Zadekpedia2017-06-29 · Guest: Chris Edwards (Director of Tax Policy Studies at the Cato Institute) · 5:50
Filed under: Ideas · Taxes, spending and debt
Topics: Government Spending · Infrastructure · Public Policy
American infrastructure and the benefits of privatization
Bob Zadek and Chris Edwards discuss the state of American infrastructure, challenging the political narrative that it is in a state of “decrepit” decline. They explore the benefits of private ownership and management of infrastructure, arguing that market forces are more efficient than government spending and that much of the nation’s most vital infrastructure is already privately held.
Topics: Infrastructure, Privatization, Milton Friedman, Government Spending, Transportation, Public Policy, Cato Institute
Speakers:
- Bob Zadek — Host
- Chris Edwards — Director of Tax Policy Studies at the Cato Institute
Introduction and the Friedman Law [00:29]
Bob Zadek: Good morning everyone, welcome to the Bob Zadek Show, the only live libertarian talk radio show on the air all weekend. Thank you so much for joining us this wonderful 4th of July weekend. We celebrate our country’s birthday. Thank you so much for listening. 424-BOB-SHOW is the way to join the conversation anytime.
This morning I’d like to start with a quote from Milton Friedman. Milton Friedman is of course one of the leading libertarian free-market economists who ever lived. A great man, and Milton Friedman is quoted as saying, “It costs any government at least twice as much to do something as it costs anyone else.” How true that is, how wise he was.
This morning’s show is on infrastructure. Who owns our infrastructure? Infrastructure is of course our roads, bridges, airports, train lines, air traffic control and the like. The piping, the underground America. Who owns that? Who should own it? Is our infrastructure, as most politicians would have you believe, decrepit, declining? Are we limping along as a country of potholes? Of course not. The politicians are wrong.
To help you understand the true state of affairs in U.S. infrastructure and who should own it, who should maintain it, who should build it, and how should it be paid for, I’m happy to welcome back to the show Chris Edwards from Cato. Chris is the only person who’s been on my show more than Chris has, so I’m happy to welcome Chris back again. Chris is the Director of Tax Policy Studies at Cato. He is importantly the editor of downsizinggovernment.org—more about that as the show progresses. He’s an expert on federal and state tax and budget issues. He also is the author of Downsizing the Federal Government and co-author of Global Tax Revolution. Chris, welcome to the show this 4th of July weekend.
Chris Edwards: Hey, I’m delighted to be on your show today, Bob.
Is Our Infrastructure Really Decrepit? [02:58]
Bob Zadek: Again, thank you so much. Now Chris, infrastructure. Donald Trump has proposed a $7 trillion—yes, trillion with a T—spending program to rebuild our decrepit infrastructure. Our bridges are, if you believe the politicians, about to fall into the water they cross over. The airports are a mess. Air traffic control is a mess. The roads are more potholes than pavement. The trains don’t work on time. Mass transit is a mess. First of all, the premise: Is the premise right that our infrastructure is in a state of decline so that we should be collectively embarrassed?
Chris Edwards: The short answer to that is no. And I think the first thing you have to realize is that the vast majority of infrastructure in America is actually owned by the private sector. So sometimes the media often portrays it as if it’s only government that has infrastructure—the highways and stuff like that. But if you think about it, the freight railways, the pipelines, virtually all the internet infrastructure, the electricity infrastructure—all that’s owned by the private sector and it’s every bit as crucial to the economy as the government-owned highways.
Our infrastructure is generally in pretty good shape, frankly. You’ll see articles in the news about our highways having a lot of potholes and the like. Actually, we’ve been measuring the quality of our highways for a couple decades now, and our bridges, and they’ve actually been consistently getting better for about three decades now. It’s true that highways are getting more congested. America’s got a growing population, more people own cars, so congestion is to be expected. But the actual quality of the infrastructure has actually been improving.
Bob Zadek: You know, restaurants have become congested too, but there’s no movement for a massive building boom to build more restaurants. The demand will create a supply to fill it. People will normally, in the private sector, when there is a demand—a demand is an opportunity. Crowded roads are not a problem, but an opportunity for that need to be satisfied intelligently and not politically.
