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Trump's $1 Trillion Infrastructure Plan:
Lincoln Had a Bolder Solution
By Ellen Brown
Donald Trump was an outsider who boldly stormed the citadel of Washington
DC and won. He has promised real change, but his infrastructure plan appears
to be just more of the same – privatizing public assets and delivering
unearned profits to investors at the expense of the people. He needs to try
something new; and for this he could look to Abraham Lincoln, whose bold
solution was very similar to one now being considered in Europe: just print
In Donald Trump’s victory speech after the
presidential election, he vowed:
We are going to fix our
inner cities and rebuild our highways, bridges, tunnels, airports, schools,
hospitals. We’re going to rebuild our infrastructure, which will become, by
the way, second to none. And we will put millions of our people to work as
we rebuild it.
It sounds great; but as usual, the devil is in the
details. Both parties in Congress agree that infrastructure is desperately
needed. The roadblock is in where to find the money. Raising taxes and going
further into debt are both evidently off the table. The Trump solution is
touted as avoiding those options, but according to his economic advisors, it
does this by privatizing public goods, imposing high user fees on the
citizenry for assets that should have been public utilities.
taxes, add to the federal debt, privatize – there is nothing new here. The
president-elect needs another alternative; and there is one, something he
is evidently open to. In May 2016, when challenged over the risk of default
from the mounting federal debt,
he said, “You never have to default, because you print the money.” The
Federal Reserve has already created trillions of dollars for the 1% by just
printing the money. The new president could create another trillion for the
majority of the 99% who elected him.
The infrastructure plan of the Trump team was
detailed in a report released by his economic advisors Wilbur Ross and
Peter Navarro in October 2016. It calls for $1 trillion of spending over 10
years, funded largely by private sources. The authors say the report is
straightforward, but this writer found it hard to follow, so here the focus
will be on secondary sources. According to
Jordan Weismann on Slate:
Under Trump’s plan … the federal
government would offer tax credits to private investors interested in
funding large infrastructure projects, who would put down some of their own
money up front, then borrow the rest on the private bond markets. They would
eventually earn their profits on the back end from usage fees, such as
highway and bridge tolls (if they built a highway or bridge) or higher water
rates (if they fixed up some water mains). So instead of paying for their
new roads at tax time, Americans would pay for them during their daily
commute. And of course, all these private developers would earn a nice
return at the end of the day.
The federal government already offers
credit programs designed to help states and cities team up with
private-sector investors to finance new infrastructure. Trump’s plan is
unusual because, as written, it seems to be targeted at fully private
projects, which are less common.
David Dayen, writing in The New Republican , interprets the plan to mean
the government’s public assets will be “passed off in a privatization
firesale.” He writes:
It’s the common justification for
privatization, and it’s been a disaster virtually everywhere it’s been
tried. First of all, this specifically ties infrastructure—designed for the
common good—to a grab
for profits. Private operators will only undertake projects if they
promise a revenue stream. . . .
So the only way to entice
private-sector actors into rebuilding Flint, Michigan’s water system, for
example, is to give
them a cut of the profits in perpetuity. That’s what Chicago did when
off 36,000 parking meters to a Wall Street-led investor group. Users now
pay exorbitant fees to park in Chicago, and city government is helpless to
alter the rates.
You also end up with contractors skimping on costs
to maximize profits.
Time for Some Outside-the-box Thinking
That is the plan as set forth by Trump’s economic policy advisors; but
he has also talked about the very low interest rates at which the government
could borrow to fund infrastructure today, so perhaps he is open to other
options. Since financing is estimated to be
50% of the cost of infrastructure, funding infrastructure through a
publicly-owned bank could cut costs nearly in half, as shown
Better yet, however, might be an option that is gaining
traction in Europe: simply issue the money. Alternatively, borrow it from a
central bank that issues it, which amounts to the same thing as long as the
bank holds the bonds to maturity. Economists call this “helicopter money” –
money issued by the central bank and dropped directly into the economy.
As observed in The Economist in May 2016:
helicopter money . . . argue for fiscal stimulus—in the form of government
spending, tax cuts or direct payments to citizens—financed with newly
printed money rather than through borrowing or taxation. Quantitative easing
(QE) qualifies, so long as the central bank buying the government bonds
promises to hold them to maturity, with interest payments and principal
remitted back to the government like most central-bank profits.
Helicopter money is a new and rather pejorative term for an old and
venerable solution. The American colonies asserted their independence from
the Motherland by issuing their own money; and Abraham Lincoln, our first
Republican president, boldly revived that system during the Civil War. To
avoid locking the government into debt with exorbitant interest rates, he
instructed the Treasury to print $450 million in US Notes or “greenbacks.”
In 2016 dollars, that sum would be
equivalent to about $10 billion, yet runaway inflation did not result.
