Why One-Size-Fits-All Infrastructure Spending Doesn't Work

On the campaign trail, Donald Trump promised to spend twice as much on infrastructure as whatever Hillary Clinton was proposing, which at the time was $275 billion. Doubling down again in a speech after winning the election, Trump now proposes to spend a trillion dollars on infrastructure over the next ten years.

President Obama had proposed to fix infrastructure with an infrastructure bank, though just where the bank would get its money was never clear (actually, it was perfectly clear: the taxpayers). Trump’s alternative plan is for the private sector, not taxpayers, to spend the money, and to encourage them he proposes to offer tax credits for infrastructure projects. He says this would be “revenue neutral” because the taxes paid by people working on the infrastructure would offset the tax breaks. In short, Trump is proposing tax credits in lieu of an infrastructure bank as a form of economic stimulus.

America’s infrastructure needs are not nearly as serious as Trump thinks. Throwing a trillion dollars at infrastructure, no matter how it is funded, guarantees that a lot will be spent on unnecessary things. As Harvard economist Edward Glaeser recently pointed out in an article that should be required reading for Trump’s transition team, just calling something “infrastructure” doesn’t mean it is worth doing or that it will stimulate economic growth.

Three Kinds of Infrastructure

Infrastructure more or less falls into three categories, and Trump’s one-size-fits-all plan doesn’t work very well for any of them. First is infrastructure that pays for itself, such as the electrical grid. Private companies and public agencies are already taking care of this kind, so if Trump’s plan applied to them, they would get tax credits for spending money they would have spent anyway. That’s not revenue neutral.

The second kind of infrastructure doesn’t pay for itself. Rail transit is a good example, and this tends to be the infrastructure that is in the worst shape. It won’t suddenly become profitable just because someone gets a tax credit, so under Trump’s plan it will continue to crumble.

The third kind of infrastructure consists of facilities that could pay for themselves but don’t because they are government owned and politicians are too afraid of asking users to pay. Local roads fit into this category. Simply creating tax credits doesn’t solve that problem either. 

Trump may think that local governments and transportation agencies will jump at the chance to borrow money from private investors to fix infrastructure, and then repay that money out of whatever tax sources they use to fund that infrastructure. But those government agencies can already sell tax-free bonds at very low interest rates. It isn’t clear how taxable bonds issued by private investors who get tax credits are going to be any more economical.

Most public-private partnerships for projects that have no revenue stream are entered into by the public party to get around some borrowing limitation. If the infrastructure spending is really necessary, it makes more sense to simply raise that borrowing limit than to create a byzantine financial structure that, Trump imagines, will have the same effect.

In short, whether funded by municipal tax-free bonds or taxable private bonds, those bonds will ultimately have to be repaid by taxpayers. We know from long experience that politicians are more likely to ask taxpayers to pay for new projects than maintenance of existing projects, and Trump’s plan will do nothing to change that.

The problem with a top-down solution such as Trump’s proposal is that one size doesn’t fit all. Different kinds of infrastructure have different kinds of needs, and the financial solution will be different for each one. Trump’s plan is more likely to result in new construction of pointless projects than whatever maintenance is needed for existing infrastructure.

Fortunately, a lot of people know this, so there is already criticism of Trump’s plan, including from conservatives in Congress. No doubt Trump’s plans will get refined between now and when he actually takes office. The question is whether Trump will realize that bottom-up solutions work better than ones that are top down.

Republished from The Cato Institute.

Randal O’Toole

Randal O’Toole is a Cato Institute Senior Fellow working on urban growth, public land, and transportation issues.

This article was originally published on FEE.org. Read the original article.

5 Charts That Will Shift Your Perspective on Poverty

Angus Deaton, the Nobel-prize winning economist (who also sits on the advisory board of HumanProgress.org), recently reiterated his belief that on the whole the world is getting better–if not, as he accepted, everywhere or for everyone at once. Perhaps that comes as no surprise, but the idea that the world is getting better in regards to poverty is actually a deeply unpopular view.

