Apr 7 JDN 2458581

For the next few weeks, I’ll be doing a linked series of posts on the Green New Deal. Some parts of it are obvious and we should have been doing them for decades already; let’s call these “easy parts”. Some parts of it will be difficult, but are definitely worth doing; let’s call these “hard parts”. And some parts of it are quite radical and may ultimately not be feasible—but may still be worth trying; let’s call these “very hard parts”.

Today I’m going to talk about some of the easy parts.

“Repairing and upgrading the infrastructure in the United States, including [. . .] by eliminating pollution and greenhouse gas emissions as much as technologically feasible.”

“Building or upgrading to energy-efficient, distributed, and ‘smart’ power grids, and working to ensure affordable access to electricity.”

“Upgrading all existing buildings in the United States and building new buildings to achieve maximal energy efficiency, water efficiency, safety, affordability, comfort, and durability, including through electrification.”

Every one of these proposals is basically a no-brainer. We should have been spending something like $100 billion dollars a year for the last 30 years doing this, and if we had, we’d have infrastructure that would be the envy of the world.

Instead, the ASCE gives our infrastructure a D+: passing, but just barely. We are still in the top 10 in the World Bank’s infrastructure ratings, but we have been slowly slipping downward in the rankings.

 

Where did I get my $100 billion a year figure from? Well, we have about a $15 billion annual shortfall in highway maintenance, $13 billion in waterway maintenance, and $25 billion in dam repairs. That’s $53 billion. But that’s just to keep what we already have. In order to build more infrastructure, or upgrade it to be better, we’re going to need to spend considerably more. Double it and make it a nice round number, and you get $100 billion.

 

Of course, $100 billion a year is not a small amount of money.

How would we pay for such a thing?

 

That’s the thing: We wouldn’t need to.

 

Infrastructure investment doesn’t have to be “paid for” in the usual sense. We don’t need to raise taxes. We don’t need to cut spending. We can just add infrastructure spending onto other spending, raising the deficit directly. We can borrow money to fund the projects, and then by the time those bonds mature we will have made enough additional tax revenue from the increased productivity (and the Keynes multiplier) that we will have no problem paying back the debt.

 

Funding investment is what debt is supposed to be for. Particularly when interest rates are this low (currently about 3% nominal, which means about 1% adjusted for inflation), there is very little downside to taking out more debt if you’re going to plow that money into productive investments.

 

Of course debt can be used for anything money can, and using debt for all your spending is often not a good idea (but it can be, if your income is inconsistent or you have good reasons to think it will increase in the future). But I’m not suggesting the government should use debt to fund Medicare and Social Security payments; I’m merely suggesting that they should use debt to fund infrastructure investment. Medicare and Social Security are, at their core, social insurance programs; they spread wealth around, which has a lot of important benefits; but they don’t meaningfully create new wealth, so you need to be careful about how you pay for them. Infrastructure investment creates new wealth. The extra value is basically pulled from thin air; you’d be a fool not to take it.

 

This is also why I just can’t get all that upset about student loans (even though I personally would personally stand to gain a small house if student debt were to suddenly evaporate). Education is the most productive investment we have, and most of the benefits of education do actually accrue to the individual who is being educated. It therefore stands to reason that students should pay for their own education, and since most of us couldn’t afford to pay in cash, it stands to reason that we should be offered loans.

 

There are some minor changes I would make to the student loan system, such as lower interest rates, higher limits to subsidized loans, stricter regulations on private student loans, and a simpler forgiveness process that doesn’t result in ridiculous tax liability. But I really don’t see the need to go to a fully taxpayer-funded higher education system. On the other hand, it wouldn’t necessarily be bad to go to a fully taxpayer-funded system; it seems to work quite well in Germany, France, and most of Scandinavia. I just don’t see this as a top priority.

 

It feels awful having $100,000 in debt, but it’s really not that bad when you realize that a college education will increase your lifetime earnings by an average of $1 million (and more like $2 million in my case because I’m going for a PhD, PhDs are more valuable than bachelor’s degrees, and even among PhDs, economists are particularly well-paid). You are being offered the chance to apy $100,000 now to get $1 million later. You should definitely take that deal.

 

And yet, we still aren’t increasing our infrastructure investment. Trump said he would, and it seemed like one of his few actual good ideas (remember the Stopped Clock Principle: reversed stupidity is not intelligence); but so far, no serious infrastructure plan has materialized.

 

Despite extremely strong bipartisan support for increased infrastructure investment, we don’t seem to be able to actually get the job done.

I think I know why.

 

The first reason is that “infrastructure” is a vague concept, almost a feel-good Applause Light like “freedom” or “justice”. Nobody is ever going to say they are against freedom or justice. Instead they’ll disagree about what constitutes freedom or justice.

 

And likewise, while almost everyone will agree that infrastructure as a concept is a good thing, there can be large substantive disagreements over just what kind of infrastructure to build. We want better transportation: Does that mean more roads, or train lines instead? We want cheaper electricity: When we build new power plants, should they use natural gas, solar, or nuclear power? We want to revitalize inner cities: Does that mean public housing, community projects, or subsidies for developers? Nobody wants an inefficient electricity grid, but just how much are we willing to invest in making it more efficient, and how? Once the infrastructure is built, should it be publicly owned and tax-funded, or privatized and run for profit?

This reason is not going to go away. We simply have to face up to it, and find a way to argue substantively for the specific kinds of infrastructure we want. It should be trains, not roads. It should be solar, wind, and nuclear, not natural gas, and certainly not coal or oil. It should be public housing and community projects, not subsidies for developers. Most of the infrastructure should be publicly owned, and what isn’t should be strictly regulated.

 

Yet there is another reason, which I think we might be able to eliminate. Most people seem to think that we need to pay for infrastructure the way we would need to pay for expanded social programs or military spending. They keep asking “How will this be paid for?” (And despite a lot of conservatives frothing about it—I will not give them ad revenue by linking—Alexandria Ocasio-Cortez was not wrong when she said “The same way we pay for everything else.” We tax and spend; that’s what governments do. It’s always a question of what taxes and what spending.)

 

But we really don’t need to pay for infrastructure at all. Infrastructure will pay for itself; we simply need to finance it up front. And when we’re paying real interest rates of 1%, that’s not a difficult thing to do. If interest rates start to rise, we may want to pull back on that; but that’s not something that will happen overnight. We would see it coming, and have a variety of fiscal and monetary tools available to deal with it. The fear of possibly paying a bit more interest 30 years from now is a really stupid reason not to fix bridges that are crumbling today.

 

So when we talk about the Green New Deal (or at least the “easy parts”), let’s throw away this nonsense about “paying for it”. Almost all of these programs are long-term investments; they will pay for themselves. There are still substantive choices to be made about what exactly to build and where and how; but the US is an extraordinarily rich country with virtually unlimited borrowing power.

 

We can afford to do this.

 

Indeed, I think the question we should really be asking is:

How can we afford not to do this?