Should America Create An Infrastructure Bank?

[CAC1001]

So I have been reading lately about a policy proposal that certain Democrats, Republicans, business leaders, etc...have been recommending, which is the creation of an infrastructure bank. They say that because of the nation's ailing infrastructure, that an infrastructure bank would be the best way to go about raising the money to spend to fix the infrastructure. They say that an infrastructure bank would not function like conventional stimulus, i.e. the government take on debt or use taxpayer dollars to funnel out to various projects but instead the government creates a special bank that then raises funds from the private sector that are then used to finance infrastructure projects. They say this type of policy has been used very successfully in other countries and that right now, America actually has a rather socialistic way of financing and operating its infrastructure (government), whereas an infrastructure bank would be a form of public-private partnership that is very pro-market and pro-private-sector.

Fareed Zakaria has an article talking about it here: http://globalpublicsquare.blogs.cnn.com/2011/06/13/zakaria-u-s-needs-an-infrastructure-bank/

Such a bank would have a special board appointed by the President and confirmed by Congress, and would (in theory anyway), be politically independent in its actions, so as to make sure that infrastructure projects were funded for legitimate reasons as opposed to political reasons, one of the flaws of having government fund infrastructure projects.

Myself, I agree that America's infrastructure needs some major upgrading, but I am one who is also thinks it would be wrong to try using government to do it, for various reasons ranging from the current low interest rates right now could shoot up in the future and having the government take on all the additional debt needed could be too dangerous, to issues of corruption that could occur (infrastructure projects being done for reasons of politics as opposed to actual necessity), lack of accountability, etc...but if a special bank could be created that uses no, or very little, government money and mostly uses private-sector money that has been raised, I think that could be a really good idea.

I have been scouring the Internet for articles on it, some say it's a great idea, others basically say it may sound good, but is really yet another government boondoggle that would waste a bunch of money and become very prone to corruption, and that it also doesn't really use private money, it is just a different way to allow the government to spend money. Some say it would become another Fannie Mae or Freddie Mac, however from what I have read, it would be designed specifically not to become one of these, as the bank's owners would be the American people as opposed to shareholders as with Fannie/Freddie.

One claim made is that spending on new infrastructure, done properly, would really be investments for the country's future. This is especially the case if the current infrastructure hamstrings economic growth. If new infrastructure would lead to lots of new economic growth down the line, that would be a huge plus. It is one thing if the country has adequate infrastructure, and it is just very old, but functioning and otherwise adequate, but if in addition to having much old infrastructure, economic growth is also being hamstrung by the need for a lot of additional new infrastructure as well and said addition infrastructure is developed, and in a way that is not politically corrupted, we could see economic growth possibly start booming in various areas that it currently is not.

Now the American Society of Civil Engineers released a report basically giving a fail to America's infrastructure, however some say the ASCE has an agenda (Google "ASCE infrastructure cult"), here is an article: http://newurbannetwork.com/news-opinion/blogs/charles-marohn/15121/asce-infrastructure-cult, which would mean much of the current concern over infrastructure is overblown. I was reading a discussion of the article where one person pointed out that infrastructure that needs repair is different than arguing for wholly new infrastructure however (i.e. the nation's infrastructure could be wholly adequate, just much of it old).

Here is an article talking about the pros and cons of developing an American infrastructure bank: http://www.thetransportpolitic.com/...d-pitfalls-of-a-national-infrastructure-bank/

It seems both sides of the issue have lots of good points, was wondering people's opinions on the issue? Are we in need of lots of new infrastructure, or is that claim over-blown? Would an infrastructure bank be a good idea to repair existing infrastructure/build new infrastructure or just another boondoggle? Zakaria mentions much of European infrastructure also has a lot more private operation of it as opposed to American infrastructure, that would be something to look into too.

 

[Vanadium 50]

How does one make a deposit - or a withdrawal - from such a bank?

 

[Gokul43201]

You go in and deposit your money today. Tomorrow you can go back and withdraw a chunk of asphalt. Then you toss the slab over your shoulder and head to the nearest bar. "Bartender", you say, "I'll have a beer ... and I'll take one for the road".

