A letter to my old officemate—and Obama’s new chief economic adviser.

DATE:     FEBRUARY 3, 2011

It feels like a lifetime ago that you and I shared a windowless broomcloset in the West Wing. I assume your digs are more spacious and better illuminated now. In any event, congratulations on returning to a position you occupied with such distinction in the Clinton administration.

The purpose of this memo is to inform you—in case you don’t already know—that hell has frozen over: Late last week, Tom Donohue and Rich Trumka issued a joint statement applauding the president’s call for increased infrastructure investment and urging both Democrats and Republicans to support it. If there was ever a cause whose time has come, this is it. It has to be done big, and it has to be done right—big because it’s not just another program, but a paradigm change; right because it won’t work if it sinks into the morass of the congressional appropriations process, out-of-date formula allocations, and logrolling project selections. Let me explain—briefly, because I know how busy you are right now.

Despite short-term gains, the consumer-driven model of growth on which we’ve relied for decades has hit a wall. We need to shift from spending to saving, from consumption to production, and from deficit-financed imports to aggressive export promotion. We need to invest in the basic building blocks of productivity. And we need to focus on generating good jobs that can’t be exported.

Infrastructure investment can contribute to all these objectives, and the need is great. Because we’ve neglected our infrastructure for more than three decades, the best estimates suggest that we face an accumulated gap—between what we should have invested and what we actually did—of more than $2 trillion. Anyone who has traveled outside the United States in recent years knows that we no longer have a world-class infrastructure. And time-wasting, productivity-sapping bottlenecks are building up, especially in transportation.

During his 2008 campaign, then-candidate Barack Obama advanced an innovative idea to deal with this situation: a national infrastructure bank, which would mobilize private money to finance large, worthy, long-term infrastructure projects that are capable of turning a profit in the free market. In his 2011 State of the Union, President Obama reopened this issue without specifically mentioning the bank. Now is the time to flesh it out and hit it hard.

By this I mean two things. First, get beyond what Hollywood calls the elevator speech, and send Congress a framework for actual legislation. Bills introduced in both the House and Senate within the past few years could serve as a useful baseline. And there are lots of outside experts who would be willing to help out if needed.

Second, specifically include the infrastructure bank in the president’s forthcoming FY2012 budget proposal. You know as well as anyone that if it’s not in the budget, it’s not real. (Remember welfare reform in President Clinton’s first budget proposal?)

Of course, seed money for the bank is going to cost something. And given the rising pressure for fiscal restraint, you’re not in a position to significantly increase spending in order to stand it up. So consider redirecting the necessary amounts from existing infrastructure projects, which neither leverage private capital nor endure the rigors of a market test. As you do, make it clear that the bank would be a public-private partnership, not a government-run enterprise, and would enjoy neither explicit nor implicit public guarantees. If investors aren’t willing to assume market risks, the projects in question shouldn’t be funded: period, full stop.

A final thought. Programmatic changes are sand castles on the beach, easily washed away when the tide changes. All the heavy lifting you did in the 1990s to turn deficits into surpluses went for naught as soon as a new administration took power. As FDR understood, institutional innovations fortify long-term policies against short-term political shifts—and all of the investments President Obama has already made in the economy could easily be defunded. An infrastructure bank, however, would institutionalize the development of public goods in a way that simply passing a budget cannot. And it would be large first step toward the reformed governance that President Obama has so forcefully advocated.

William Galston is a contributing editor at The New Republic and a current senior fellow at the Brookings Institution.

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