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Building US infrastructure on foundations of sand

| Posted by: Paul Donovan | Tags: Paul Donovan Weekly

  • Anyone traveling from JFK Airport to New York will know that US infrastructure could be improved. Despite the need, and President Donald Trump's high profile policy pledge, hopes for major spending on US infrastructure are dwindling.
  • The poor relationship between the White House and Congress has damaged hopes for significant infrastructure spending in the near term. The basic need to raise the debt ceiling and pass a budget will occupy Congress this autumn. Congressional Republicans are then likely to turn to hopes for a tax cut (tax reform seems unreachable for now). It is necessary to present the voters with some sort of accomplishment before the November 2018 elections.
  • What does failure to spend on infrastructure imply? With the US at full employment, infrastructure spending was always more likely to create inflation than new jobs. There is perhaps less upside risk to inflation than downside risk to employment, therefore. Infrastructure spending tends to be delivered over multiple years. The loss of infrastructure spending is not likely to be too significant to GDP for any one year. The economic damage is likely to be poorer long-term efficiency.