Trumped! A Nation on the Brink of Ruin... And How to Bring It Back

by David Stockman

  In short, Speaker Ryan’s first turn at bat produced a $2.5 trillion budget buster!

  And that’s not the half of it.

  As we indicated previously, given the lags in the legislative process and implementation schedules, meaningful cash savings and deficit reductions could not be effectuated until FY 2019 or FY 2020 at the earliest.

  Still, no one has outlawed the business cycle, and by then this so-called recovery would be 125 months old.

  So for the next president to escape a recessionary downturn in the U.S. economy and Uncle Sam’s fiscal footings is not even a remote possibility in a world that is plunging into a deflationary recession even now.

  So here’s the truth. When you add back the trillions of phony spending cuts and revenue increase that are built into the current budget baseline and throw-in the next recession, we have estimated that the real world addition to the national debt will be at least $15 trillion during the next ten years.

  And that will be piled on top of the $20 trillion of public debt that will be in place by the time of the 2017 inauguration.

  Can this nation manage a $35 trillion public debt at the very time that the baby boom is retiring at a rate of 10,000 per day?

  That’s not likely under any circumstances—but most certainly never under the watch of fiscal fakes like Speaker Paul Ryan.

  So maybe Donald Trump’s reluctance to support the speaker’s reelection bid was based on more than what meets the eye.

  Yes, The Donald has no plan at all to fix the nation’s fiscal crisis, as we have demonstrated previously. But perhaps he does realize that if elected his job will be to clean up the crushing fiscal folly bequeathed by those swell bipartisan regulars—Johnny Lawnchair and Faker Ryan.

  CHAPTER 11

  America’s Bridges Are Not Falling Down: The Perennial Myth of Crumbling Infrastructure

  THERE IS A GOOD REASON WHY DONALD TRUMP’S CAMPAIGN HAS BEEN light on policy details. To wit, it seems that every time he gets specific he manages to serve up a steaming pile of hogwash.

  So when he told Fox News that he would double-down on Hillary’s $275 billion infrastructure boondoggle, The Donald was right on cue. And in pulling his new $500 billion infrastructure program straight out from under his comb-over, he also demonstrated he has no idea what he is talking about on this topic, among many.

  “Donald Trump on Tuesday proposed a plan to rebuild U.S. infrastructure that costs “at least double” the amount that Hillary Clinton has floated, in what would amount to a massive new government program . . . Well, I would say at least double her numbers, and you’re going to really need more than that. We have bridges that are falling down. I don’t know if you’ve seen the warning charts, but we have many, many bridges that are in danger of falling.”

  No, Donald, the bridges of America are not falling down, and the nation’s infrastructure—to the extent that it is any business of Imperial Washington at all—is not “crumbling.” Actually, Washington’s primary job is maintenance of the Interstate Highway System, and that’s in pretty good shape, including its heavily trafficked bridges.

  More importantly, if additional investment is needed in the interstate highway grid, then the users should pay for it with a modest increase in the gasoline tax.

  Or better still, Washington merely needs to rescind the earmarks that divert upwards of 67 percent of the existing $45 billion per year of gas tax revenues to state and local roads, mass transit, bike trails, walking paths, weed removal, transportation museums and countless other diversions. In short order the system would be in tip-top shape.

  But that’s not the half of Trump’s wild pitch on this one. Having swallowed the infrastructure myth hook, line and sinker, the GOP candidate went a horrid step further and talked up an “infrastructure bank”—the Democrats’ favorite backdoor route to further ballooning the nation’s already-crushing public debt.

  Despite insisting that “I’m doing the biggest tax decrease,” Trump saw no sweat at all in coming up with the half trillion dollar price tag for his latest brainstorm:

  “We’ll get a fund. We’ll make a phenomenal deal with the low interest rates,” he said. Who would provide the money? “People, investors. People would put money into the fund. The citizens would put money into the fund,” he said, adding that he’d use “infrastructure bonds from the country, from the United States.”

  95% OF INFRASTRUCTURE IS NOT A FEDERAL RESPONSIBILITY

  Upward of 95 percent of what passes for infrastructure investment—highways, roads, streets, bridges, airports, seaports, mass transit, water and sewer, the power grid, parks and recreation etc.—are the responsibility of the private sector and should be paid for by users or, arguably, constitute local public goods and amenities. The latter should be managed by state and local governments and be funded by local users and taxpayers.

  But give the Beltway lobbies and racketeers an inch and they will take a mile. After decades of federal mission creep, there is virtually no aspect of “infrastructure” spending that has not wormed its way into the federal budget.

  That’s why the nation has $19.4 trillion of public debt already. But there is also a larger issue. Namely, what’s the point of federalism and some 89,000 units of state, county and local government if these taxpayer funded agencies can’t even provide for fare box revenues on local bus routes, maintenance of secondary highways and streets or water and sewer services to local residents?

  When all of this gets federalized on an ad hoc basis, of course, you end up with the worst of all possible worlds. That is, random redistribution of resources among localities; waste and inefficient pork barrel allocation of funding and a centralization of politics where the permanent governing class always wins and working taxpayers are left out in the cold.

