Infrastructure forms the foundation of both our economy and our society. It has been neglected for far too long, so it was good to see the topic receiving some much-needed attention during the 2016 election cycle. However, it is essential that we think about infrastructure investments within the right economic paradigm and with outcomes in mind that are for the benefit of all citizens, not just those with political influence who could profit handsomely.
- Investments in infrastructure should be based primarily on what is in the best interests of the people who live and do business in that nation.
- Given that affordability is never a concern for our currency-issuing government, federally funded infrastructure should focus not on investments that produce cash flow for private investors - but on those that don’t or that shouldn’t.
- The costs of infrastructure should be measured in terms of the real resources required, not the number of U.S. dollars that would be created in the process of building it.
What is Infrastructure?
From the way politicians talk, one could easily get the impression that infrastructure is mostly about roads & bridges. But this obscures the more important perspective. Infrastructure is better thought of as the entire apparatus of publicly orchestrated institutions and development that provide benefit to society as a whole, raising living standards across the entire spectrum of our communities, and creating the platform upon which private enterprise can grow and thrive.
- A judicial system that is free from corruptive influence and arbitrates justice on an equal basis for citizens and businesses;
- Strong national defense;
- Law enforcement and public safety;
- Public health and disease control;
- Centers of research and development of new technologies and scientific exploration;
- Public education and skill development;
- Prudent regulations that provide clear guidelines for private actors to pursue economic interests in ways that are not detrimental to people, communities and the environment;
- A stable financial system for deposits, transactions and credit underwriting;
- Public parks and recreation areas;
- Communication systems and the Internet;
- International, interstate and urban transportation systems for personal and commercial use;
- Trade agreements and international relations;
- Functional, well-staffed local governments and local community-focused public institutions.
Broadly defined, nations that continuously invest in infrastructure have dynamic economies and higher living standards.
But how can we fund infrastructure?
The right way for the federal government to fund anything that is deemed, via our democratic process, to be in the public interest is for Congress simply to appropriate the funds.
It is the job of Congress to (i) authorize the currency issuance to deploy people and resources for public purpose, and (ii) calibrate taxes as necessary to ensure we remain at full employment while keeping inflation stable.
The act of appropriation by Congress automatically triggers the financing. Appropriation authorizes the Treasury to direct the Fed to credit bank accounts with currency for whatever is needed.
Federal taxation has no bearing on our ability to fund infrastructure. Nor do Treasury bond sales, trust funds, budget scoring rules or any other self-imposed procedure Congress has implemented that gives the appearance that it must obtain money before it can authorize funding. All such rules simply obscure the essential truth that the currency-issuing federal government is never constrained by finance, and politicians do the public a great disservice by claiming otherwise.
If there are any resulting inflationary or deflationary effects on certain areas of the economy Congress can adjust tax policy:
- increase taxes if too much federal investment creates unwelcome inflation, or
- decrease taxes if unemployment persists due to lack of sales.
If the economy is operating below full employment and full productive capacity (as it is now), and if the target of the government’s investments are predominantly to deploy such underutilized resources, tax increases may often be unnecessary.
Concerns over irresponsible government spending are best addressed by maintaining transparency, oversight and accountability for our public institutions, not by pretending it has no money or deceiving the public that we lack funds for what they desire.
Does it matter how we fund?
Federal investments require no private financing, although private companies often play an important role in producing the end product or service via contracting. Public-private partnerships can be helpful for the state and local governments which fund projects from tax receipts or debt; however, the federal government is different and has no need for private capital.
This distinction is crucial to understand and has broad policy implications. If private investors are involved, then by definition, the projects selected must be profitable, which undermines the public purpose mandate of Congress. This approach tends to focus federal investments in areas that benefit the well-off and create burdensome taxes and tolls on the public, often hurting those least able to afford them. The federal government never needs to sell assets to raise money, and it can always operate unprofitable or subsidized services into perpetuity, if they are serving a public need or want.
Public purpose, not profit, should be the guide. Public purpose and available resources are the constraint – never the availability of U.S. dollars. As Congress evaluates infrastructure investments, it should ask:
- Given that affordability in not in question, what investments are in the public interest?
- What real resources will they require and are they available for purchase in our currency?
- Will these investments require any adjustments to taxation to offset negative economic effects?
Much infrastructure investment can be especially focused on underserved communities, not only for the human benefits provided, but also to focus currency issuance into communities where more underutilized resources are available and little competition from private interests exists.
Our nation is at a turning point. We have been living far below our means in self-imposed austerity with the mistaken belief that we have spent beyond our means. We should have the world’s best infrastructure because we have access to the best resources, knowledge and skilled labor. The opportunity is before us to imagine the kind of country we can build together, and to unlock the potential in every community, town, city and region to reach its full potential.
We can afford to.
We can’t afford not to.
Warren Mosler discusses public purpose in Part III of his excellent book, The Seven Deadly Innocent Frauds of Economic Policy. Download for free.
Geoff Coventry is a founding member and owner of Tradewind Energy, Inc. Prior to this position, Geoff was a co-founder and vice president of NetSales, Inc. Additional postings by Geoff can be found on his blog "It's The People's Money."