Plea: Spend 1% of Annual GDP on Infrastructure

October 18, 2016 04:30 PM
Machinery on Road

Former U.S. Treasury Secretary Lawrence Summers called for a $2.5 trillion infrastructure investment program over 10 years to energize the American economy and help it exit from “secular stagnation.”

Speaking to a Sydney conference via live video on Tuesday, Summers cited one of his favorite examples in reiterating his call for new U.S. infrastructure. He got a large show of hands after asking how many in the Australian audience had been to New York’s Kennedy airport. He then asked how many thought the U.S. should be “really proud” of that airport as a gateway to America’s greatest city. The response: no hands, and a lot of laughter.

“It is a no-brainer,” Summers said. “Because of what it means for job creation and demand in the short run; because of what it means for economic capacity in the medium run; because of what the growth means for the financial health of the government.” He highlighted historically low funding costs, "very low" materials costs and the employment needs of non-college-educated males in his call.

Asked what it would take to get out of secular stagnation, where trend economic growth rates have been reduced, Summers nominated 1 percent of gross domestic product a year for a decade as "a reasonable target to do something substantial with infrastructure investment” that would have a meaningful impact. He said he didn’t think it would be a problem for the country’s fiscal health, representing “about $2.5 trillion over 10 years.”

“Infrastructure investment as a share of GDP is lower than it’s been any time since 1947, and if you look at federal infrastructure investment, net of depreciation, net investment, it is rounded to the nearest integer: equal to zero,” he said.

In a question-and-answer session with a moderator at the Citigroup Inc. investment conference, Summers’s comments included:

  • While government debt is high, it’s serviceability is “extraordinarily low,” thanks to current interest-rate levels; 
  • Substantial parts of Europe -- particularly Germany -- should join the U.S. in investing in buildings, roads, bridges and the like;
  • The Trans Pacific Partnership trade deal could still be passed;
  • The Federal Reserve should avoid raising interest rates.

On the U.S. presidential election, Summers said it now looked highly unlikely that Donald Trump would win, and criticized the Republican’s platform.

“I had never supposed that populism personified by Juan Peron in Argentina or many other Latin American leaders would be successfully exported from Latin America to the United States,” said Summers, who served with Trump’s opponent, Democratic candidate Hillary Clinton, in the Obama administration. “And I think it’s very dangerous.”

On the TPP, Summers said President Barack Obama “is very determined, and it is a mistake I think to count him out given he’s been successful at accomplishing things like universal health care that many people thought were impossible.” 

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Spell Check

Ivan Mills
10/18/2016 11:56 PM

  Hi John. Since we are on the topic of the election I was curious if you have taken notice of Evan McMullin yet. I always enjoy your political commentary and having followed you since my college years I thought you might him fascinating. If not for his views at least for his movement. He has turned out to be the most interesting thing to happen in this election IMO. I believe that there is a movement afoot that will transform conservatism in the coming years for the better and I have a hunch you might agree.

Lincoln, NE
10/19/2016 03:58 PM

  The picture leading into the article shows the slow moving sign on the tractor and with a large disk without a slow moving sign and taking up most of the highway. As traffic approaches from both directions, there is a safety hazard for the tractor driver and all vehicle operators. Many and most paved roads don't have paved shoulders for the tractor operator to move over on the road. Combines during harvest season are so large that is even more difficult and unsafe for all on the roads and highways. More rural development of acreages across America with drivers commuting to work creates added dangers for people.


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