Barack Obama wants to spend tens and possibly hundreds of billions of dollars on new infrastructure projects. It’s lucky that the government can borrow money for free, right? After all, whenever the government takes on obligations which are funded through any other mechanism, that always ends up being much more expensive.
But according to Michael Lind, that’s exactly what Obama should do: rather than fund infrastructure projects out of general funds, it should issue infrastructure-specific debt, perhaps via the creation of a National Infrastructure Reinvestment Bank. He writes:
Today the federal government, unlike state and local governments, lacks the capability to borrow money by issuing bonds for particular capital improvement projects like Obama’s priorities of infrastructure, school buildings, broadband and energy-efficient retrofitting.
Frankly, this isn’t a capacity I feel the government really needs. After all, we can borrow as much money as we like, at rock-bottom rates, directly in the Treasury market. Why fund infrastructure investments with more expensive borrowing from an infrastructure bank? And if the infrastructure bank starts funding things like school buildings, how is it going to be repaid? Through tuition fees?
Some crucial infrastructure investments — a major upgrade of the electricity grid, for instance — simply don’t have nice future cashflows associated with them. If the National Infrastructure Reinvestment Bank needs some kind of positive return on investment, they’ll never happen. Which is why I’m not convinced that it’s a good idea. Of course it will always find projects to fund. But they’ll be the projects which are the most profitable, and those aren’t necessarily the projects which are the most needed.