This week, Rep. Alexandria Ocasio-Cortez and Sen. Ed Markey re-introduced the Green New Deal. One crucial arm of it is the Green New Deal for Public Housing, a bill to rebuild and revitalize the nation’s public housing infrastructure. Momentum by lawmakers to reinvest in our existing public housing infrastructure has been building for years. Combined with President Biden’s push for a $2 trillion infrastructure plan, there is a real opportunity to rebuild our economy with the public at the forefront.
Meanwhile, the largest Wall Street players continue to do well, even in a still-struggling economy. The recent volatility in the price of GameStop stock, combined with the prevalence of easy-to-use trading apps like Robinhood, has led to a surge of interest in trading in the stock market by so-called “retail” (nonprofessional) traders. In the media narrative that followed, some proclaimed the triumph of David vs. Goliath. But the largest players on Wall Street have reaped massive rewards off the volatility. Goldman Sachs and Morgan Stanley both reported record first-quarter profits, thanks in part to massive revenues in their trading divisions.
Robinhood’s lofty marketing claims say it aims to “democratize finance.” But if we truly want to democratize our economy, it’s going to take more than a few more retail traders getting rich in the stock market while the profits of the titans of finance continue to climb. It will take committed, long-term public investments. One idea to facilitate these very investments is being considered by Congress to channel both public and private capital into public infrastructure projects.
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Flipping the Script on Public-Private Investments
On April 14, the House Financial Services Committee held a hearing to discuss infrastructure ideas to help realize President Biden’s “build back better” economic vision. Among the ideas discussed at the hearing was a proposal by Cornell University Law Professor Saule Omarova: a National Investment Authority that could fund public projects large and small, but also provide a way for the public to invest their money without having to rely on Wall Street.
Today, major Wall Street players act as a middle man on nearly every kind of investment. They take fees each step of the way — be it when private companies go public, cities sell bonds to fund projects, or even when the public chooses to invest in mutual funds or other financial products that aim to produce a steady return. If you’re lucky enough to be able to save for retirement, unless you buy a savings bond, whatever you do, you give Wall Street a cut. If we created a National Investment Authority, there would be a new asset class that would let savers invest purely in public projects, whether that be the Green New Deal, high-speed rail or other projects to benefit the entire country.
Another problem the National Investment Authority solves is the current funding gap we have for large-scale, long-term public projects. As Professor Omarova writes, the current approach to infrastructure funding in the United States is to “allow private markets to decide which projects are worthy of funding.” But Wall Street is generally uninterested in investing in projects that might take more than a lifetime to create profits, let alone a few years.
When Wall Street does invest in public projects, it demands tolls and fees that can guarantee near-term returns, like when Chicago leased off its parking meter system in 2008 to private investors. These investors are now on track to recoup their entire investment by 2021, and then enjoy 62 more years of profits, all paid for by the city’s residents. Meanwhile, parking meter rates doubled in the first five years, and Chicago is now contractually restricted from improving the downtown streets with the leased meters, preventing them from adding bicycle lanes or expanding sidewalks.
What happened in Chicago is just one example of so-called public-private partnerships, where cities and states sell off public assets to private actors, just to balance their budgets. But the idea of the National Investment Authority is to flip the public-private partnership script. It would compel private money to fund public projects under public control instead.
The way it would do this is by creating a new asset class, backed by the full faith and credit of the federal government, which would create a new financial product nearly as safe as Treasuries (U.S. government bonds widely seen by the financial markets as one of the safest, least risky investments that exist). Because of the government backing, it could not only be attractive to the general public, but even to pension funds and other long-term institutional investors who want a decent return with less risk. While there’s no reason the National Investment Authority couldn’t be solely funded with public dollars, a combination of public dollars and private investment could make it go even further.
Operationally, the National Investment Authority would be a new public entity that sits between the Federal Reserve and the Treasury Department. It would have a dedicated mission to invest strategically in projects that would create socially inclusive, equitable and environmentally sustainable economic growth. To ensure it doesn’t stray from its mission, it would have multiple measures for accountability: a governing board, a public interest council, an audit panel and separate oversight by audits from the Government Accountability Office.
It would have two arms: an Infrastructure Bank and an agency to invest in leapfrog, moonshot-type projects. The Infrastructure Bank would issue grants, loans, insurance and more to support public infrastructure like roads, clean energy facilities and water treatment plants. The other arm would be an asset manager, with a portfolio of equity investments in environmentally safe, socially beneficial long-term projects.
There’s precedent in the United States for this kind of organized, vast investment in public projects. The National Investment Authority is a modernized version of a New Deal–era program called the Reconstruction Finance Corporation. First created by President Hoover, Franklin D. Roosevelt grew it and used it to help the country out of the Great Depression. The Reconstruction Finance Corporation funded projects big and small, and at the time, its investments were larger than those of all of Wall Street combined. Institutions like the Small Business Administration and Fannie Mae and Freddie Mac (which help to facilitate investment in housing by buying mortgages from lenders) are still-surviving subsidiaries of the Reconstruction Finance Corporation.
While the American Rescue Plan has provided a much needed short-term stimulus to the public, the future of the U.S. economy remains uncertain. Supplemental unemployment insurance and the suspension on most federal student loan payments are both due to expire in the fall. One of the lessons learned from the last financial crisis is that Wall Street actors will grab the best assets on the cheap after a market crash, leading to further dominance of our economy by a few giant, private players.
The National Investment Authority could ensure this doesn’t repeat, acting to reverse the trend toward privatization and make real investments in public projects. It’s an idea that’s popular — a majority of voters (54 percent) support the idea, according to polling by the Justice Collaborative. Combined with the president’s push for the infrastructure bill and the reintroduction of the Green New Deal, the moment seems ripe for transformational public investments.