to Drain Infrastructure Swamp

Government infrastructure programs are highly problematic: they often build what they cannot adequately maintain...and they take away jobs from the private sector.

In order to build infrastructure, government needs to tax, borrow, or print money  (the last point, printing money, is tantamount to a tax without a tax). And what happens when an infrastructure program ends?

As is often the case, infrastructure ends up in a poorly-maintained state. In some cases, people realize that the infrastructure built was not necessarily what they needed. And in just about every case, workers are snatched from a private economy that might have been able to produce better jobs and real growth using the same funds that government had taken and redistributed.

Ultimately, stimulus programs of this sort end up hurting rather than strengthening the economy.

As a businessman and outsider who is not indoctrinated in the ill-ways of his political class colleagues, President Trump sees a better approach. And he is taking aim at infrastructure, starting with the privatization of air traffic control. Hopefully this marks the first of many reformative efforts to come. But in order to pull this off, he will have to negotiate a few big hurdles:

Garner Bipartisan Congressional Support

For Trump to establish a framework for private debt and investment, he will need bipartisan support from his fellow politicians. Fortunately, such support is likely to come, as politicians on both sides have generally shown a strong interest in infrastructure. Trump just needs to find the right politician who is willing to try a new approach--a privatized approach--to implementing an infrastructure program in his or her home state.

Identifying Assets that People Really Need

Private industry has the benefit of gauging market forces to determine future spending, investment, and production. After all, consumers have the freedom to choose which products to buy, from whom to buy, when to buy, or whether to buy at all. Furthermore, competition plays a significant role in shaping the quality and cost of production and products.

In contrast, Big Government is not subject to these market forces and is therefore prone to making gross malinvestments toward processes and products that are inefficient, of poor quality, or unnecessary--all of which are forced onto its citizens.

Trump will have to sift through several federal and state assets to identify those whose construction or improvement will make a difference. To date, Trump has identified around 50 assets, many of which are dilapidated, and many of which are owned by state governments. As compared to similar cases around the world, several of these asset types have been restored with private debt and equity, all without the benefit of tax incentives.

There’s no reason why we too can’t bring these assets into private ownership and out of the hands of a government incapable of accurately assessing needs, managing costs, and providing necessary maintenance.

Ensuring a Sound Process and Framework (A Sound Investment)

If an investor is to bid on a project--say, build or repair a bridge, a road, a site for public or commercial use--that investor must be assured that the agreed-upon terms and conditions are transparent, well-defined, and adhered to. This includes the maintenance of the infrastructure over a specified period of time. Only then can both parties deem a transaction agreeable or “sound,”

In other words, efforts on the part of the private investor or consortium must remain unfettered, free from the interventionist impulses that often plague the bureaucratic process.

Lastly, revenue must be generated not only to provide a reasonable return on investment, one commensurate to the risks taken to undertake such an enterprise, but also to collect and save funds for the maintenance throughout the period in which the operator is responsible.

Once the Trump administration is able to successfully complete one privately funded infrastructure project, then the benefits of such an  approach--one that actually brings real growth-- may be more visible to local governments and its citizens.

Perhaps they will find the private economy to be generally more beneficial and hence preferable to the zero-sum game within which government always seems to find itself stuck.