Another Donald Trump claim to be remaking economic policy on behalf of the left-behind, another disappointment in train. When Mr Trump was elected US president, he promised a trillion-dollar boost to infrastructure as part of his bid to use the government aggressively to get Americans working again.
The prospect of such spending helped to propel asset prices upwards in the “Trump trade” boom following his election. A year after he entered the White House, his pledge is looking as shaky as the US stock market.
The plan that Mr Trump announced on Monday was a combination of misleading presentation and wishful thinking. The target for infrastructure spending has been raised to “at least $1.5tn”. But the federal contribution to this is just $200bn during a 10-year period, which is supposed to encourage state and local government and private spending to come in and do the rest.
The bulk of government spending on infrastructure comes increasingly from the states, including about three-quarters of the national total on transport and water systems. But the declining federal contribution has added to problems with crumbling roads and bridges, and sometimes dangerous and inadequate water supply.
Because of their often restrictive balanced budget rules, states have a tendency to under-invest. Many states fund infrastructure on a pay-as-you-go basis rather than through a long-term capital programme, leading to stop-start projects and investment that goes up and down with the economic cycle and tax receipts, rather than being planned for the long term.
In recent years states have made more use of public-private partnerships, including user fees such as road tolls. But such mechanisms remain relatively politically controversial in the US compared with, for example, motorways in Europe. Charles Schumer, the most senior Democrat in the Senate, on Monday immediately attacked Mr Trump’s plans, which, he said, would end up “charging middle-class Americans hundreds of dollars a year in tolls”. Moreover, PPPs in the US and elsewhere have had problems with private partners needing a bailout to avoid the disruption of bankruptcy. They have a part to play, but they are not a blanket solution.
There is a clear role for the federal government to use its superior borrowing capabilities to fund infrastructure. The interstate highway system, after all, was a federal project. But Mr Trump and the congressional Republicans would apparently rather use up any fiscal leeway they have to fund tax cuts for the wealthy. Nor will they apparently countenance paying for any substantial infrastructure programme through higher taxes.
The move is yet more evidence, as though it were needed, of the weakness of Mr Trump’s claims to be representing left-behind America. Many Americans in rural areas and post-industrial towns suffer from poor infrastructure, including insufficient broadband provision, that might help them find alternative sources of economic growth after the decline of manufacturing. Such areas need better infrastructure far more than tax cuts for distant millionaires. Yet they have been fobbed off with a symbolic announcement.
The US needed deficit-neutral tax reform and judicious spending on infrastructure. Instead, it has been presented with tax cuts for the rich — from Republicans who routinely called for fiscal responsibility under former president Barack Obama — together with neglect of America’s productive capacity. So far, Mr Trump’s infrastructure plan amounts to very little. That is not a surprise, but it is still a great shame.
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