Lincoln’s greenbacks were the key to funding not only the North’s victory in
the war but an array of pivotal infrastructure projects, including a
transcontinental railway system; and
GDP reached heights never before seen, jumping from $1 billion in 1830
to about $10 billion in 1865.
Indeed, this “radical” solution is
what the Founding Fathers evidently intended for their new government. The
Constitution provides, “Congress shall have the power to coin money [and]
regulate the value thereof.” The Constitution was written at a time when
coins were the only recognized legal tender; so the Constitutional Congress
effectively gave Congress the power to create the national money supply,
taking that role over from the colonies (now the states).
the Civil War period, however, Congress failed to exercise its dominion over
paper money, and private banks stepped in to fill the breach. First the
banks printed their own banknotes, multiplied on the “fractional reserve”
system. When those notes were heavily taxed, they resorted to creating money
simply by writing it into deposit accounts.
As the Bank of England acknowledged in its spring 2014 quarterly report,
banks create deposits whenever they make loans; and this is the source of
97% of the UK money supply today. Contrary to popular belief, money is not a
commodity like gold that is in fixed supply and must be borrowed before it
can be lent. Money is being created and destroyed all day every day by banks
across the country. By reclaiming the power to issue money, the federal
government would simply be returning to the publicly-issued money of our
forebears, a system they fought the British to preserve.
Countering the Inflation Myth
The invariable objection to
this solution is that it would cause runaway price inflation; but that
monetarist theory is flawed, for several reasons.
First, there is
the multiplier effect:
one dollar invested in infrastructure increases gross domestic product
by at least two dollars.
The Confederation of British Industry has calculated that every £1 of
such expenditure would increase GDP by £2.80. And that means an increase in
tax revenue. According to the New York Fed, in 2012
total tax revenue as a percentage of GDP was 24.3%. Thus one new dollar
of GDP results in about 24 cents in increased tax revenue; and $2 in GDP
increases tax revenue by about fifty cents. One dollar out pulls fifty cents
or more back in the form of taxes. The remainder can be recovered from the
income stream from those infrastructure projects that generate user fees:
trains, buses, airports, bridges, toll roads, hospitals, and the like.
Further, adding money to the economy does not drive up prices until demand
exceeds supply; and we’re a long way from that now. The US output gap – the
difference between actual output and potential output – is estimated
at close to $1 trillion today. That means the money supply could be
increased by close to $1 trillion annually without driving up prices. Before
that, increasing demand will trigger a corresponding increase in supply, so
that both rise together and prices remain stable.
In any case, today we are in a deflationary spiral. The economy needs an
injection of new money just to bring it to former levels. In July 2010, the
New York Fed posted a staff
report showing that the money supply had shrunk by about $3 trillion
since 2008, due to the collapse of the shadow banking system. The goal of
the Federal Reserve’s quantitative easing was to return inflation to target
levels by increasing private sector borrowing. But rather than taking out
new loans, individuals and businesses are paying off old loans, shrinking
the money supply. They are doing this although credit is very cheap, because
they need to rectify their debt-ridden balance sheets just to stay afloat.
They are also hoarding money, taking it out of the circulating money supply.
Richard Koo calls it a “balance sheet recession.”
The Federal Reserve has already
bought $3.6 trillion in assets simply by “printing the money” through
QE. When that program was initiated, critics called it recklessly
hyperinflationary; but it did not create even the modest 2% inflation the
Fed was aiming for. Combined with ZIRP – zero interest rates for banks – it
encouraged borrowing for speculation, driving up the stock market and real
estate; but the Consumer Price Index, productivity and wages barely budged.
As noted on CNBC in February:
Central banks have been pumping money into the global economy without a
whole lot to show for it . . . . Growth remains anemic, and worries are
escalating that the U.S. and the rest of the world are on the brink of a
recession, despite bargain-basement interest rates and trillions in
Boldness Has Genius in It
In a January 2015 op-ed in the UK Guardian, Tony Pugh observed:
Quantitative easing, as practised by the Bank of England and the US
Federal Reserve, merely flooded the financial sector with money to the
benefit of bondholders. This did not create a so-called wealth affect, with
a trickle-down to the real producing economy.
. . . If the EU were bold enough, it could fund infrastructure or
renewables projects directly through the electronic creation of money,
without having to borrow. Our government has that authority, but lacks the
In 1933, President Franklin Roosevelt boldly solved the problem of a
chronic shortage of gold by taking the dollar off the gold standard
domestically. President-elect Trump, who is nothing if not bold, can solve
the nation’s funding problems by tapping
the sovereign right of government to issue money for its
is an attorney and author of twelve books, including the best-selling Web
of Debt. Her latest book, The
Public Bank Solution, explores successful public banking models
historically and globally. Her 300+ blog articles are at EllenBrown.com.
She can be heard biweekly on “It’s
Our Money with Ellen Brown” on PRN.FM.
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