  Even in the case of just highways, the extent of mission creep and pork barrel politics is stunning. The 47,000 miles of interstate highways constitute only 1.1 percent of the 4 million miles of streets, roads and highways in the entire nation.

  Indeed, the reason we have state, county, municipal and township government in the United States is precisely to take care of the 99 percent of road surfaces that the great Dwight D. Eisenhower said should remain a nonfederal responsibility—even as he pioneered the Interstate highway system and trust fund.

  Yet less than $15 billion, or one-third of the trust fund’s receipts, goes to the Interstate Highway System Ike fathered. The rest gets auctioned off by the congressional politicians to state, county and local roads and to the far-flung array of non-highway purposes mentioned above.

  Worst still, at the center of this abuse and corruption-ridden Washington infrastructure spending complex is a tissue of myths, exaggerations and lies which provide a veneer of justification for its inherent plunder, waste and unfairness.

  That is to say, when the Beltway bandits run low on excuses to run-up the national debt they trot out florid tales of crumbling infrastructure, including dilapidated roads, collapsing bridges, failing water and sewer systems, inadequate rail and public transit and the rest.

  This is variously alleged to represent a national disgrace, an impediment to economic growth and a sensible opportunity for fiscal “stimulus.” But most especially it presents a swell opportunity for Washington to create millions of “jobs.”

  Moreover, according to the Obama Administration’s latest budgetary gimmick—and one now apparently embraced by The Donald—this can all be done in a fiscally responsible manner. Yes, that would be via the issuance of “green ink” bonds by a national infrastructure bank, as opposed to the conventional “red ink” bonds by the U.S. Treasury.

  The implication, of course, is that borrowings incurred to repair the nation’s allegedly “collapsing” infrastructure would be a form of “self-liquidating” debt. That is, these “infrastructure” projects would eventually pay for themselves in the form of enhanced national economic growth and efficiency.

  Needless to say, that’s what the government of
Japan has been saying for the last 25 years. With debt at 235 percent of GDP, in fact, what is being liquidated is the nation’s taxpayers, not its “construction” bonds.

  DILAPIDATED INFRASTRUCTURE: BOGUS BELTWAY PROPAGANDA

  Besides that, the evidence for dilapidated infrastructure is just bogus Beltway propaganda. It is cynically peddled by the construction and builder lobbies and by state and local officials looking to fob the bill onto any taxpayers except their own.

  A recent jeremiad about the phony infrastructure crisis by one Philip K. Howard is par for the course. Howard is a lawyer and founder of a lobby group sporting a name—“Common Good”—which is reason in itself to be wary:

  But almost every category of U.S. infrastructure is in a dangerous or obsolete state—roads and bridges, power generation and transmission, water treatment and delivery, ports and air traffic control. There is no partisan divide on what is needed: a national initiative to modernize our 50- to 100-year-old infrastructure. The upside is as rosy as the status quo is dire. The United States can enhance its competitiveness, achieve a greener footprint and create upward of 2 million jobs.

  That entire paragraph is pure hogwash. The overwhelming share of the nation’s infrastructure is not obsolete or dangerous, is not being starved for dollars; and has virtually nothing to do with the dramatic trend-line of decline in Main Street growth, investment, good jobs and real living standards.

  Moreover, the infrastructure that actually does qualify for self-liquidating investment is overwhelmingly local in nature—urban highways, metropolitan water and sewer systems and airports. These should be funded by users fees and levies on local taxpayers—not financed by Washington issued bonds and pork-barreled through its wasteful labyrinth of earmarks and plunder.

  In the above quoted passage, Howard attempts to throw in everything but the kitchen sink in his list of purportedly crumbling infrastructure. But as we have seen, the Interstate Highway System is at the center of the federal- government role, but it’s not crumbling at all. Indeed, since it could be maintained in high style for 0.17% of GDP, where’s the beef?

  It’s certainly not in what Howard identified as the “power generation and transmission” sector. In fact, national investment spending for this purpose, as shown below, has been running in the $90–$100 billion range annually for the last half-decade—or more than triple the level of the early 2000s.

  Even after accounting for a 25 percent rise in the GDP deflator over the last 15 years, current investment in the utility sector is more than double its 2004 level.

  The self-evident point is that there have been no blackouts, brownouts or power shortages of any kind that could plausibly have interfered with economic production and growth during that period. In fact, if there is not an electric power availability problem—and there clearly has not been—then most of the claim that an infrastructure binge will boost economic growth washes out.

  Stated differently, growth is based on efficient use of economic resources, not gross investment spending. You build utility plants when you need more megawatts to power Main Streetproduction, not because some Washington lobbies want taxpayers to buy concrete, steel, electrical components and labor in order to build redundant capacity.

  In fact, what the infrastructure lobbyists are really complaining about is economic outcomes they don’t like. That is, only a tiny fraction of the ample utility power available to U.S. businesses and households is generated by green fuel such as wind and solar.

  But that’s because it is not economically competitive, not because capital investment is being starved. After all, the overwhelming share of utility investment is accounted for by the private sector and is debt financed.

