Why Deficit Politics Matter in the Infrastructure Debate

Infrastructure will be on the menu tomorrow when the White House hosts a "jobs summit" aimed at assuaging public concern over mounting unemployment. Labor leaders have vowed to push for new transport projects, and invitee Paul Krugman is already on record backing a Wall Street transaction tax that some House Democrats want to see benefit the built environment.

hoyer.jpgHouse Majority Leader Steny Hoyer (D-MD) (Photo: USA Today)
But could infrastructure investment that's smarter, not just faster, succeed as part of a new round of economic stimulus? That depends in part on one of the capital's peskiest and most peripatetic variables: deficit politics.

Taking the House's proposed $500 billion, six-year transportation bill as a starting point -- and the final product of this winter's infrastructure debate could well be much smaller -- one is left with a funding shortfall of at least $140 billion. Even that number assumes that the Treasury would kick in something to keep roads, bridges, and transit projects humming.

In the Senate, where centrists are raising alarms about the federal deficit, such a gap has proven enough to grind progress on transportation policy to a halt. But in the House, even fiscal hawks are coming around to the notion that as drastic spending cuts become the new global norm, the U.S. government would risk economic implosion if it followed suit.

House Majority Leader Steny Hoyer (D-MD), a close ally of the deficit-minded Blue Dog Coalition, seems to be among those hawks. When asked about new infrastructure projects yesterday, Hoyer told reporters (emphasis mine):

Well, when I mentioned infrastructure, spending is clearly going to be a part of investing in infrastructure. The issue will be paying for that. And at this point in time, as you know, under our own statutory PAYGO, that is not exempt.

On the other hand, again, the economy is still struggling. We are still at a point in time where the economy is not creating jobs. My litmus test -- I don't know about others' -- will be when the economy gets to creating jobs, not losing jobs. Now, we are going to have a report out on job losses this past month. I expect that number to be down, but I don't expect it to be a positive number. And so that will be the test of whether or not we can ... determine that we are in a position now where we can start making sure that we pay for things without depressing the economy.

To be sure, other unpredictable factors will determine how effectively new transportation aid is allocated (with the mayors/governors dynamic and the White House economic team being only two of many). But if enough fiscally conservative Democrats adopt Hoyer's approach to this issue -- that until the economic downward spiral slows, "paying for things" must remain a secondary concern -- there's a decent chance that deficit politics won't create another mediocre infrastructure stimulus.