Show prep notes
Bob’s own preparation for this episode.
Notes: “Small is beautiful when it comes to downsizing government”
Planning call: Friday, 3pm at
Sunday: Landline, at
Show Notes:
Main Article:
Other Articles:
Background (Audio):
Show Notes:
Headline: A Libertarian Plan for Infrastructure
It’s been called Friedman’s Law, and it’s as true today as ever:
It costs any government at least twice as much to do something as it costs anyone else.
But what about the cases when some form of government spending is inevitable? Roads and infrastructure are often used as the counterpoint to the libertarian injunction to “privatize it!” Chris Edwards – editor of the Cato Institute’s DownsizingGovernment.org – says that infrastructure is far from the exception government’s cheerleaders make it out to be. In a recent policy bulletin, Who Owns U.S. Infrastructure?, Edwards shows why the Federal Government need not expand its ownership of roads, bridges, ports and dams. The majority of infrastructure is already owned and operated by the private sector, with the next largest chunk owned by state and local governments – as it should be. “Asset ownership conveys responsibility;” Edwards says, “federal intervention diffuses it.” He joins Bob this Sunday to discuss the true state of U.S. infrastructure (rumors of its demise have been greatly exaggerated) and the hands-off policies that can accelerate the right kind of infrastructure at the right price. Bob and Chris will also discuss the President’s recent move to privatize air traffic control, and take your calls at (424) BOB-SHOW.
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Links
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@CatoEdwards | Twitter
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DownsizingGovernment.org
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Who Owns U.S. Infrastructure? By Chris Edwards, Cato Tax & Budget Bulletin, June 1, 2017
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Will Privatizing Air Traffic Control Fly? By Chris Edwards, Newsweek.com, June 6, 2017
Related Shows (Subscribe to the Podcast):
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Farming Subsidies with Chris Edwards, July 8, 2014
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Chris Edwards on Why Federal Government Fails with Chris Edwards, July 29, 2014
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Planes, Trains, Automobiles AND Free Markets with Reason Magazine’s Shirley Ybarra, August 21, 2011
** [BIO | Cato Institute ]
Chris Edwards is…
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Director of tax policy studies at Cato
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Editor of DownsizingGovernment.org
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A top expert on federal and state tax and budget issues.
Before joining Cato, Edwards was a senior economist on the congressional Joint Economic Committee, a manager with PricewaterhouseCoopers, and an economist with the Tax Foundation. He is the author of Downsizing the Federal Government and coauthor of Global Tax Revolution. He was a member of the Fiscal Future Commission of the National Academy of Sciences.
BA in Economics from the University of Waterloo and an MA in Economics from George Mason University.
FIND HIS WORK AT:
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Cato.org
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DownsizingGovernment.org
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Twitter, @CatoEdwards
Articles by Chris:
Who Owns U.S. Infrastructure? By Chris Edwards, June 1, 2017
“President Trump’s spokesman, Sean Spicer, said, “Dams, bridges, roads and all ports around the country have fallen into disrepair… . In order to prevent the next disaster we will pursue the president’s vision for an overhaul of our nation’s crumbling infrastructure.” 13 Bridges, roads, and seaports are owned by the states, so Spicer is implying that federal officials are better able to manage this infrastructure than the current owners.
However, federal management of its own infrastructure is widely regarded as inefficient: the air traffic control system is falling behind on technology; the national park system has a huge repair backlog; and federal dams have a long history of pork barrel politics and inefficient operation. Increased federal intervention offers little more than the imposition of federal politics and bad federal management on state and local governments.”
Edwards suggests reducing barriers to private investment in infrastructure, namely cutting the corporate income tax rate, which would increase net private asset ownership.
Asset ownership conveys responsibility; federal intervention diffuses it.
Infrastructure Spending and the Charleston Seaport, SEPTEMBER 23, 2016
Interesting case study in what happens when there is an expectation of Federal subsidies: states postpone necessary investments that are clearly beneficial to their economic interests.
