Infrastructure Bank Will Not Aid Economic Revival

In response to the United States’ credit downgrade by Standard & Poor's in August, the grim reports on the state of the economy and the collapse of the stock and financial markets in the week after the downgrade, President Barack Obama has re-engaged with the issue of America's faltering economy. While it is possible he may propose a serious and detailed plan during his much-anticipated jobs speech this week, so far his response has included policies that both Democrats and Republicans have rejected in the past, says Ronald D. Utt, the Herbert and Joyce Morgan Senior Research Fellow at the Heritage Foundation.

The president's proposal for an infrastructure bank is one idea that he and other progressives have been flogging for the past few years. Although several infrastructure bank proposals have been introduced in Congress, all involve the creation of a new federal bureaucracy that would provide federally funded loans and grants to approved infrastructure proposals submitted to the bank by eligible entities. Funds to provide these loans would either be borrowed by the bank or provided by appropriations, depending on the proposal. But an infrastructure bank would do little to spur the economic recovery.

  • Take for example the president's national infrastructure bank proposal, which was included in his February 2011 highway re-authorisation proposal.

  • His bank would be part of the Department of Transportation and would be funded by an appropriation of $5 billion per year in each of the next six years.

  • Obama's "bank" would be permitted to provide loans, loan guarantees and grants to eligible transportation infrastructure projects.

  • But grants are not paid back, prompting "one former member of the National Infrastructure Financing Commission to observe that 'institutions that give away money without requiring repayment are properly called 'foundations' not 'banks.'"

    Based on the American Recovery and Reinvestment Act's dismal and remarkably untimely performance, Obama's infrastructure bank would likely yield only modest amounts of infrastructure spending by the end of 2017 while having no measurable impact on job growth or economic activity, says Utt.

    Source: Ronald D. Utt, Obama's Peculiar Obsession with Infrastructure Banks Will Not Aid Economic Revival, August 30, 2011.

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    First published by the National Center for Policy Analysis, United States

    FMF Policy Bulletin/ 06 September 2011
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