Economists get behind Trump’s infrastructure plan, with a caveat

Construction work on New York City's 96th station of the Second Avenue Subway project. (Credit: Metropolitan Transportation Authority / Patrick Cashin/flickr)

The keystone to U.S. President-elect Donald Trump’s economic plan – infrastructure investment – could promote global economic growth, according to economists, who also warned that his protectionist policies could cut that growth off at the knees.

The Organization for Economic Cooperation and Development (OECD) raised its global economic outlook to 3.3 percent growth based on infrastructure investment proposals in the U.S. and China. Growth would continue into 2018 if interest rates remain low and the investments take place.

“There is reason to hope that the global economy may be at a point of inflection,” OECD Secretary-General Angel Gurría said at the report launch on Monday.

The good news comes with a warning for Trump. Turning to “protectionist policies” could harm international trade and the global economy, Gurría said. Some 340 million jobs in advanced and emerging economies depend on trade deals. If the U.S. walks away from long-standing agreements or significantly restructures them, those workers are at risk, according to the report.

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Job creation through infrastructure investment was a primary element to Trump’s economic plan during the presidential campaign, a general idea shared by his opponent Hillary Clinton. He promised to leverage $1 trillion over 10 years through public spending and private sector investments buoyed by a variety of incentives.

Clinton’s plan differed slightly on where the money would come from and projected less spending. Both plans provided few details about how to reach proposed spending targets. Trump will have to flesh out his idea before taking it to a Congress that is not inclined to green light more government spending. The OECD projection provides major support to Trump’s desire to spend on infrastructure.

“The boost to [U.S.] spending on infrastructure and other investments (such as improving skills and facilitating job-finding success through more active labor market policies and the provision of child care) will combat inequality and counter the steady decline in labour force participation rates, both by prime-age men and women,” the report stated.

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Gurría used the United States and China as examples of countries considering smart investments. He also called on Europe to shed “timid” plans, but made clear that he is not advocating for a “blank check.” There is also mention of inclusive growth, a nod to the recent recognition by the OECD that countries must reduce economic inequality.

The organization urged world leaders to look outwardly in their economic policies. The report warned against the growing nationalism dominating politics in the U.S. and Europe. OECD Chief Economist Catherine Mann cautioned that “protectionism and inevitable trade retaliation would offset much of the effects of the fiscal initiatives on domestic and global growth, raise prices, harm living standards, and leave countries in a worsened fiscal position,” in the report’s introduction.

 

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Tom Murphy

Tom Murphy is a New Hampshire-based reporter for Humanosphere. Before joining Humanosphere, Tom founded and edited the aid blog A View From the Cave. His work has appeared in Foreign Policy, the Huffington Post, the Guardian, GlobalPost and Christian Science Monitor. He tweets at @viewfromthecave. Contact him at tmurphy[at]humanosphere.org.