It’s a ‘bizarre time’ for a big infrastructure plan, economists say

 In Politics

President Donald Trump is pictured. | Getty

The concern with President Donald Trump’s $1.5 trillion plan is that any new infrastructure projects it creates will just move workers from current projects into different ones rather than creating new jobs. | Getty

The concern is that new infrastructure projects it creates will move workers from current projects into different ones rather than create new jobs.

There is one big problem with the federal infrastructure plan that President Donald Trump rolled out Monday: Economists say this may be exactly the wrong time to pump a bunch of extra money into the U.S. economy.

The unemployment rate is already headed toward historic lows. Wages and interest rates are rising and Congress just pumped massive stimulus into the economy through a $1.5 trillion tax cut and $300 billion in new federal spending.

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Typically, big infrastructure initiatives are targeted for moments when the economy is struggling and the unemployment rate is high. The concern with Trump’s $1.5 trillion plan is that any new infrastructure projects it creates will just move workers from current projects into different ones rather than creating new jobs.

And the Federal Reserve, already hiking interest rates as the economy improves, may move even faster if it appears that infrastructure spending coupled with tax cuts and other federal spending are leading to faster inflation.

“If you asked every economist whether this was a time that the U.S. desperately needed this kind of fiscal stimulus, I don’t think anybody would say that it is,” said Megan Greene, chief U.S. economist at Manulife.

The time for a big increase in infrastructure spending, economists argue, was in 2010 or 2011 when the unemployment rate remained just below 10 percent and the economy was struggling to move into a higher gear. The backdrop now is quite different with unemployment at 4.1 percent and growth rates improving.

“It’s a completely and utterly bizarre time to be doing this, and frankly it’s probably not going to happen,” said Ian Shepherdson of Pantheon Macroeconomics. “Unless you magically improve the labor force participation rate and get a miracle on productivity, all you will do is tighten labor markets, drive up wages and lift demand when it doesn’t need lifting.”

Without an increase in the size of the labor force, which has remain stuck near a 30-year low for years, or a strong uptick in productivity, the Fed would likely to be forced to hike interest rates in response to a sharp uptick in wages in order to fight inflation.

Economists note that because it typically takes months if not years for infrastructure projects like road, bridges and port repairs to be completed, any bill that Congress passed this year may not have much immediate impact on the economy.

“Even if something passes, these projects are rarely shovel ready, they generally take a number of years,” Greene said.

That could be especially true given that the White House envisions turning a $200 billion federal investment — all offset by budget cuts — into $1.5 trillion in overall spending through contributions by state and local governments and the private sector.

This would require states to come up with more money than they typically provide for joint projects with the federal government. And private sector companies would have to identify infrastructure projects where the potential for profits is worth the risk of committing significant funds.

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