Sat, 20 Apr 2019

Now for two years of congressional gridlock

Steven Pressman - The Conversation
08 Nov 2018, 06:35 GMT+10

Perhaps the biggest surprise in the midterm elections was that, unlike 2016, there wasnt one.Polls and punditsexpected Democrats would take control of the House and Republicans would keep the Senate, and thats exactly whatwere getting.

The likely result: two years of congressional gridlock on economic policy, which requires both houses of Congress to agree on the same legislation. So, we can expect that the status quo on economic policy will mostly prevail.

There are, however, two economic issues on which the election outcome will make a meaningful difference: trade and infrastructure.

Trump and U.S. Trade Representative Robert Lighthizer announce the USMCA possibly a bit prematurely.Reuters/Kevin Lamarque

NAFTA lives

One of the first items of business in January after the new Congress gets sworn in will be theUnited States-Mexico-Canada Trade Agreement.

The deal is intended to replace NAFTA, which President Donald Trumphas threatened to withdraw fromfor several years. In reality, the new deal is little more than aslightly modifiedversion of its would-be predecessor.

But before it can become the law of the land, Congress must ratify it, either by a majority vote by both houses or two-thirds of the Senate.

The USMCAs chances were alreadyfar from assuredbefore the Democrats took the House. Now its failure is very likely.

So what happens next?

The simple answer is not much. NAFTA remains in force. Ultimately I believe thats a good thing for the U.S. economy because the new dealwould likely shiftauto industry jobs to Mexico.

With any luck, the USMCA defeat also convinces Trump to have second thoughts about hiscostlytrade war.

But what if he tries to follow through on his threat to withdraw from NAFTA? Fortunately,most constitutionalscholarssay he cant do so unilaterally. Were he able to, however, the consequences for the U.S. economywould be severe.

Americans roads and bridges got a D+ recently.Reuters/Mario Anzuoni

Roads, bridges and bipartisanship

Infrastructure, on the other hand, offers a rare opportunity for House Democrats and Trump to find common ground.

Thesigns of a crisisin Americas infrastructure are unmistakable: derailing and delayed trains, crumbling roadways, collapsing bridges, undrinkable tap water and a wastewater system that is a menace to public health.

The American Society of Civilian Engineers estimated that Americas D+ infrastructure costs an average household US$3,400 annually. It also cost lives, as it did when a Minnesota bridgecollapsedin 2007, killing 13.

In February, Trumpproposed a fundto spend $1.5 trillion to fix the infrastructure mess, with the government putting up $200 billion and the private sector kicking in the rest.

While Democratssupportinfrastructure spending, thestumbling blockin the Trump plan was the provision that the private sector would effectively own the roads and bridges that it builds.

While House Democrats may not support this plan, they would likely be willing to support something that mainly relies on just federal spending. And Republicans have a reason to go along as well: Infrastructure spendingwould boosteconomic growth, which isforecastto slow in 2019 just before the 2020 elections.

While a few hundred billion dollars in spending wont solve the U.S. infrastructure problem, it would be a good start. It would stimulate the economy and also make everyones lives more pleasant and less expensive and may even end a little gridlock (pun intended).

The writer Steven Pressman is Professor of Economics, Colorado State Universityis

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