Infrastructure Bank

http://www.futureofcapitalism.com/2011/03/infrastructure-bank

From Bob Herbert's column in the New York Times:

Senator Kerry will introduce legislation next week to create a federal infrastructure bank — officially, the American Infrastructure Financing Authority — to provide loans and loan guarantees to large, essential infrastructure projects. The loans will be seed money used to leverage other sources of funding.

"These are strictly loans — not grants — for commercially viable projects," the senator said. "The federal government does no more than 50 percent of the loan. We expect that to leverage $600 billion or so in infrastructure investments over time."

Mr. Kerry said the initial cost to the government would be $10 billion.

If these projects are so "commercially viable," why do they need loans or loan guarantees from the government? One of the things about commercial viability, after all, is that it's often in the eye of the beholder. Another thing is that what looks commercially viable at one point turns out to be not so commercially viable at another point. Remember the Evergreen Solar factory in Massachusetts and the Range Fuels cellulosic ethanol plant in Georgia?

The same reasoning that applies to many other government subsidies applies here. If the projects are so good, they shouldn't need a subsidy. And if the projects aren't so good, why is the government taxing the private sector to back mediocre projects rather than leaving the money in the private sector where it can be allocated more efficiently to projects that are strong enough to attract funding on their own without a subsidy?

The Times column says Senator Kerry expects "bipartisan" support for his bill, and indeed infrastructure spending is a big favorite of the Chamber of Commerce and of companies like CAT and GE and Bechtel that profit from it. It'll be interesting to see which, if any, Republicans sponsor the bill along with Senator Kerry, a Democrat from Massachusetts.

by Ira Stoll  |  Mar 12, 2011 at 8:11 pm Related Topics:  Energy, General Electric, Politics receive the latest by email: subscribe to the free futureofcapitalism.com mailing list