George Will’s oped the other day argued that Congress should hurry up and fund an expansion in the Charleston, South Carolina, seaport. But his piece revealed why the federal government should reduce its intervention in the nation’s infrastructure, not increase it, as Clinton and Trump are proposing.
The Charleston seaport has become crucial to South Carolina’s economy. Will notes that “1 of every 11 South Carolina jobs — and $53 billion in economic output are directly or indirectly related to Charleston’s port.”
There is a problem, however. The Charleston seaport:
“needs further dredging in order to handle more of the biggest ships, which is where Congress enters the picture: Unless it authorizes the project and appropriates the federal portion of the $509 million cost to augment South Carolina’s already committed $300 million, the project will be delayed a year. The deepening project is only 14 percent of the $2.2 billion South Carolina is investing in its port facilities and related access.
The biggest ships pay more than $1 million to transit the [Panama] canal; if they miss their transit time, their fee is doubled. Until the port is deepened, too few can be handled here simultaneously, and they can enter and leave the port only at high tide.
The solution to the inefficiency that Will rightly criticizes is devolution of infrastructure spending and control out of Washington, optimally to the private sector. Margaret Thatcher privatized most British seaports, and Tony Blair privatized British air traffic control. … Charleston’s seaport is “booming” according to Will, and thus it should have no problem attracting private financing for expansion.
Trump’s ‘Draconian’ Budget Barely Dents Spending Increases May 23, 2017 (NY Post)
The budget cuts in perspective: From 2007 - 2016, there was a 38% increase in Federal spending.
Cuts are mainly to SSDI, which often discourages disabled Americans who can work from doing so, and excessive benefits to federal workers. There have also been relative cuts to food stamps, which expanded greatly during the recession.
Cato Policy Priorities Paper prepared for the 114th Congress (Chapter 13 - Infrastructure Investment)
“Congress should:
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cut federal spending on highways, transit, and other types of state and local infrastructure;
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privatize federal infrastructure, such as the passenger rail and air traffic control systems;
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encourage state and local governments to privatize infrastructure, such as by repealing
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the tax exemption on municipal bonds; and
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slash the corporate tax rate to spur private infrastructure investment.”
“…Private infrastructure investment is more than four times larger than government investment.”
Another tax reform would be to adopt expensing—or first-year write-off—for business
investment in structures and equipment. Currently, investments must be depreciated over time, which creates a bias against long-term assets. Congress has enacted some partial and temporary expensing provisions in recent years, but it should put expensing into permanent law to give businesses certainly in their long-term investment planning.
Devolving Highway Funding | Cato @ Liberty June 20, 2017
When full privatization or public private partnerships can’t be affected, decentralization is still a possibility:
“With regard to highways, federal funds go not just to the 47,000-mile interstate highway system (IHS), but also to the vast 3.9 million mile “federal-aid highway system.” But there are few advantages in federal funding over state funding for most the nation’s highways, which are owned by the states and mainly serve state-local needs.”
A bipartisan commission (Advisory Commission on Intergovernmental Relations - ACIR) came to this conclusion back in 1983, using the Milton Friedman logic about who spends their money most carefully:
“There is “fiscal equivalence” when the same political community—the same jurisdiction—finances a governmental program, is responsible for its operation, and receives the benefits of that program … The tie between taxing and spending promotes efficiency and careful choices, whether spending levels are high or low. Because various areas’ highway needs and preferences are so different, a nationally uniform program cannot tailor taxing and spending to each other, as state and local programs can.”
Will Privatizing Air Traffic Control Fly? By Chris Edwards, Newsweek.com, June 6, 2017
“The airlines are for it, the key labor union is for it, aviation experts are for it, and the second-largest nation on earth did it.
Canada privatized its system in 1996, and today the nonprofit Nav Canada is on the leading edge of ATC efficiency and innovation. Iridium satellites will form the basis of an advanced navigation system for aircraft called Aireon.
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What is the opposition The Hill refers to? The corporate jet lobby—the National Business Aviation Association (NBAA)—is against reform, and it raises the spectre of higher fees under a privatized system.