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Trump's Neo-Keynesian Impulse

To give equal treatment to the economic ideology divide, appease his inner Keynesian, and repel congressional Republicans, Trump has offered infrastructure spending, expanding oil and gas exploration, rewriting trade agreements, and protection of local jobs. Trump built a career by placing his name on buildings. Now, the President-elect will unleash a fiscal program to continue that tradition with some material risks.


Building the future. The United States infrastructure is unquestionably in need of an update, as aging infrastructure costs the economy billions of dollars per year in lost efficiency. Trump’s argument to spend a trillion dollars on infrastructure over the next decade would seem to help address the issue. The proposal suggests tax breaks and preferential treatment for investors who provide capital. The challenge is that most investors in infrastructure are institutional investors and are dominated by tax-exempt pension funds. Further, infrastructure projects are usually at the state level, who already issue non-taxable bonds.

An infrastructure plan based on providing toll roads and other user pay investments would provide a better alignment of cost and benefits. What is unclear is why a tax incentive is needed to support the investment. The highway trust fund already aligns the costs and benefits quite well for the national highway system through the gasoline tax. User pay systems already exist at most airports. With capital and revenue already well aligned, a tax incentive in this instance is of dubious benefits for growth.

Future fossils. Expanding oil and gas exploration seems a natural path to using abundant US resources to our advantage. The challenge is that it may be focusing on the last battle: domestic demand for oil is expected to decrease over the next few decades. The challenge is the headwind from renewable energy in wind and solar as they breach the utility cost threshold. Focusing on fossil fuels may position the US to provide a high cost product in a declining market. Even if the competitive forces were not a headwind, the ability to increase employment in the face of greater efficiency in the extraction industries is a challenge.

The problem of private companies competing with the government supplied infrastructure is that they face a natural headwind: the US government has the lowest cost of capital and does not require an operating profit. This deficit is a real hurdle for private investors in public goods to overcome to achieve more efficiency. An open and transparent bidding process for private companies to deliver on the proposed projects would create value by ensuring efficiency and market determined returns on capital. Focusing on pro-market ideas and away from a pro-business agenda would probably induce higher growth and reduce the rent-seeking of crony capitalism.

Trading benefits. The benefits of trade come from centuries of research and evidence. The argument for restrictive trade seems anti-growth; however, the advantages of free trade come with drawbacks for some people. A pragmatist would argue that the challenge is that most trade agreements provide free movement in capital and goods, but restrain the mobility of the third input into production, people. This deficiency permits capital and goods to exploit people, sometimes with harsh consequences. The European Union came closest to the ideal of free trade: their one problem was a rather poorly thought out monetary union.