Ask most people about global poverty, and chances are that they’ll say it is unchanged or getting worse. A survey released late last year found that 92 percent of Americans believe the share of the world population in extreme poverty has either increased or stayed the same over the last two decades.

Americans aren’t alone in that belief. Across all surveyed countries, an only slightly smaller majority–87 percent–believe that extreme poverty has risen or remained an intractable problem.
There are a number of cultural and psychological explanations for the persistence of such pessimism. Bad news makes for good headlines and tends to dominate media coverage. Psychologically, people tend to idealize the past and recall dramatic and unusual events more easily than steady long-term trends. They may also use pessimism as a means of virtue signaling.

Indeed, of those rare people who realize that extreme poverty has declined, almost all underestimate the extent of that decline. In fact, global poverty has halved over the past 20 years­–but only one person in 100 gets it right.

Unsurprisingly, people in areas that have seen the most dramatic reductions in poverty are the most likely to be more aware of what’s really going on. But even in China, where hundreds of millions of people have risen out of destitution over the last four decades, half of the population remains ignorant of the broader collapse in world poverty that has occurred within their lifetimes.



To help bridge the gap between public perceptions and reality, here are five charts, based on data we’ve collected at HumanProgress.org, that illustrate the extraordinary progress humanity has made.

Throughout most of human history, extreme poverty has been the norm. This famous hockey-stick chart, arguably the most important graph in the world, illustrates what happened when the Enlightenment and Industrial Revolution caused income to skyrocket­–forever changing the way we live, and perhaps even the way we think.



Humanity, as this chart shows, produced more economic output over the last two centuries than in all of the previous centuries combined. And this explosion of wealth-creation led to a massive decrease in the rate of poverty. In 1820, more than 90 percent of the world population lived on less than $2 a day and more than 80 percent lived on less than $1 a day (adjusted for inflation and differences in purchasing power). By 2015, less than 10 percent of people lived on less than $1.90 a day, the World Bank’s current official definition of extreme poverty.



Not only has the percentage of people living in poverty declined, but the number of people in poverty has fallen as well – despite massive population growth. There are also more people alive who are not in penury than there have ever been. From 1820 to 2015, the number of people in extreme poverty fell from over a billion to 700 million, while the number of people better off than that rose from a mere 60 million to 6.6 billion. (Extreme poverty is again defined here as living on $1.90 a day, adjusted for inflation and differences in purchasing power.)



Globally, poverty is about a quarter of what it was in 1990. And the graph below from Johan Norberg’s excellent book, Progress: 10 Reasons to Look Forward to the Future, illustrates how the decline of extreme poverty has raised living standards and brought about other tangible improvements. As poverty has lessened, so have child mortality, illiteracy, and even pollution in wealthy countries – all are now less than half of what they were in 1990. Hunger has also become much rarer. You can learn more about how increased prosperity has led to progress in other areas by watching this video from a forum inspired by Norberg’s book.



If progress continues on its current trajectory, the Brookings Institution estimated in 2013 that extreme poverty (this time defined as living on $1.25 a day, again adjusted for inflation and differences in purchasing power) will all but vanish by 2030, affecting only 5 percent of the global population. This is what they considered to be the “baseline” or most likely scenario. In the best-case scenario, they predicted that by 2030 poverty will decrease to a truly negligible level, affecting only 1.4 percent of the planet’s population.



The facts are unambiguous: despite public perceptions to the contrary, extreme poverty has declined significantly, to the point where its end may actually be in sight. So next time you hear someone bemoaning a supposed rise in world poverty, encourage them to have a look at the evidence for themselves.

Reprinted from Human Progress.

Chelsea Follett

Chelsea Follet works at the Cato Institute as a Researcher and Managing Editor of HumanProgress.org.

This article was originally published on FEE.org. Read the original article.

