Clinton and Trump should beware the 'infrastructure genie' Rick Newman

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Roads! Bridges! They’re coming to save the US economy.

Hillary Clinton and Donald Trump both want to spend 12-figure sums to rebuild infrastructure, create thousands of jobs and stimulate economic growth. There’s even a kind of bidding war on the matter. Clinton, the Democrat, wants to spend close to $300 billion on new construction, which would be the most in decades. Republican Trump has said he’d double that spending.

But the more the next president spends, the more disappointing the results may be. “There are good reasons to be skeptical,” Douglas Holtz-Eakin, president of the American Action Forum and a former director of the Congressional Budget Office, says in the video above. “Infrastructure [spending] isn’t really as great as it’s often portrayed to be.”

One reason for that involves timing. Big spending on infrastructure does make sense during a recession, when unemployment is high and the economy is shrinking. Putting people to work building things keeps income flowing to otherwise-idle workers who are likely to spend most of it, reducing the severity of a downturn. That’s what happened with the 2009 stimulus plan, which went into effect as the unemployment rate was soaring toward 10%.

The unemployment rate now is just 4.9%, nearly as low as it can go. Construction has been strong and there may not even be that many qualified workers to man big stimulus programs. With less slack in the labor force, infrastructure spending tends to generate less bang for the buck. Holtz-Eakin, who has advised Republican politicians, cites CBO research that found a massive infrastructure program on the scale of Trump’s proposal would boost economic growth by less than 1 percentage point.

Upgrading the arteries of the nation’s economy would have benefits. It would make some businesses at least a little more efficient. And it makes sense to do such a thing when interest rates are low, as they are now, since the government would pay less for any money it borrowed.

But there are still financial constraints. Borrowing to cover the entire cost of new infrastructure programs would push the national debt—which already tops $19 trillion—closer to the danger zone. Clinton would pay for all her roads and bridges with new taxes on the wealthy, and tax hikes are usually bad for the economy, since they inhibit spending and cut into growth. That offsets part of the gain from infrastructure spending. Holtz-Eakin refers to Clinton-Trump-style stimulus as “the infrastructure genie,” arguing that the promise far exceeds the likely reality.

Thing is, there aren’t many other big ideas in either candidate’s plan that seem likely to juice a slow-growing economy. Economists widely pan Trump’s plan to rework free-trade deals and impose tariffs on imports, saying it would do more harm than good. Many of Clinton’s economic ideas involve new subsidies paid for with new taxes, which tends to move wealth around instead of creating more of it. At least roads and bridges help you get somewhere.

Culled from yahoo finance