The President called for increased infrastructure spending in his speech last night, pointing to the many construction workers who are currently unemployed and, among other things, the need for upgraded schools. It's unclear how much of his $447-billion jobs bill would go toward this objective. But the argument for investing in infrastructure and investing now is strong. Here's the Washington Post's Ezra Klein:
Because of the recession, construction materials are cheap. So, too, is the labor. And your borrowing costs? They've never been lower. That means a dollar of investment today will go much further than it would have five years ago -- or is likely to go five years from now. So what do you do?
Invest! I should reveal that Ezra made this recommendation almost a year ago, when the yield on the 10-year Treasury note was a 2.7 percent — quite a bit higher than today, when the yield fell to a record 1.89 percent before edging up to 1.93 percent.
Henry Blodget says that Yahoo, now that's it's axed CEO Carol Bartz and pretty much admitted that it's for sale (again), should buy Business Insider and hire "us" as CEO. We're going to assume that by "us", Henry means "Henry." He you have it: "We offer to allow Yahoo to buy Business Insider Inc., for $150 million. And we offer to allow Yahoo to then appoint us acting CEO of the company…Once we have been appointed acting CEO of Yahoo, we will implement our plan." (Business Insider)
"How to bring the jobs back." The New York Times goes big, big, BIG on the Opinion page, serving up four provocative solutions to the unemployment crisis. (NYT)
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We won’t know until he actually gives the speech, but there’s been speculation that when President Obama lays out his jobs plan in September, he may resurrect the idea of establishing a national infrastructure bank.
What, you may ask, is an infrastructure bank? Well, it’s what it says it is: a public bank that invests in infrastructure, such as bridges, roads, rail lines, ports, and even energy projects and things like broadband capacity. Here’s how theWhite House presented the idea:
The Administration’s six year plan would invest $30 billion to found a National Infrastructure Bank (I-Bank). The I-Bank would leverage this Federal investment by providing loans and grants to support individual projects and broader activities of significance to our Nation’s economic competitiveness. For example, the Bank could support improvements in road and rail access to a West Coast port that benefit farmers in the Midwest, or a national effort to guarantee private loans made to help airlines purchase equipment in support of the next generation air traffic control system (NextGen). A cornerstone of the I-Bank’s approach will be a rigorous project comparison method that transparently measures which projects offer the biggest “bang for the buck” to taxpayers and our economy. This marks a substantial departure from the practice of funding projects based on more narrow considerations.
If $30 billion sounds relatively modest, that’s because it is. It’s seed money, which the I-Bank could them use to attract private capital. And there's private capital out there. For example, Goldman Sachs runs a $10 billion infrastructure fund.
Leverage ratios for the I-Bank's initial $30 billion could vary, but let’s say it’s something like 25:1. That’s $750 billion to spend on projects that would put potentially thousands of currently unemployed Americans to work building stuff that would yield a long-term return in capital. Take it to 50:1 and you’re looking at $1.5 trillion.
The I-Bank would function something like a national venture-capital firm -- albeit one that’s not necessarily interested in making huge returns off its investment, but rather by providing the basis for private sector investors to put their capital to work on infrastructure (and, not incidentally, create jobs). The tricky part would be in working out the relationship between the independent government committee that would oversee the fund -- and choose the projects that have the biggest bang for the buck -- and the private investors who might, you know, have their own ideas. Or have better ideas than politicans who want to steer money toward their constituents.
OK, now you know what it is. So how would it be very good for LA? Two reasons: first, because it would provide a means to accelerate development of Mayor Villaraigosa’s public transit goals; second, because it would enable private investors to get in on big freeway or port improvement projects. Now, you can see why there might be some wrangling over this. Mass-transit projects and freeway-improvement projects could benefit entirely different voting constituencies. This is where some -- but only some -- of the I-Bank debate has been concentrated.
In other respects, the I-Bank has caught the attention of supporters on both sides of the political spectrum, and in between. Hard-core free marketers don’t like it. But Reason Foundation’s Robert Poole -- whose experience with California and Los Angeles transportation is extensive -- sorta kinda does. Moderates and moderate conservatives, including Big Idea folks like Felix Rohatyn and Fareed Zakaria, love the plan, because it offers a tasty compromise: a public solution to both the unemployment problem and the crumbling-infrastructure problem that involves private money.
Robert Dove, a managing director at the Carlyle Group, a private equity firm, did a pretty convincing job of defining the way a national infrastructure bank would operate. Here's his Congressional testimony:
Congress should look at the infrastructure bank as a true bank that must make difficult credit decisions. The institution’s primary purpose is to lend to large projects with longterm maturities at a small margin over its borrowing cost. The bank would provide a project with a base of capital that could then attract, either at the same time or later, outside private investment that we need to support our nation’s infrastructure. The bank should cover its costs, but not operate as a profit-making venture. The purpose of the bank should be to utilize its expertise to attract additional investment from the private sector for public infrastructure priorities, rather than replacing existing funding from government institutions.
The point he makes at the end is important: the bank would bring money into the process that wouldn’t otherwise be there. It wouldn’t be a way to cut federal spending, but rather a means enable federal money to have a greater impact.
Photo: Wikimedia Commons