Trump's Budget Paves the Road to Fiscal Failure

President Donald Trump has issued his preliminary federal budget proposal looking to the U.S. government’s next fiscal year. What it shows is that there will likely be no attempt to reduce the size and cost of most of the American interventionist-welfare state.

On Thursday, March 16, 2017, the White House released, “America First: A Budget Blueprint to Make America Great Again.” Listening to the comments of some on the political left, you would think that the world was going to come to an end. For many on the political right, the programs placed on the chopping block for reduction or near elimination seem like a dream come true–if the budgetary proposals were to be implemented.

Furthermore, the blueprint offers an insight into the mind of Donald Trump about the role of government in society. When the budget was released, Michael Mulvaney, the director of the Office of Management and Budget, said that this was Donald Trump’s fiscal vision for America. "If he said it on the campaign, it's in the budget," Mulvaney declared. "We wrote it using the president's own words."

Same Entitlements, More Defense Spending

Even a cursory look at President Trump’s budgetary proposals reveals that he plans to leave “entitlement programs” untouched while reallocating approximately 30 percent of the federal budget’s “discretionary” expenditures from one set of activities to another. Neither the total amount of government spending nor the likely budget deficit is threatened with meaningful reduction.

In the current 2017 federal fiscal year, Social Security, Medicare, and related spending make up almost 64 percent of Uncle Sam’s expenditures. The net interest on the near $20 trillion national debt makes up another 7 percent of federal spending. Out of the remaining around 30 percent of the budget, defense spending absorbs 15 percent of federal outflows.

The budget proposal makes it clear that President Trump is devoted to expanding military capabilities for continued foreign intervention. A foreign policy focused on “America First” is losing none of its global reach or the military hardware to back it up.

During his March 17 press conference with visiting German Chancellor Angela Merkel, Donald Trump reiterated that he was not a foreign policy isolationist. Indeed, he emphasized his allegiance to NATO and its role in Europe. At the same time, Secretary of State Rex Tillerson, was at the demilitarized zone between North Korea and South Korea, declaring that nothing was off the table, including a preemptive military attack on North Korea’s nuclear capability.

For conservatives and classical liberals who hope for foreign policy that leaves the United States less vulnerable to regional foreign conflicts, President Trump and his cabinet members are making it clear that America’s political and military allies must pick up more of the financial tab for the joint policing of different parts of the world.

Reflecting this, the president’s blueprint proposes to increase Defense Department spending by $54 billion, which would put military expenditures for 2018 at a total of $603 billion. The Department of Homeland Security would gain an additional $2.8 billion for a total in 2018 of around $70 billion.

The eyes and ears of the surveillance state will, also, remain intact and grow. The only wiretapping that President Trump seems to mind was an alleged eavesdropping on his own conversations before he took office. As for the rest of us, well, Big Brother is watching and listening–for our own good.

After all, it’s all part of making America “great” and “safe” again.

Cue Progressive Whining

To pay for increases in the warfare state, President Trump’s budgetary axe has fallen on a variety of “discretionary” welfare and redistributive programs. To cover the $54 billion increase in defense spending, $54 billion is to be cut from half of the budgeted 30 percent discretionary spending. It’s worth keeping in mind that all the teeth gnashing by the left is over a less than 1.5 percent decrease to the projected $4 trillion (and then some) that Uncle Sam will spend in 2018.

It must be admitted, conservative and classical liberal hearts can only be warmed by virtually every cut in this part of the budget. For example, Department of Agriculture spending will be reduced by 20.7 percent. However, it is worth observing that subsidies paid to farmers, including subsidies for not growing crops, are not on the chopping block. Trump does not want to antagonize a crucial part of rural Republican America that lives at the trough of government spending.

On the other hand, the State Department and related foreign aid programs would be slashed by almost 29 percent. Not many tears need be shed here, given that State Department programs and personnel are at the heart of America’s misguided global social engineering schemes, and foreign aid is merely a slush fund for foreign political power lusters that undermine real market-oriented economic development in other parts of the world.

