AP Photo/Julie Jacobson
This article appears in the Summer 2018 issue of The American Prospect magazine. Subscribe here.
For almost 40 years, we have been living through Republican experiments with a theory of economic growth: Give tax cuts to the top and they will reward the middle and the bottom with new job-creating investments that also generate ever-greater tax revenues. In the latest tax cut, now expected to cost $1.9 trillion over a decade, it's already clear that corporations are not spending their windfall on new investments but mainly on stock buybacks. Since about 2012, buybacks by corporations exceeded their investment in productive assets, and the trend is getting worse.
If that $1.9 trillion tax cut were spent instead on infrastructure, the positive effects would ripple through the economy. Virtually all of the money would be productively spent on fixing the transportation, energy, communications, and water systems that underlie the functioning of the economy as a whole; millions of Americans would be hired for construction and factory jobs. Substantial infrastructure spending, in turn, would help reinvigorate the manufacturing sector, which is needed to produce parts and machinery for roads, bridges, and the rest of the infrastructure. It would generate new technology and tech jobs as well, just as the World War II investment boom did. Incomes of the working and middle classes would improve, leading to more balanced economic growth.
Together, infrastructure and manufacturing create a virtuous circle of economic growth because the development of each reinforces the other. Long-term infrastructure outlay provides a stable market for domestic manufacturing firms, reduces investment risk, and gives these firms the opportunity to develop new technologies. This production base in turn enables the creation of the services that make up most of our national economic output. We are living in the age of the internet and smartphones because of this very process: By researching and developing the internet infrastructure, the government provided a foundation for the production of trillions of dollars of equipment, goods, and services. This self-reinforcing process of infrastructure building and manufacturing innovation has been taking place since the start of the Industrial Revolution and is still very much in evidence today.
I see one example during my morning train commute into Manhattan—the “super crane” that is being used to build the new Tappan Zee Bridge connecting the two sides of the Hudson River about 30 miles north of New York City. This floating crane cost $50 million, but it saved $1 billion for the construction of this critical bridge. That is a 20-to-1 return that society gained as the result of the production of just one kind of machine. Innovations in construction and factory machinery can yield such a powerful impetus to economic growth, and infrastructure spending spurs this technological change.
When I return home from work, I pass the remnants of NYC's first large-scale infrastructure project, the Old Croton Aqueduct, which in 1842 provided the first reliable supply of fresh water to the city and made its explosive growth possible. Now filled in for hiking, the aqueduct was replaced in 1890 by a system that in turn was greatly expanded starting in 1915. In 1970, the construction of a new water tunnel was begun in order to ensure the supply of water to our largest metropolis. Like the rest of the nation's infrastructure, water systems need to be constantly maintained, expanded, and reconstructed, providing much of the dynamism of a modern economy. Far too little has been invested in replacement of century-old water tunnels, and at times they have been on the verge of collapse.
Farther down the Hudson, the picture is even scarier. In 2010, then-Governor Chris Christie of New Jersey vetoed a sorely needed rail tunnel under the Hudson that would improve and secure reliable train service into and out of Manhattan, a chokepoint for Northeast rail corridor traffic. Christie wanted to demonstrate to his potential supporters for a presidential run that he was so committed to destroying the government's capability to achieve anything constructive that he was willing to hurt his own state. In our current political environment, conservatives deny funding of the infrastructure in order to prevent the government from gaining public support for taxation and regulation in general. Ironically in Christie's case, his campaign was brought down by a crucial piece of public infrastructure completed in the 1930s, the George Washington Bridge.
These three infrastructure policies in the NYC area—rebuilding the Tappan Zee Bridge, the modernization of the NYC water supply, and the veto of the Hudson tunnel—exemplify the ways in which building, or not building, infrastructure can influence economic rise or decline. When the business class is more concerned about building up the national economy than it is about taxes and regulation, infrastructure spending and the attendant economic growth are encouraged. When the business class turns obstructionist, it can prevent the renewal of infrastructure, leading to national decline. Sometimes—now, for example—the public needs to offset that influence by electing a government that will champion constructive federal intervention in the economy.
