Lawrence Summers Says to Focus on Growth

Lawrence Summers argues in an op-ed piece in the Washington Post that since we can't agree on the debt variable in the debt-to-GDP ratio, we should focus on the GDP variable by trying to increase growth:

Spurring growth is an area where neither side of the political spectrum has a monopoly on good ideas. We need more public infrastructure investment, but we also need to reduce regulatory barriers that hold back private infrastructure. We need more investment in education but also increases in accountability for those who provide it. We need more investment in the basic science behind renewable energy technologies, but in the medium term we need to take advantage of the remarkable natural gas resources that have recently become available to the United States. We need to ensure that government has the tools to work effectively in the information age but also to ensure that public policy promotes entrepreneurship.

So what would the details of such an agreement look like? It's tough to say for sure, and there's a lot of moving parts; so I'm going to examine the proposal piece-by-piece, starting with public infrastructure:

Remember when the president proposed $50 billion in infrastructure spending? The Treasury does! Probably because they had to do a whole analysis of it. The most game-changing part of this proposal was the National Infrastructure Bank. How would it work? The White House explains here. Essentially, Congress would create the bank. The bank would identify projects that lacked funding and provided clear benefit to taxpayers (don't worry, the bank exists outside of Congress' appropriations process and the decisions would be made by a seven-member board - no more than four of whom could be from the same political party). Loans made by the bank for the projects would be matched by local government funding or by private investors. The project would generate revenues and provide a return on investment. The White House also provides a bonus fact in their explainer (which I find hilarious [the concept of the bonus fact, that is]): the AFL-CIO and the Chamber of Commerce both support the infrastructure bank. Unions get jobs. Big Business gets money. Governments save money. Everybody* wins! *everybody does not include investment banks that deal with state and municipal bonds

The Brookings Institution also has some infrastructure bank-related suggestions: the top suggestion being to establish the bank as an independent government-owned corporation outside of any government agency (note: this is not the same as a GSE). The main advantage of existing outside of an agency would be budgetary flexibility and the ability to fund different types of projects. For example: ideally, you would want the infrastructure bank to fund improvements to highways, airports, and railways, among other things. This would touch upon the bureaucratic turf of the FHA, FAA, and FRA (all located within the Department of Transportation) - not to mention the fact that telecommunication infrastructure investments wouldn't even be in the same department (if you're looking for telecommunications infrastructure, I would suggest your neighborhood-friendly Department of Commerce).

Brookings fills in more details about the bank here, and it's definitely worth a read if you're interested in minutiae of a legislative proposal that won't pass Congress for the foreseeable future.

Of course, all of this begs the question of how an infrastructure bank would affect growth. The Treasury analysis lists a lot of positive effects: demand-side, supply-side, and everything in-between (such as an increased feeling of national community). Regarding demand, Treasury points to the obvious fact of under-utilized resources (remember those construction workers that were building houses in Arizona before the housing bubble burst? Turns out they can build roads, too!) Also, less congestion means less money spent on gas which means higher consumer demand for other things. However, demand-side issues have usually proven pretty irrelevant to winning over the votes of Republicans, so let's focus on some supply-side benefits that Treasury laid out.

First, better public infrastructure means decreased shipment time and costs. This helps make American exports more competitive. Another bonus for Republicans: this disproportionately helps Middle America since they are geographically the farthest from a port. Second, transportation agglomeration increases property values. The White House points to an example of Dallas and its experience with DART. Third, transportation agglomeration also makes businesses more efficient. The White House points to businesses taking advantage of Chicago's position in the national transportation infrastructure. A more illicit example, however, may be drug dealers taking advantage of Chicago's position in the national transportation infrastructure. Lastly, more efficient transit solutions means more efficient workers. Or, if you're a Family Values Republican in the mold of Rick Santorum, less time spent in traffic means means more time spent at home with the family.

I'm going to close out with a quote of one part from a blog post by the Treasury Department that really brings to life what infrastructure improvements would look like (the whole post is worth a read):

When the Port of Seattle improves its connection with local freight railroads, it creates construction jobs for local workers – but the project’s benefits extend far across the heartland. By making it cheaper to transport cargo, this improvement will allow cattle ranchers in rural Montana to ship their beef to new markets across the world.  Consumers who purchase imported goods and American businesses that are expanding their exports enjoy lower prices and improved access to new markets and goods.