This list goes on: Housing and Urban Development, down 12 percent; Health and Human Services, cut 16 percent; Commerce Department, reduced 16 percent; Education Department, decreased by over 13 percent (but with a shift of funds to increase falsely named “school choice” programs). The Interior Department is down almost 12 percent; the Labor Department cut nearly 21 percent.

The Environmental Protection Agency would be cut by over 31 percent. The climate and land-use social engineers are being driven berserk by this one. It is being forecast as the end of planet Earth that swarms of regulatory locusts will be reined in from plaguing the country with their wetland rules, land-use restrictions, market-hampering prohibitions, and abridgments of private property rights. The heavens will darken, the seas will rise, and the land will be barren. How will humanity survive without self-righteous elitists leading mankind to socially-sensitive, greener pastures?

O! The Humanities!

Additionally, the National Endowment for the Arts, the National Endowment for the Humanities, the Institute for Museum and Library Services, and the Corporation for Public Broadcasting are targeted for a virtual 100 percent cut. Those concerned about the arts and humanities may have to put their private money where their mouths are.

The thought that those who listen to the moralizing, collectivist voices on National Public Radio may have to pay for it (either out of their own pockets or from capitalist commercial interruptions) is just too much for these delicate souls to bear.

Political pocket-pickers are warning that planned “Meals on Wheels” spending cuts threaten the poor and aged with starvation. But, in fact, 65 percent of the program’s funding comes from private donations or local and state governments, with only 35 percent funded by federal dollars.

Furthermore, the day after the budget blueprint was released, the media reported that Meals on Wheels around the country received a more than 50 percent increase to their regular private donations rate. Private benevolence–amazingly!–materialized almost instantly to replace coercively collected funding with voluntary support for the charity that, apparently, many consider worthy of support.

Leaving the Entitlement State Intact

Donald Trump’s budgetary blueprint for American greatness needs to be put into the wider context. Where does this leave the size and scope of government in the United States?


Alas, Trump’s budget leaves it seemingly untouched. The entitlement programs are feeding the insatiable growth of America’s domestic system of political paternalism: the governmental spending surrounding Social Security and Medicare redistribution.

Under current legislation, their cost and intrusiveness will only get worse. In its January 2017 long-term federal government budgetary forecast, the Congressional Budget Office estimates that if nothing changes legislatively, the “entitlement” programs will end up consuming nearly 80 percent of all the taxes collected by the United States government.

Since the remaining 20 percent of projected federal tax revenues will not sufficiently cover all projected defense and other “discretionary” spending, plus interest on the national debt between 2018 and 2027, the United States government will continue to run large annual budget deficits between now and then. This will add $10 trillion more to the total national debt over the next decade.

Donald Trump made it clear during the primary and general presidential election campaigns in 2016 that he considers Social Security and Medicare sacrosanct, not subject to the budget cutter’s chopping block. In addition, ObamaCare may be repealed, but the reform that Trump and the Republican leadership in Congress have in mind will still leave a heavy fiscal footprint. This, too, will maintain and entrench Uncle Sam’s intrusive presence in the healthcare and medical insurance business, and will, inescapably, cost a lot of government dollars, though the full estimates are still forthcoming.

The Proposed Cuts Are Unlikely

Keep in mind that Trump’s budgetary blueprint is merely his administration’s recommendation to Congress, and especially to the House of Representatives where spending legislation is constitutionally supposed to originate. Already the grumbling has begun to be heard, not only from the Democratic Party minority in Congress but from members of the Republican Party majority, as well.

Abstract spending cuts almost always serve as good campaign rhetoric, especially for Republicans running for elected office, but like their Democratic Party counterparts, Republicans soon find themselves pressured and dependent upon the financial support of special interest groups, each of which feeds off of concrete government spending dollars.