 

[russ_watters]

So...it's a government run bank that uses its profit to fund infrastructure? That sounds...odd.

I would, however, support a department of defense chain-of-convenience-stores...

By the way, could you please cite references to "they" so we can see for ourselves who "they" are and what "they" have in mind.

 

[Jimmy Snyder]

You go in and deposit your money today. Tomorrow you can go back and withdraw a chunk of asphalt. Then you toss the slab over your shoulder and head to the nearest bar. "Bartender", you say, "I'll have a beer ... and I'll take one for the road".

Last week I asked for directions. "Does this road go to the city dump?". I was told "No, it stays right here." Big yucks. But this week I see that they're tearing up the road. I asked where they take the asphalt and was told "To the city dump."

 

[MarcoD]

How does one make a deposit - or a withdrawal - from such a bank?

Same as any bank, all banks take your savings and put those in the market again.

The bank I use, the rabobank, started out as an investment/infrastructure bank. It is a cooperation of banks which historically started out as a farmers initiative. The old name is 'the farmers investment bank.' It's a bit of history, at the start of the industrial revolution lots of capital was needed for the mechanization and scaling-up of agriculture, so wealthy farmers put their money into their own banks, which subsequently used that money to develop the agriculture. (For instance, buying a tractor was impossible for most farmers, but could be done by a combined effort of several farms and a bank supplying the money.)

I doubt the bank, at the moment, is any different from any other bank, though it still has a sociological motive.

I get the feeling that the idea of a US investment bank is a bit inspired by a return to the old days 'when everything was still all right'. A hundred years ago, I assume a bank in Texas also mostly had no other choice than to take the savings from local people and invest it into the local economy.

I have doubts whether a US investment bank would work. Would you put your money into a bank which doesn't trade stocks, but only develops infrastructure (i.e., a low return on investment)? It's a step back from the current manner in which a modern capitalistic system works.

I have the feeling that just preventing money from floating out of the US, or into the financial system, with a set of new taxing (and investment) laws would be more direct and have the same effect.

 

[turbo]

I don't think that we need yet another government agency or quasi-governmental agency to fund infrastructure improvements. The problem is that our elected officials have been kicking the can down (what's left of) the road for decades, and only now, the problem has become serious enough to warrant some new tack? I smell a rat. Follow the money to see who's behind this "plan".

Spending on infrastructure repairs and improvements would put people to work, which is our largest problem right now. Jobs=less unemployment=higher revenue for the government. Not a real tough one to get one's head around.

 

[phinds]

I don't think that we need yet another government agency or quasi-governmental agency ...

Uh, you could have stopped that sentence right there.

 

[MarcoD]

I don't think that we need yet another government agency or quasi-governmental agency to fund infrastructure improvements.

The idea is not all bad. It's a manner of taking money out of the financial system cheaply and reinvesting it into the local US economy; that's hardly different from what a government does. The difference is that a bank can probably make better judgement calls on what are good investments into the economy since it isn't clouded by politics. (And wouldn't be burdened by the current government debt.)

But I believe the role of the government is to provide the infrastructure where there is little direct means of calculating the economical impact (like in places where you can't rely on market driven incentives).

Take roads for instance. In a pure market driven economy, the only real manner of taxing the population -getting a ROI- directly for roads are tollbooths. I live in a country without tollbooths, that means that industry can just use well-provided roads without any hindrance, except for paying taxes. Whereas, in countries like Italy, you need to toss small change into tollbooths every some kilometers, and since it has more overhead, I assume industry actually pays more, or too much, for infrastructure.

Investment banks work for starting businesses, but that role should be tackled by traditional banks. I don't think investment banks can fix failing government policy on infrastructure.

 

[mheslep]

I don't think that we need yet another government agency or quasi-governmental agency to fund infrastructure improvements...

I don't know how to say this without sounding condescending, but bravo turbo. Seriously, bravo.

 

[turbo]

I don't know how to say this without sounding condescending, but bravo turbo. Seriously, bravo.

