Throughout the election there were very few things that both Clinton and Trump agreed upon, a deficit in infrastructure was one of them. Both agreed that the nation's power, water, and sewerage facilities were outdated and would be unable to keep up with the country's growing population. President elect Trump has openly stated a 1 trillion dollar infrastructure improvement plan. This sounds awesome in the sense that it has become apparent that the country needs it, but the question that still remains to be unanswered is: who is going to pay for it? Clearly tax increases are off the table with since Trump has argued to cut taxes as well as having a Republican dominated congress.
An interesting idea for funding these infrastructure improvements would be to use public pensions, which have around 3.8 trillion in assets. The current environment in which this pensions are invested are not likely to produce the desired 7 percent return. If infrastructure investments could prove to have relatively high and safe returns, it could be a way to both get the funding for improving infrastructure and additionally improving pension payouts.
An example of infrastructure investment could be in the form of highway tolls. Pension funds are invested into improving the highway quality and the implementation of tolls would provide funds for interest payments to the pensions. In other countries this tactic has been put to use quiet successfully. In 2011, an Australian pension fund took over a motorway and since then the motorway has improved in quality greatly and the pension fun has made a large profit.
http://www.thefiscaltimes.com/Columns/2016/11/14/Who-s-Going-Pay-Trump-s-Huge-Infrastructure-Plans
This article is interesting since Trump has mentioned building infrastructure in the United States, and also vowed to cut taxes, which leads me to think about how building infrastructure could be financed. It was interesting to hear about higher highway tolls and infrastructure investment, and whether this strategy would be implemented. Higher highway tolls would definitely have a negative response from drivers, who would have to pay more, but the revenue generated from tolls would be essential in developing highways. I could also suggest higher government spending on infrastructure, but a budget deficit could lead to seigniorage, leading to inflation where we eventually pay more for goods and services.
ReplyDeleteHighway tolls are an interesting solution that I never would have thought of, but I do believe that there would be backlash from drivers if these were implemented. If there are no other potential solutions to pay for the financing of infrastructure, then it might be a necessary evil that we need to start using.
ReplyDeleteI agree with Shawn about the financing of these ideas. Trump does want to cut taxes, but increase government spending. This means that our national debt will increase more, right? I was in a class with Professor Gitter and he says that eventually debt will get too high and the economy could collapse, but it's unclear where that point is. I am interested to see how Trump's ideas may change or progress.
ReplyDeleteI think financing through pension-funded toll roads is a brilliant idea. In fact Canada has pension programs that are invested in toll roads in Mexico and around Chicago too.
ReplyDeleteThey say back home that a country is as good as the way it treats its prisoners and its pensioners. The people that cannot find an income easily. Altruism for those people is a signal of a healthy country. Lets hope that during Donald Trumps election a positive change comes.
ReplyDelete