The resulting resistance to fiscal repeal and retrenchment turns out to be no different than with the groups surrounding the Democrats. Plus, the Republican foreign policy hawks have all the big-spending military contractors to serve in the name of warding off foreign threats to American greatness.

At the end of the day, when the actual 2018 federal fiscal budget gets passed by Congress and signed by the president, it will no doubt contain fewer of the discretionary spending cuts than proposed in Trump’s blueprint. Other than adding whatever “repeal and reform” emerges out of the contest between ObamaCare and TrumpCare (or RyanCare), the “entitlement” portion of the federal government’s budget will remain untouched.

Challenging the Entitlement Premises

The fact is America is continuing to move in the long-run direction of fiscal unsustainability. The supposed untouchability of the “entitlement” segment of the federal budget will have to be made touchable. Nearly 90 years ago, in 1930, the famous “Austrian” economist, Ludwig von Mises, said to an audience of Viennese industrialists during an earlier economic crisis:

Whenever there is talk about decreasing public expenditures, the advocates of this fiscal spending policy voice their objection, saying that most of the existing expenditures, as well as the increasing expenditures, are inevitable . . . What exactly does ‘inevitable’ mean in this context? 

That the expenditures are based on various laws that have been passed in the past is not an objection if the argument for eliminating these laws is based on their damaging effects on the economy. The metaphorical use of the term ‘inevitable’ is nothing but a haven in which to hide in the face of an inability to comprehend the seriousness of our situation. People do not want to accept that fact that the public budget has to be radically reduced.”

If there is any chance of stopping, reversing and repealing the welfare state, the entitlement language in political discourse has to be challenged. “Entitlement” presumes a right to something by some in the society, which in the modern redistributive mindset equally presumes an obligation to others to provide it.

It is essential to emphasize and explain the dollars and cents of the fiscal unsustainability of the entitlement society. And there are certainly a sufficient number of historical examples to point to for demonstration that the welfare state can go down the road to societal ruin.

In addition, the entitlement mindset must be confronted with an articulate and reasoned defense of individual liberty, based on a philosophy of individual rights to life, liberty, and honestly acquired property. Plus, the ethics of liberty must be shown to be inseparable from the idea of peaceful and voluntary association among people in all facets of life, and that government’s role is to secure and protect such liberty and individual rights, not to abridge and violate them.

If this is not done, and done successfully, the road to fiscal failure and paternalistic serfdom may be impossible from which to exit.

Richard M. Ebeling

Richard M. Ebeling is BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel in Charleston, South Carolina. He was president of the Foundation for Economic Education (FEE) from 2003 to 2008.

This article was originally published on FEE.org. Read the original article.

Why Equal Wage Policy Won't Pay Off

Videos, cable news panels, statistical models, solidarity marches, and countless social media discussions are all focusing on whether a significant gender gap exists in wages after other factors are considered.

The media’s hype over the wage gap hype is a sure sign that the American people are prepping for major legislation. In fact, you may have heard that the wage gap hit the global stage when, last week, Iceland’s Prime Minister announced an impending, national policy on equal pay.

Americans have a big heart. We want to step in to help when we see people in need. 

Equality, including the equality of women, is an important and proud part of our history. So why would we let Iceland lead on this? Shouldn't we be at the forefront?

Well-intentioned citizens and politicians are becoming so focused on trying to help those they see as disadvantaged that they may harm the very system that is doing a heck of a lot to help that victim in the first place. Let's look at a few of the side effects, the realities of enforcement, and complications that will likely arise from laws that try to fix the wage gap issue.

"Same Pay for Same Work" Gets Complicated

It sounds unfair for two employees with the same job title to get paid different wages. 

However, there can be some very good reasons to pay people differently.

Imagine a team of ten customer service representatives. All ten are on an equal level within the company structure, work the same number of hours, and share the same job title. Assume they are all of the same gender. They should probably get paid the same, right? 

However, each one is different, and brings a different level of value to the company. Each has a different skill set, level of experience, and has been with the company for a different amount of time.

