‘Trickle in’ economics: How Dems should talk about infrastructure spending

The Republicans won a big victory by cutting corporate taxes and reconfiguring individual tax rates to favor rich donors and red state voters. Majority House Leader Paul Ryan (R-Wis.), not fully sated by his conservative legerdemain, now openly longs for so-called “entitlement reform,” a euphemistic phrase for cutting the Medicare, Medicaid, and Social Security systems that ordinary citizens rely upon.

Sensing that there is a political, if not moral, limit to how much one Congress can take away from the poor and their high tax-paying blue state allies, Senate Majority Leader Mitch McConnell (R-Ky.) has dampened Ryan’s ardor for more fiscal blue blood. Republicans have turned attention instead to infrastructure investment. Facing economic facts, for America to invest in infrastructure, it will need to increase its national debt. Facing political facts, the debt can only be increased with the cooperation of the Democrats.

{mosads}No problem, the Republicans must be thinking. One congressman’s infrastructure is another’s pork. And even after we are done spreading the pork around red states there will be just enough pork to spread around enough blue states to get the needed votes.

So how should Democrats respond to the overtures, nudges, and (inevitably) bullying for bipartisanism that will rain down upon them from Twitter and yon? Two key pillars, both based on bedrock free market economic principles, should comprise the Democratic stance on infrastructure spending.

“One wrong move and Trump’s infrastructure goals will come to a screeching halt” https://t.co/whKiZtbcbs pic.twitter.com/sZDsz1qaJj

— The Hill (@thehill) December 31, 2017

First, infrastructure spending should be paid for by increases in the corporate tax rate. In a sane and responsible world, Congress would have debated how it was going to pay for infrastructure before cutting taxes. Basic economic reasoning teaches us that government infrastructure investment is intended to boost corporate performance and profits. Bridges, tunnels, airports and public transport all reduce transportation, manufacturing, shipping and labor costs and thereby lift the value of private sector investment.

In September 2011, then-Harvard Law School Professor and Senate candidate Elizabeth Warren explained the logic behind charging corporations for infrastructure investment with broadly appealing moral clarity when she said:

“There is nobody in this country who got rich on his own. Nobody. You built a factory out there — good for you! But I want to be clear. You moved your goods to market on the roads the rest of us paid for.”

A second and equally important economic principle Democrats should insist on is that infrastructure investment be directed to the places and projects where the return for the economy is the greatest. We should build roads and bridges, modernize train tracks, and upgrade airports in the geographic locations where the boost to the economy will produce the greatest productivity gains.

That means investing in blue states like New York and California where jobs and wealth are growing. The New York and New Jersey economies could use that third tunnel connection that Gov. Chris Christie scuttled in 2010. The economic dynamo that is Silicon Valley, where I live, could be even more productive and entrepreneurial by electrifying and upgrading the Caltrain system and other local train systems.  Another project that could unleash enormous value for the U.S. economy would be to build a faster train system linking San Francisco with Los Angeles, which, along with New York, is one of the twin pillars of artistic creativity effectively driving the U.S. economy.

Five obstacles to Trump’s infrastructure ambitions https://t.co/4EurBN4q87 pic.twitter.com/g1ACeAnO4f

— The Hill (@thehill) December 28, 2017

New York is the financial capital of the world. Silicon Valley is the technological capital of the world. Democrats should emphasize that the benefits of growth in these and other blue state economic strongholds will “trickle in” to the red and purple states whose economies get spillover effects when New York and California grow.

When the tech community in Silicon Valley prospers so too does Austin. Autonomous vehicle development creates new jobs for Midwestern auto suppliers. Similarly, vibrancy in the New York and Chicago financial markets only make financial institutions in Charlotte and St. Louis stronger. And Mississippi, Kentucky, Alabama and other red states that rely so much on federal funding will have surer flow of financial support from Washington if the economy as a whole is flourishing and globally competitive.

Republicans well understand the fundamental economic principle that if we are going to take a dollar out of private hands for public purposes then it should be put into the most productive public use. For Democrats, it is merely a happy coincidence of Republican economic logic that infrastructure investment will likely yield the highest economic benefits in blue states.

Michael A. Santoro is a professor of Management and Entrepreneurship at Santa Clara University. His latest book is “Wall Street Values: Business Ethics and the Global Financial Crisis” (Cambridge University Press).