Gov. Tom Wolf’s “Restore Pennsylvania” infrastructure plan would be funded with $4.5 billion in bond proceeds over four years, paid back over 20 years with receipts from a severance tax on shale natural gas.
The former, of course, is, as proposed, predicated on the latter winning legislative approval. And that continues to be an iffy proposition at best, given depressed shale gas prices and a retrenching industry that is expected to continue beyond 2020.
The “face” cost of the bonds, do remember, is not the real cost – interest must be factored in. And according to one estimate the total cost could be around $6.5 billion.
But such deficit financing by government is not the best of public policy ideas. It is, however, typically the politically expedient thing to do.
Why? We commend for your attention the thoughts of the late great Nobel economics laureate James Buchanan (as paraphrased recently by Donald J. Boudreaux, an economics scholar at George Mason University):
“First, the costs of even the most wonderful government programs that unambiguously improve the lives of future generations are paid for, not by the generation that borrows to pay for the programs, but by future generations.
“That these programs might be well worth their costs means neither that they are free nor that the responsibility for paying these costs is not shifted by the generation that borrows onto the generations that repay the debt.
“Second, because deficit financing allows today’s citizens-taxpayers to spend the money of other people – some of whom aren’t even yet born – there is little reason to suppose that these monies will, in reality, generally be spent wisely.
“Such spending … is far more likely to be wasteful: a transfer of benefits from future generations to the current one.”
And as Boudreaux himself states the bottom line:
“Once we recognize that deficit financing allows people today to spend other people’s money, we have no good reason to believe that this spending will be in anyone’s interest other than that of those who do the spending.”
And that certainly takes the promoted “investing-in-the-future” luster off the Wolf administration’s “Restore Pennsylvania” proposal. “Restorative incumbrance” might be the darling of the “progressive set” but it’s far from sound public policy.
Colin McNickle is communications and marketing director at the Allegheny Institute for Public Policy (email@example.com).