  To borrow a phrase, propagandists like Philip Howard are actually bringing coals to Newcastle. That is to say, thanks to the Fed’s misguided financial repression policies, long-term utility financing has never been cheaper in real terms. The idea that there is a financing shortage for utilities and power is just plain ridiculous.

  Indeed, the typical double-shuffle or hidden agenda of the infrastructure cheerleaders is revealed by Howard’s curious claim that $30 billion is “wasted” each year due to inefficient power transmission. Now, how in the world does he know that?

  Of course, there is inherent frictional power loss in the process by which central-station bulk power is distributed through high voltage power lines and then across the local distribution grid. But it’s a matter of physics and economic trade-offs. If you invest a lot more in high performance transmission systems, you will absolutely get less power loss, but the investment may never pay for itself, either.

  In any event, that’s a pricing issue and could readily be alleviated—to the extent that it exists—by intelligent rate reform.

  Dig deep enough, however, and it becomes obvious that a whole phalanx of the infrastructure lobby is really composed of radical environmentalists. The infrastructure they want to replace is not crumbling and an impediment to economic growth; it’s actually a low-cost contributor to growth and jobs which happens to emit carbons.

  In fact, this completely ulterior—and false—agenda against carbon emissions is actually admitted to—even if inadvertently—by Howard:

  “The wasted electricity from the obsolete power grid is the same as the output of 200 average coal-burning power plants—causing an extra 280 million tons of carbon to spew into the air each year.”

  Right. Replace perfectly good conventional transmission capacity with ultra-high cost advanced transmission technology. That way you can add even more debt to the nation’s balance sheet and force the shutdown of perfectly serviceable coal-fired power plants, too!

  NO SEWER SHORTAGE, EITHER

  Another category of alleged infrastructure starvation is waste water and sewage treatment, and here the story is even worse.

  Ever since the EPA started making multibillion-dollar grants for sewer plants during the early 1970s, municipalities have been wasting massive amounts of resources building over-sized plants, and then under-charging their business and residential customers for their use.

  So the truth in this category is not starvation but economic obesity!

  Accordingly, under a regime of full economic pricing for waste treatment services the nation’s infrastructure budget could be sharply reduced. That’s because higher, unsubsidized prices at the municipal system intake pipe would cause an outpouring of technological innovation and practice changes among users and waste generators. Such innovation and user conservation investments, in turn, would dramatically reduce the capacity requirements and cost of end-system treatment plants.

  Moreover, even under the current system of waste treatment socialism, there are no facts whatsoever that support the starvation argument. Current annual spending for waste treatment has ranged between $22 and $26 billion per year. That’s 20 percent higher than a 15 year ago—even after adjustment for the 25 percent gain in the GDP deflator during the interim.

  LOCAL ROADS AND STREETS: THE PROBLEM IS MUNICIPAL CORRUPTION AND UNION MONOPOLIES, NOT FISCAL STARVATION

  Now, it is absolutely true that in selective localities in the U.S. there are obsolete sewage-treatment plants, just as in the case of roads and streets. But you can’t blame that on inadequate spending. The real problem is local government corruption, inefficiency, pork barrel politics and the excessive power of the municipal unions and the construction trades.

  That’s true in spades for the local transportation sector. The disgraceful condition of roads and streets in places like New York City and Philadelphia, for example, is owing to the fact that billions have been siphoned off by drastically overpaid union labor and deeply corrupted contract award processes.

  Needless to say, waste and corruption are the very opposite of a funding shortfall. In fact, nationwide highway spending has averaged between $80 and $95 billion since 2009 or about 30% higher in real terms than a decade earlier.

  Moreover, if the voters really want better road
s and streets throughout the localities of the nation there is one simple solution: raise state and local gas taxes and other user fees and tolls.

  Stated differently, the proof is ultimately in the pudding. There is apparently nothing that Americans treasure more than their autos and the freedom to motor far and wide. If they can’t be persuaded to pay higher road taxes and tolls, then by definition there is not a “shortage” of highway investment.

  WHAT’S REALLY CRUMBLING IS THE KEYNESIAN CASE FOR ENDLESS DEBT

  At the end of the day, what is “crumbling” is not the nation’s infrastructure, but the case for deficit spending; that’s what the infrastructure brouhaha is all about.

  It’s just another variation of the misbegotten Keynesian notion that the state can command economic growth via borrowing or printing money in order to fuel “aggregate demand.” Accordingly, there is ultimately no difference in the economic waste represented by federal borrowing to build over-sized sewage plants or unused local roads and that which would result from building debt-funded pyramids.

  In fact, however, true economic growth and wealth generation stems from the supply side of the economy. That is, from the exertions and productivity of labor and the efficiencies, innovations and investments generated by entrepreneurs.

  And that leads to the real reason for our present stall speed economy. Over the last 16 years, there has been a 20% decline in real net business investment (after depreciation of the existing capital stock), while labor hours utilized by the business economy have inched forward by less than 6 percent over the entire period.

  Moreover, there has been a stunning decline in net business formation and entrepreneurial activity. If Washington really wants to deal with faltering economic growth it should work on removing the regulatory, tax and welfare state barriers to these ominous supply side trends, not boosting the already more than adequate level of infrastructure investment.