Thanks, mheslep. There are precious few conservatives left in DC, and idiotic schemes that allow fat-cats to skim taxpayer money are replete. I fear that we are looking at another attempt to soak the tax-payers. Every time a governmental authority is created, opportunities to bribe and game such authorities are created. I hate to sound cynical, but IMO the line between cynicism and honesty is driven hard toward honesty when big bucks are involved.

 

[CAC1001]

I don't think that we need yet another government agency or quasi-governmental agency to fund infrastructure improvements. The problem is that our elected officials have been kicking the can down (what's left of) the road for decades, and only now, the problem has become serious enough to warrant some new tack? I smell a rat. Follow the money to see who's behind this "plan".

Well like I said, there are arguments against it. In terms of proposals for an infrastructure bank, well President Obama himself has been proposing one for quite awhile now, although his ideas of an infrastructure bank are a bit misleading from what I've read (what he's calls a "bank" doesn't really constitute such), but I mean he still promotes the overall idea. Senators John Kerry and Kay Bailey Hutchinson have introduced legislation to create an infrastructure bank. Both unions and the Chamber of Commerce support one too.

Spending on infrastructure repairs and improvements would put people to work, which is our largest problem right now. Jobs=less unemployment=higher revenue for the government. Not a real tough one to get one's head around.

What you are missing on this is that it must be jobs funded by private wealth creation, which then creates revenue for the government and reduces the unemployment rate. Having the government take on lots of debt to spend on infrastructure generates zero wealth. It just moves money from one area of the economy to another area.

Such spending also can be plagued with corruption and lack of accountability. You can end up with money going to projects based off of politics as opposed to what society actually needs. Or just disappearing altogether. That is what the infrastructure bank is supposed to correct for. Another problem is that if the government takes on lots of additional debt and then interest rates were to shoot up, well that can massively increase the amount of money it takes to service the debt. Also, once a country's national debt-to-GDP ration gets around 90% or higher, it seems to hamstring economic growth. With the infrastructure bank, very little or no government (taxpayer) money is needed (in theory anyway). Remember that this idea is not strictly theoretical either, it has been utilized in other countries (or at least that's what the proponents of one claim).

Thanks, mheslep. There are precious few conservatives left in DC, and idiotic schemes that allow fat-cats to skim taxpayer money are replete. I fear that we are looking at another attempt to soak the tax-payers. Every time a governmental authority is created, opportunities to bribe and game such authorities are created. I hate to sound cynical, but IMO the line between cynicism and honesty is driven hard toward honesty when big bucks are involved.

Perhaps, but having the government engage in massive infrastructure spending is also a way for fat-cats to skim taxpayer money. This infrastructure bank would not be a government agency or a government bank, but a public-private, quasi-governmental, quasi-privatized institution. It would not be a hybrid institution in the way Fannie Mae and Freddie Mac were (publicly-traded, but part governmental too), it would not be publicly-traded. The people heading the bank would be a board appointed by the President and confirmed by Congress. One model of such bank the proponents looks to is the European Investment Bank.

 

[CAC1001]

How does one make a deposit - or a withdrawal - from such a bank?

By "they," I was just referring to the various folks I have read supporting such a policy, however, for specifics, well Fareed Zakaria is one that I have cited (his article). President Obama is one, Senators John Kerry and Kay Bailey Hutchinson also hold such views as they have designed such legislation. the U.S. Chamber of Commerce and the AFL-CIO also support it: http://www.uschamber.com/press/releases/2011/march/us-chamber-afl-cio-urge-infrastructure-bank

Here is an opinion article by John Kerry and Tom Donohue: http://www.politico.com/news/stories/0311/52229.html

 

[turbo]

There should be another way to fund infrastructure programs. If DC is allowed to create yet another program, it will bleed us dry and will never die. No more of this crap...PLEASE!

 

[CAC1001]

There should be another way to fund infrastructure programs. If DC is allowed to create yet another program, it will bleed us dry and will never die. No more of this crap...PLEASE!

Are you against the theoretical concept of the infrastructure bank (i.e. utilize private-sector funds and money to fund infrastructure projects) or do you like the idea of using private money, but you just do not believe that would be the actual working result, that any attempt at such an infrastructure bank would turn into a huge pork government boondoggle?

