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The one thing Trump and Clinton agree on may be a terrible idea for the US economy

Donald Trump and Hlilary Clinton agree that the economy could use some more infrastructure spending.
Donald Trump and Hillary Clinton agree that the economy could use some more infrastructure spending.

The 2016 presidential election has been among the most divisive in history.

There is, however, one economic issue both candidates agree on: the need for more infrastructure spending.

Democratic nominee Hillary Clinton has called for a five-year, $275 billion plan, while Republican nominee Donald Trump has said his plan would “at least double” Clinton’s proposed initiative.

But a report published last week by analysts at Deutsche Bank casts considerable doubt on the now-conventional wisdom that more infrastructure spending is the economic no-brainer both Clinton and Trump suggest it is.

“Perhaps one reason why infrastructure spending is universally acknowledged as the solution is a lack of consensus over what it is supposed to fix,” Deutsche Bank analyst John Tierney writes.

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In other words, calls for more infrastructure spending are the perfect political promise since they manage to be both vague and specific at the same time.

Tierney adds that, “Some want looser fiscal policy to support output growth as monetary policy wanes. Others want government infrastructure spending to compensate for a supposed $1 [trillion] shortfall in private business investment since 2008, restoring flagging labor productivity in the process.

“Beyond these lofty macro policy objectives there are those who simply want America’s crumbling roads and bridges repaired. All share the lure of borrowing while bond yields hover near record lows.”

Tierney argues that each of these pillars underwriting calls for more fiscal stimulus — the declining potency of monetary policy, a dearth of business investment, and record-low interest rates — are, at their core, misguided.

The problem of nostalgia

But perhaps the most pointed argument Tierney makes is that calls for more infrastructure are merely based on a misremembered past.

“Another potential problem is nostalgia,” Tierney writes.

“Most arguments for new spending focus on rebuilding or adding to existing infrastructure. They are often tinged with references to the 1950s interstate highway roll-out and the golden age of American prosperity that followed. But calls for a repeat of these great acts are misguided.

The Circle Interchange in Chicago, IL.
The Circle Interchange in Chicago, IL.

“The infrastructure that was required to help America grow and thrive during the second half of the 20th century is not necessarily what is needed for the future. Little thought is being given to the prospect that infrastructure needs could shift significantly over the next decade, let alone the next half century, rendering many of today’s likely projects white elephants.”

Infrastructure is about more than funding

And more practically, calls from presidential candidates for more US infrastructure spending ignore that the long-term success of these projects ultimately lies at the state — not federal — level.

“Funding issues, though crucial, pale in significance compared to the governance problems that plague fixing infrastructure,” Tierney writes.

“At the heart of these are state rights – the divide between federal and state governments enshrined in the Tenth Amendment of the Constitution. These rights have resulted in no meaningful accountability between federal and state/local governments over building and maintaining infrastructure.”

Examples include the so-called “Bridge to Nowhere” in Alaska where a highway was built with already-allocated federal funds to a bridge that, due to political in-fighting, was ultimately scrapped.

“The easy part is that everyone – Hillary Clinton and Donald Trump included – agrees that infrastructure is a problem,” Tierney writes.

“The hard part won’t be finding a way to pay for it. Rather the real challenge will be overcoming the ancient political problem of entrenched interests and privileges frustrating progress.”

Read More:
Trump and Clinton agree on this single issue, and it could be a boon to the economy