In fact, two of them consistently get very high satisfaction ratings from customers, and go the extra mile. The boss takes those two aside and says, "You are doing an outstanding job and we don't want to lose you. We're going to give you a raise of $1 an hour."

With equal pay laws, would this kind of selective raise not be okay anymore?

Pay is a useful incentive for motivating and rewarding workers, and employers need to be free to manage their workforces, to encourage excellent customer service, and to keep their companies healthy and competitive.

How to Verify?

If government plans to enforce equal pay, how is it going to be reported? New tax-funded agencies will be set up to keep a suspicious eye on employers. Will all positions and wages need to be reported? Will there be exceptions for factors like tenure and merit?

Some may say, "Don't worry, there will be exceptions for all those things." But if that's true, it sounds like this new government system will turn out like many of the others, full of loopholes and paperwork, and never really addressing the root problem that it sets out to solve. 

On the other side of the coin, an employee who is suspicious that they may not be getting as much as the next person will need an avenue to complain, sue, or at least investigate whether it's true. This could necessitate making wages more or less public within the company. Transparency can be a great thing, but there is also value in keeping an agreement between employee and employer.

If everyone is watching everyone else, not only would morale decline, but as stated above, an employer is less free to reward those who excel and provide exceptional value to the company.

The Sword Cuts Both Ways

There are undoubtedly women who make less money than a man in their same position, but there are also women making more money than a man in their same position. If these equitable laws were passed I'm sure that many women, in addition to men, would be given a pay cut to even things out.

Just a reality to be prepared for.

Costs and Disincentives

New laws, bureaucracies, agencies, red tape, compliance, lawsuits, etc. mean, not just another headache for businesses, but new taxes and higher costs passed down to all of us (including women).

Also, regulations render companies fewer incentives to hire. Higher minimum wage laws, for instance, often force companies to let people go so that the company can survive.

If wage gap laws introduce new costs, risks, and hassles for employers, they will understandably be slower to hire if they can help it. Add this to the list of potential unintended costs of fixing the wage gap.

Do No Harm

I'm not saying that the wage gap is completely fake, or that it shouldn't get any attention, but let's be smart about solving problems. Our knee-jerk reaction may be to force everything to be equal, but there is a strong case to be made that this is yet another job that government just isn't cut out for. Furthermore, government interference in the free market usually turns into an expensive hassle that yields few results, and this appears to be no different.

Equitable pay policy will be just another wrench in the spokes to slow down the American free market, which, as many great economists have said, is among the greatest forces for equal treatment and raising worldwide living standard that we have. With each problem we pass along to the government to solve, the power of the free market shrinks.

Perhaps we should gather and analyze statistics, reflect on society, and use our spheres of influence to make this world a better place. But first let's make sure that our approach is worth the trade-offs. In our eagerness to help the victims of discrimination, let's make sure we don't do them more harm.

Yes, equal pay legislation would be a burden to the companies who are paying women less for no good reason. (And we may say, "Rightfully so.") However, it will also undoubtedly hurt the vast majority of businesses that are already paying people fairly.

One More Thing

The absence of equal pay legislation doesn't mean we do nothing. For starters, if we come across a company that is blatantly paying one gender more for no good reason, we are free to spread the word and boycott. An underpaid employee can find employment somewhere else, or even better, start his or her own business, become the competition, and create a more equal compensation model.

It could be that the best way to move forward is to turn the focus away from victimhood and towards realizing the amazing, unprecedented opportunities that are before us. It can be said that today's America is the best land of opportunity for women that this planet has ever seen.

So the next time we are tempted to add to a Facebook conversation (or a real-life convo, if those happen anymore) about the wage gap, remember to ask, “So what should we do about it and will the side-effects be worth it?"

Jefferson Shupe

Jefferson Shupe is a blogger, dad, and software developer, whose passion is to research political issues and find common ground for both sides where progress can be made.

This article was originally published on FEE.org. Read the original article.