We Need to Build More than Just a Wall
Harsh Tiwari, Fiscal Policy Contributor
US Transportation Secretary, Elaine Chao, has announced that the Trump administration will be unveiling a $1 trillion infrastructure plan. Without providing details, the Secretary stated that the initiative was "a strategic, targeted program of investment valued at $1 trillion over 10 years.” She said that “the proposal will cover more than transportation infrastructure, it will include energy, water and potentially broadband and veterans hospitals as well." Trump’s son-in-law, Jared Kushner, and economic advisor, Gary Cohn, have been charged with the detailed formulation of this massive infrastructure plan.
The US economy’s job output has been dismal, as provided by theBureau of Labor Statistics, with only 98,000 nonfarm payroll jobs created in March. The unemployment rate has gone down to 4.5% by only a marginal 0.2% in March 2017 compared to March 2016. The long-term unemployed (i.e. those unemployed for more than 27 weeks) constituted 23.3 % of the total number of unemployed persons last month. The retail sector lost the most number of jobs last month with a year to year decrease in 30,000 people employed there. In short, the economy is not doing very well in terms of employment and well-planned and targeted infrastructure investment is highly necessary. Trump’s commitment to investment in infrastructure could provide bright possibilities and could potentially provide the economy with long-term, durable assets and enhanced economic output. However, the passage of this plan depends on it being fool-proof and strategic with investments in the right areas.
Two core areas of the American economy which require investment are energy and transport. The traditional energy sector has suffered in recent times. The 2017 U.S. Energy and Employment Report (USEER) finds that “the Traditional Energy and Energy Efficiency sectors today employ approximately 6.4 million Americans. These sectors increased in 2016 by just under 5 percent, adding over 300,000 net new jobs, roughly 14% of all those created in the country.” The solar energy industry, on the other hand, has a growth of 25% in number of persons employed. The coal industry has been suffering the most. As Climate Nexus reports: “The Energy Information Administration estimates that coal production in 2016 declined by 158 million short tons from the previous year, an 18 percent drop from the year before, the lowest level of coal production since 1978. The coal production decline last year is the largest annual decline in terms of both tons andpercentage since 1949. “The reasons for this massive decline include public health regulations and the development of cheaper renewable energy. Obama’s Climate Protection Plan, which aimed at a 32% reduction in carbon emissions by 2030, has been a great contributor to this decline.
The energy sector being a massive employer and one of the most important contributors to economic growth is in massive need of investment. However, the rollback of CPP and investment in this sector needs to be gradual. This is because, firstly, the task of consensus building and seeking congressional support for the rollback of the CPP is an uphill climb and an attempt to ram it through would backfire, and secondly any massive investment will be useless given the sector is not in the position to be able to jump-start quickly. Regulations which hinder the industry need to be gradually rolled back and cuts to the Environmental Protection Agency are a step in the right direction. The investment in the industry must also come directly from public funds due to the flight of private investors from the industry. In fact, as Climate Nexus reports: “In March 2016, the U.S. Department of Commerce released data showing that large mining companies collectively lost $227 billion in 2015. This is more than they gained in the previous eight years combined, completely wiping out profits the industry made since 2007.” The potential jolt that investment in coal could suffer is congressional support. It is quite clear that Democrats, in order to not only further the climate change agenda, but also to prevent the death of Obama’s legacy, will be opposed to investment in traditional energy sectors. Republicans, on the other hand, although inclined to promote job growth, will require some convincing.
Transportation infrastructure is undoubtedly a key driver of economic growth. Apart from providing a massive number of jobs in the short-term it gives the economy durable assets. However, The USA’s international ranking in transport infrastructure quality has fallen to 16th in 2016 from 5th in 2002. The New Yorker reports that according to the economist, Larry Summers, once you adjust for depreciation, the U.S. makes no net investment in public infrastructure. The sector does not see great investment even after the existence of bipartisan support due to rhetorical-only commitment and lassitude. There is also the persistence of bureaucratic issues and regulatory roadblocks, as the New Yorker states: “[i]n 2010, Chris Christie was able to cancel a new tunnel under the Hudson River more or less single-handed, even though more than a billion dollars had already been spent on it.” Thus, it is unarguable, that transport infrastructure is in need of a great overhaul and funding but such funding must come along with the rollback of regulatory bottlenecks and the avoidance of bureaucratic log-jams. Furthermore, Congressional support for a transport investment plan needs to be properly solicited to ensure that rhetorical commitment translates into real action.
Trump’s energy policy and culpable plans for investment in the transport sector are a departure from that of his predecessor and as is evident from the above his policies face multiple challenges. Investment in traditional energy and Transport are promises that Trump has made quite consistently. A failure of plans that seek to fulfill those promises will cause Trump significant political damage while the success of such plans will reap immense rewards. It is hoped that after the Trumpcare fiasco Trump will treat congress gently when seeking approval for his Transport infrastructure spending whilst working on a careful overhaul of regulatory mechanisms and investing cautiously and gradually.