The US: 2018 May Be The Year Of Infrastructures

The year of US infrastructures

For dictatorships, one of the problems of democracies is that they are not predictable. In principal, this sounds like a factor in favour of the former, not of the democratic regimes. At the end of the day, if a government doesn’t know if its budget is going to be approved, or even if it will remain in power the next month, it should be a problem for that government and not for its rivals.

However, the facts show that the opposite is the case. Dictatorships are afraid of uncertainty, because they don’t normally have state bureacracies which can continue to manage the country if the “dear leader” of the moment is not receiving that week. During the Cold War, for example, Soviet diplomats constantly complained about the fact that, once every four years, US policy fell into what they called “active suspension” because of the elections. The fact the US would lose the political iniative (despite the fact that in this country the outgoing president is not a caretaker president after the elections and maintains all his privileges until his successor is sworn in) was, paradoxically, more of a problem for the Kremlin than for the White House. In fact, if you review the list of crises in the Cold War, you see that none of them happened in the two and half months which usually fall between the US elections and the swearing in of a new president.

The big difference between the Cold War and 2018 is the media and the Internet. The campaigns, which before lasted 6 months, are now eternal. And the US presidents’ room for manoeuvre has been reduced dramatically. Nowadays, the Head of State and of the Government of the leading global power only has approximately 11 months to put his programme into practice: from when he is sworn in, on January 20, until December 31 of the same year. The reason is that every two years, there are legislative elections in which around 86% of Congress is renewed and its members are the ones who pass the laws. This means that from January 1, the legislators are thinking about re-election.

That is what’s going to happen in 2018 in the US. And that’s what was behind the madness in December, with the debate about an absurd fiscal reform. The republicans ended up forcing the vote on a draft, parts of which were hand-written because they did not have time to write them up on the computer.

The aim was to avoid that in 2018, the democratic opposition accuse them of being “a do-nothing Congress”. That’s what the democratic president Harry Truman called them in the 1948 elections. The result was a disastrous election for the republicans.

That said, the fact the congressmen are campaigning opens up a window of opportunity for an element in Donald Trump’s programme which has always been put off: an infrastructures plan.

There is a variety of reasons for this. On the one hand, as one trader and economist at one of the biggest banks on Wall Street explains: “Trump wants to inaugurate things looking ahead to re-election. It’s politically useful and, furthermore, totally true to his style, appearing alongside motorways, bridges or whatever’s needed.” To obtain this, Trump will need Congress to approve some kind of legislation in 2018 which comes into force in the fiscal year which begins on October 1.

But of course a whole other matter is whether he acheives this. On the one hand, as explained earlier, the republicans in Congress are going to be focusing on their re-election. On the other, there is the question of the deficit. That said, the latter is not a problem for the average voter. It’s the Republican Party which talks about the deficit and the debt when it’s in opposition, but then forgets about it when it gets into government. Ronald Reagan and Bush father and son were presidents who governed with massive imbalances in the public accounts. The only presidents over the last four decades who have had fiscal surpluses have been democrats: Jimmy Carter and Bill Clinton.

George W. Bush managed it in his first year in the job. But the budget hole opened up once more and never ever disappeared again due to his enormous tax cuts and the increase in health spending for the elderly – so that they voted for him again – and in defence – after 9/11.

At the end of the day, it was the highly venerated weekly publication The Economist which said that Bush spent “like a French socialist” which, coming from the source it does, seems as if it’s a criticism. Bush’s vice-president, Dick Cheney, summarised it very simply to the then Secretary of State for the Treasury and former chairman of Alcoa: “Reagan showed us that deficits don’t matter.”

However, the White House wants the infrastructure plan – which could have favourable consequences for, amongst others, the Spanish construction companies – to be carried out via public-private programmes (PPP), or P3 (Public-Private Partnership). Amongst the options considered, there is even the authorisation of infrastructure bonds which would have very favourable tax treatment. This would allow for the cost of construction of the infrastructures to be taken out of the budget.

This implies more legislative and regulatory complexity, apart from the criticisms from the opposition. They see the PPP as a perfect formula for investors to earn money from public works which are never finished or which, once they start to operate, are a disaster. The best example of this is Texas, a mainly conservative and republican state, which has been a pioneer in this kind of financing for projects, particularly for the construction of toll motorways. After building 16 motorways and approving the construction of a further 6 via this method, Texas voters have decided in a referendum to prohibit the state from implementing more PPP programmes in public works. The turning point was the motorway connecting San Antonio and Houston: in theory it wasn’t going to cost the taxpayer a dollar. But in practice, the construction companies which built it and the concessionaries which manage it owe the state 500 million dollars (425 million dollars).

But this type of financing is critical for Wall Street and Wall Street has a huge influence in Trump’s government, given that many of the president’s advisers are former financiers.

The question is: why is Congress going to get involved in an election year with a plan which is so risky and complex? The answer is simple: the congressmen face primaries in the summer and Trump is tremendously popular with the republican base. Any of those legislators in that party who dares to oppose one of the President’s ideas runs the risk of experiencing a difficult time in the primaries against a Trump candidate.

All this indicates that 2018 may be the year of the infrastructures. Perhaps it won’t be the best or the most efficient plan which emerges. But what’s clear is that something has to be approved which allows Donald Trump to cut the ribbons on motorways, bridges and other more or less large structures.

About the Author

Pablo Pardo
Pablo Pardo is Washington DC correspondent of El Mundo. Journalist especialized in International Economics and Politics.