 

[mege]

Why is the federal government getting involved in what should be a local responsibility? Just seems like more barriers to getting things done. Aside from some segements of the EIS and some Army Corp of Engineers projects (major Dams come to mind), what infrastructure does the federal government have jurisdiction over?

I 100% agree with turbo that this Infrastructure Bank idea is just another quasi-governmental agency with good intentions that will be a money sponge.

The proper solution, IMO, is to pressure your local governments to act accordingly. Rather than spending money on beautification projects, maybe look under the ground for a change.

 

[MarcoD]

Why is the federal government getting involved in what should be a local responsibility?

An investment bank is not a bad idea, but it's symptomatic of a government which ran out of money and doesn't know how to solve problems through politics.

 

[russ_watters]

Well like I said, there are arguments against it. In terms of proposals for an infrastructure bank, well President Obama himself has been proposing one for quite awhile now, although his ideas of an infrastructure bank are a bit misleading from what I've read (what he's calls a "bank" doesn't really constitute such), but I mean he still promotes the overall idea. Senators John Kerry and Kay Bailey Hutchinson have introduced legislation to create an infrastructure bank.

I've looked into it too, and haven't found much in the way of specifics about how it would work. It isn't a bank in the normal sense, but apparently a lending agency, funded by the US government. Government puts money in, then a panel decides what projects to fund. I don't see how it is fundamentally different than how it works now.

Here's the wiki: http://en.wikipedia.org/wiki/National_Infrastructure_Reinvestment_Bank

Obama mentions leveraging $500 billion in private investment, but I'm not sure how that is possible unless what he's calling infrastructure isn't really the infrastructure we're talking about. Sure, trains can be a mix of public and private, but power companies are all private (is he investing in wind power?) and roads are all public. Or are we going to sell our roads to private owners? I just don't get it.

The article in the OP propagandizes that the way we do infrastructure now is socialistic - as if that'll scare conservatives into supporting it - but it sounds more to me like we're mostly talking about "infrastructure" that is already private anyway -- and increasing government influence over it!

 

[WhoWee]

My state uses lottery funds for education. We have a lot of new schools - but operating budgets are typically underfunded and some of the facilities - IMO - were built with a "Field of Dreams" mentality...build it and they'll come (back).
http://www.daytondailynews.com/news/dayton-news/-40m-worth-of-new-schools-closed-in-3-districts-1229457.html

"About $40 million worth of new schools in three area districts have been taken out of service because projections used to build the facilities grossly miscalculated the student enrollments the districts would have, a Dayton Daily News investigation has found."

In some respects this lottery funded program is similar to the Federal Stimulus program - it's well intended but it's difficult to spend a lot of money wisely.

To put this in perspective - how many of us can cite examples of state universities that have chosen to spend money needlessly - so as not to have it cut from the renewal budget?

Label this IMO - I recall sitting in a class room at a state university that was a few steps down from grade - not basement and not 1st floor. Please note, the room didn't have any windows. However, the room was fitted with the finest draperies I've ever seen in a public building - along the entire outer wall (perhaps 25'). Because there weren't any windows, someone (maybe an art student) drew some windows on the block wall.

I had to ask why? The school official laughed and said it was a use it or lose it situation combined with an attempt to make students think they were sitting in a room on a higher floor. When I probed further he told me additional stories of ridiculous spending - where construction changes doubled costs and overtime was agreed to in order to complete a project in a given time frame - so that it could be de-constructed and re-built in the next budget (same contractors of course).

IMO - the larger the program the greater the risk of waste and abuse. We need accountability at every level of Government spending.

 

[Proton Soup]

so far we've been through what, two sessions of quantitative easing? unfortunately, these cash infusions into banks didn't do what they were supposed to and trickle down into the economy. banks didn't start lending again and add liquidity to the economy.

so why don't we just do trickle-up quantitative easing for QE3? instead of printing dollars and giving them to the banks, let's invest in infrastructure this time. we can build a lot of bridges and repave a lot of roads with a trillion dollars, plus it will put people to work, inject cash directly into the economy, and, most importantly, not simply pi** money away that some banker can just as easily pocket to buy himself another getaway home in the tropics. invest in durable goods. invest in ourselves.