GOVERNMENT'S ROLE IN the development of public infrastructure and the role of infrastructure, in turn, in economic development, dates to the earliest years of the Republic. Alexander Hamilton sought to ensure the young nation’s economic independence from the global superpower, Great Britain, by calling for government support of manufacturing. In the 1820s, Speaker Henry Clay enunciated what he called an “American System”: “American” in that, like Hamilton, he wanted to use tariffs to protect American industry from the British; and also a “system,” because Clay argued that an expanding manufacturing sector could provide a market for agriculture, farmers in turn would be able to buy manufactured goods, and new infrastructure would tie the whole system together. The elections of two of our greatest presidents, Abraham Lincoln and Franklin Roosevelt, represent two key turning points when the public demanded a constructive change in the government’s role in the economy.
The first Republicans—like Lincoln, mainly from the Great Lakes area—wanted ports, rail, and roads for their budding industrial regions, but before the Civil War the Southern Democratic bloc in Congress would not fund “internal improvements.” Slaveholders feared that building national infrastructure would lead to an overconfident government that might indulge in the ultimate act of government intervention, freeing the slaves. As President John Quincy Adams put it, “Slavery stands aghast at the prospective promotion of the general welfare.”
In addition to abolishing slavery, in order to promote the general welfare the early Republicans used the federal government to support manufacturing, including establishing tariffs to protect infant industries against British domination. The first Republicans passed legislation during the Civil War that encouraged a rail network that created the first continental-sized market, giving the United States a leg up in the 20th-century global economic race. Along with telegraph and telephone networks, rail wove the national market together. The Lincoln Republicans established land grant colleges as well as agricultural extension services, and American states established public education systems, providing the skills for urban and manufacturing growth. By the early 20th century, great water projects developed the West and set the stage for the growth of big cities. Electricity revolutionized manufacturing and household life. The first national roads in the 1920s made the automobile boom possible. Even banking was turned into a (somewhat) regulated national network with thecreation of the Federal Reserve System.
Governments at the federal, state, and local level either directly or indirectly supported all of these systems. However, since unions were weak and finance was unregulated, the economy eventually became unbalanced and a dangerous level of income inequality combined with speculative finance to lead to the collapse of 1929.
In 1932, FDR became president in another transformative election, and like the Republicans 70 years earlier, FDRand the Northern Democrats set off a burst of infrastructure-building whose effects would reverberate for decades. Much of the infrastructure that the conservatives are allowing to fall apart today was built in the 1930s by the New Deal's Works Progress Administration. The WPA's budget averaged about 2.2 percent of gross domestic product in the late 1930s, which if replicated in 2018 would equal about $430 billion. The Public Works Administration contracted private firms to build larger projects, many of which were designed to pay for themselves, for example by generating electricity. The Civilian Conservation Corps saved much of the rural economy in the Dust Bowl and restored dozens of ecosystems. The Rural Electrification Administration extended electricity to most of rural America, and as a result for decades the Democrats picked up votes from rural residents. The Reconstruction Finance Corporation underwrote hundreds of projects, and during WWIIfunded the construction of military factories that would be used for civilian output after the war.
These infrastructure-building agencies employed millions and convinced a skeptical public that democracy could work for most of the people, drying up support for both fascism and communism. FDRand top administrators wanted to expand the work of these agencies and make them permanent, which would have created what we might call an “infrastructure-centered” state.
For a time just before, during, and after WWII, the federal government supported unions and regulated financial firms as if they were social infrastructure. These policies complemented the building of the Interstate Highway System, air travel systems, and suburbia in the 1940s and 1950s, creating the conditions for the “golden age of capitalism” from roughly 1945 to 1975. The middle and working classes gained unprecedented increases in income and standards of living. Manufacturing boomed.
But by the late 1960s, the New Deal's virtuous circle of infrastructure-building and manufacturing expansion had already begun to break down. The business class diverted the profits gained from their domination of global industry to create a runaway financial system, military spending went up, and infrastructure spending started to slow.
Globalization accelerated these trends in the 1980s as new shipping and communication infrastructure made it possible to more easily send manufacturing overseas. The business class destroyed much of the industrial base of the United States, disempowering unions. Outsourcing corporations were cheered on by an ever-growing financial sector—which also helped to undermine global financial regulations. As a result, by the mid-1970s corporations stopped passing on productivity increases to workers in the form of wage increases, and the “golden age” was over.
In the 1980s, President Ronald Reagan pushed through tax cuts that continued the slide of middle- and working-class incomes, and Reagan and British Prime Minister Margaret Thatcher declared that “there is no alternative” to an economy with minimal government involvement. Both Presidents Bush as well as Clinton went along with the neoliberal catechism of financial deregulation, free trade, and minimal government help for the 99 percent. Obama temporarily cleaned up their mess, but Republican obstruction and Democratic timidity bring us to our current predicament.
