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Infrastructure Build or Privatization Scam?

Saturday, November 19, 2016 11:42
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(Before It's News)

Paul Krugman:

Infrastructure Build or Privatization Scam?: Trumpists are touting the idea of a big infrastructure build, and some Democrats are making conciliatory noises about working with the new regime on that front. But remember who you’re dealing with: if you invest anything with this guy, be it money or reputation, you are at great risk of being scammed. So, what do we know about the Trump infrastructure plan, such as it is?

Crucially, it’s not a plan to borrow $1 trillion and spend it on much-needed projects — which would be the straightforward, obvious thing to do. It is, instead, supposed to involve having private investors do the work both of raising money and building the projects — with the aid of a huge tax credit that gives them back 82 percent of the equity they put in. To compensate for the small sliver of additional equity and the interest on their borrowing, the private investors then have to somehow make profits on the assets they end up owning.

You should immediately ask three questions about all of this.

First, why involve private investors at all? …

One answer might be that this way you avoid incurring additional public debt. But that’s just accounting confusion. … The government’s future cash flow is no better…, and worse if it strikes a bad deal, say because the investors have political connections.

Second, how is this kind of scheme supposed to finance investment that doesn’t produce a revenue stream? Toll roads are not the main thing we need right now; what about sewage systems, making up for deferred maintenance, and so on? You could bring in private investors by guaranteeing them future government money… But this … would simply be government borrowing through the back door — with much less transparency, and hence greater opportunities for giveaways to favored interests.

Third, how much of the investment thus financed would actually be investment that wouldn’t have taken place anyway? … Suppose that there’s a planned tunnel, which is clearly going to be built… In that case we haven’t promoted investment at all, we’ve just in effect privatized a public asset — and given the buyers 82 percent of the purchase price in the form of a tax credit.

Again, all of these questions could be avoided by doing things the straightforward way: if you think we should build more infrastructure, then build more infrastructure, and never mind the complicated private equity/tax credits stuff. You could try to come up with some justification for the complexity of the scheme, but one simple answer would be that it’s not about investment, it’s about ripping off taxpayers. Is that implausible, given who we’re talking about?

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