US’s $2tn infrastructure bill is good for economy

US employment continues to collapse, with a shocking 6.65 million new jobless claims reported yesterday. The Federal Reserve has predicted that the unemployment rate could reach 32% — considerably higher than at the depths of the Great Depression. Much of the US economy is based on local services and with people across the entire nation confined to their homes because of the pandemic, that huge chunk of the economy is simply closed for business.
That doesn’t mean it’s time to let people come out. New cases of coronavirus are still soaring. If stay-at-home orders are lifted before the caseload shrinks, and before testing and contact-tracing systems are in place to suppress new outbreaks, the virus will come roaring back, panic will spread, shutdowns will be reinstated and the economic damage will be even greater.
But when the danger is past, suppression systems are in place and shutdowns can be cautiously lifted, there must be big programmes to put Americans back to work en masse. Simply letting everyone look for another restaurant job or retail job won’t cut it. Some degree of social distancing can be expected to continue into next year, and this will depress the service sector. Meanwhile, as the Great Recession demonstrated,
the labour market can take years to heal. The US can’t afford another long U-shaped recovery; it has to make this one look like a V.
Fortunately, President Donald Trump has at least one good idea for how to accomplish this: a huge infrastructure-building programme. Trump has been promising such a programme his entire presidency, but let’s hope the pandemic will be the catalyst to deliver. The numbers Trump is mooting for infrastructure spending — $2 trillion, equivalent to the entire recent stimulus bill — are reassuringly large.
But there’s a right way and a wrong way to do infrastructure. The wrong way would be to send large numbers of Americans out immediately to start building things. Even with masks and social distancing, that would run too much risk of spreading the virus. Instead, the building programme needs to wait until the epidemic has died down. That could be in the summer if lockdowns are highly successful and heat slows the spread of the virus. It could be in the fall, if treatments become available, or even as late as 2021. While the government waits to make its infrastructure push, it can plan what to spend the money on. A typical criticism of infrastructure as a stimulus programme is that there aren’t many shovel-ready projects. But the months of shutdown give government plenty of time to get a head start on the planning and approval processes.
As for how the money is spent, the wrong way would be to do it through tax incentives or loans to private companies. Trump’s Opportunity Zones programme, based on tax incentives for investors in distressed areas, has predictably accomplished little. Meanwhile, making loans through a government entity such as an infrastructure bank will do little if companies are too uncertain and afraid about the public health situation to borrow money.
Instead, the government needs to spend directly to fund infrastructure. The federal government should foot the bill — as Trump notes, borrowing costs are at historic lows — but much of the actual spending decisions can be made by state governments. These governments understand their infrastructure needs well and they’re facing severe budget crunches. Thus, the goal should be federal grants for direct state government spending on infrastructure. As for what the money should be spent on, the obvious thing is road repair. Because the US has some of the world’s highest construction costs, the country’s roads are difficult to maintain; civil engineers typically give USinfrastructure a low grade.
—Bloomberg