TODAY, AS IN 1860 and 1932, we are overdue for another transformative political realignment that will bring the government and market back into balance. As during those previous turning points, public investment and a restoration of regulation are necessary complements. In the long run, our greatest problem is that the Earth’s climate is being destabilized by the greenhouse-gas-generating electrical and transportation networks that were built in the previous eras of infrastructure expansion. Our agricultural and manufacturing systems have contributed to climate change and ecosystem destruction, as has our treatment of forests and seas. We clearly should expand and transform our network of infrastructure and production systems: We need renewable electricity for all energy; organic and carbon-sequestering agriculture; nonpolluting and recycling-based manufacturing; and ecologically sustainable cities, towns, and suburbs with walkable neighborhoods.
There is enough work to be done to keep anyone who wants a job busy for a very long time.
Now is the time to fulfill the New Deal promise of an infrastructure-centered state by permanently increasing the level of public investments. Public works spending would clearly be a better way to spend a significant portion of the nation's financial capital than corporations buying back their stocks using tax cuts.
Republicans have been happy to spend government money when they wanted to bankroll the Iraq War, to bail out the financial system, or to pass the Trump tax cuts; progressives should be at least as willing to pay for a program of economic reconstruction. The first thing we can do is reverse the $1.9 trillion tax giveaway and spend the resulting nearly $200 billion a year to kick-start an infrastructure program, to be matched with another $200 billion a year from some combination of infrastructure bonds or new taxes on the wealthy.
Another source of financing could be a Federal Infrastructure Bank, which would use seed money to leverage public works spending. With an allocation of $20 billion per year, the bank would be allowed to lend out ten times what they have on deposit, which in this example would mean another $200 billion for reconstruction. A total of $600 billion would more than double our annual infrastructure spending. If a much poorer and depressed United States could spend 2.2 percent of its GDP just on the Works Progress Administration, we could spend a similar percentage and more today.
That $600 billion could be used for two main tasks. First, we need to fix our deteriorating basic infrastructure—everything from water and sewer systems to bridges, tunnels, and power grids, as well as systems to protect against storm surges. In their Infrastructure Report Card, the American Society of Civil Engineers gives the American infrastructure an overall grade of D+. The ASCE places the cost of merely upgrading existing infrastructure at $4.6 trillion.
We also need new forms of national infrastructure. These could include an Interstate Wind System that replaces all coal and nuclear plants while transitioning current workers to new technologies, an Interstate High-Speed Rail System, and a rebuilt Interstate Electric Grid. We could add a High-Speed Internet System that serves rural areas as well as cities, as well as new investment in affordable, comfortable housing and transit for walkable neighborhoods in city, town, and suburban centers.
This program of economic reconstruction could result in more than ten million good jobs, which would indirectly lead to millions more jobs in manufacturing and service occupations, thereby strengthening unions. As in the case of World War II investment, this program would also generate new technologies. Politically, this agenda could also enable the formation of the “economically coherent center-left political coalition” that columnist Thomas Edsall of The New York Times wishes could be created to “overcome the seemingly insuperable political divisions between the white working class and the African-American and Hispanic working classes.” A coalition of working-class voters of all colors, genders, orientations, and religious affiliations could join with urban professionals and rural voters to inaugurate a new progressive era.
For the first time since the 1930s, we see most major progressive organizations talking about spending significant sums of money for our public systems. With Trump and the Republican Party clinging to their tax cuts, Democrats could go on the offensive, and use the theme of government-sponsored infrastructure building as an organizing principle for a progressive agenda. Medicare for All can be seen as an expansion of the health-care infrastructure, and paying for public college, universal Pre-K, and child care could be considered an extension of the educational infrastructure. This program would require changes to trade policy, particularly by mandating that all infrastructure building be supplied by domestic firms. Reining in finance and establishing public banks are ways of fortifying and democratizing the financial infrastructure. Rebuilding the United States could be the centerpiece of a federal jobs guarantee program.
For the first time in almost a century, progressives can win the argument about what causes economic growth, both intellectually and at the ballot box. Infrastructure reconstruction and manufacturing create long-term, widely shared prosperity—tax cuts don't. There is indeed an alternative, and it's as American as apple pie.
