The Democrats have already signaled that they will support a significant component of Donald Trump’s economic growth plan, infrastructure spending. The Republicans do not have the same old ideas though, but have a much more nuanced plan than what the Democrats are used to.

Whenever there is talk about stimulating the economy, the Democrats immediately begin talking about infrastructure spending. After the 2008 economic crisis, for instance, President Obama turned to government spending to stimulate the US economy with the passage of the American Recovery and Reinvestment Act (ARRA) of 2009. 

The Obama administration used the ARRA for plenty of shoveling, but very little was used for shoveling dirt. Those so called “shovel ready” jobs that were promised never seemed to materialize. Even so, the 787 billion from the ARRA was spent by our government with some of it actually trickling down into the economy. A portion of this stimulus was also used for temporary tax cuts and extending unemployment benefits. 

The top down government spending approach did not stimulate our economy for lasting economic growth, however. The economy remained sluggish because the stimulus did not address the real problem of a lack of confidence in the future by businesses and consumers. 

Adding to an unpredictable future, the Obama administration continued to over regulate the economy and hamper any growth. They smothered business with Obama care, new EPA rules, Dodd-Frank and many other regulations that caused further uncertainty and expensive compliance. 

President Obama has claimed that the stimulus “created or saved 650,000 jobs.” Whether or not the ARRA did save jobs is unknowable, but what is knowable is that Obama resided over the slowest economic recovery since 1948. Every other recession-to-recovery since 1948 had higher growth rates. From the crisis of 2008, GDP grew at only 2.0% per year through Q1 of 2016.

 

Republicans dispute that government spending is a stimulus that will lead to a growing economy. The problem with this type of stimulus is that business confidence remains low. There may be some stimulus within certain industries, but that is not enough to increase confidence across all industries.

For high economic growth, the GOP believes that a better business environment needs to be created. The best way to achieve a better climate is to deregulate and to enact tax cuts. A less regulatory environment and keeping more profits will improve confidence across the board and encourage businesses to invest in the US.

Donald Trump’s Infrastructure Plan

Donald Trump is planning an infrastructure spending program to generate jobs too. His overall growth plan includes infrastructure, replacing Obamacare, reducing regulations, repatriation of overseas profits, corporate tax reform and personal tax cuts.

Trump’s infrastructure spending is not the central theme of his economic growth plan though. There are three points of distinction between what Trump is proposing and what government spending Democrats usually come up with. 

The first is a better overall business climate. By improving confidence through deregulating and allowing businesses to keep more profits, the growth of the economy is not dependent on a government spending bill. Instead of being a catalyst for growth, any infrastructure spending will just supplement Trump’s overall strategy to grow the economy.

A second key difference is return on investment. Most Democrats believe that the recipients of government spending create demand for other products and services with their money. This will then cycle through the economy sparking growth. They believe just putting money into people’s hands is the goal.

The return on investment from Donald Trump and the GOP’s plan is much different. Their plan is to find strategic infrastructure projects that will benefit commerce today and for the future. For example, an international bridge between the US and Canada would facilitate growing trade. 

Not only will these investments help commerce, but they have the added benefit of creating jobs in the process. What Republicans do not want are useless spending projects like Alaska’s “bridge to nowhere” or never ending spending like Boston’s “big dig.” 

The third key difference is the GOP’s desire to use public–private partnerships (PPP). These types of infrastructure projects are for the public’s benefit, but are mostly privately financed. These are long term partnerships that allow projects to be built efficiently without public debt. The companies that finance these projects receive the operating profit once the project is complete. 

For example, the company financing a new highway or bridge would receive income from tolls. New pipelines, on the other hand, would create income by charging fees to the ultimate end user.

For the rank and file Republican, infrastructure is not necessarily a bad thing – if it’s done the right way. It will be up to Donald Trump and Paul Ryan to ensure that their infrastructure plans will benefit our economy by aiding commerce without exploding our nation’s debt.

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