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Let Roads and Bridges Crumble

 7 min read / 

2008 U.S. Economy in Crisis

January 2008, U.S. nonfarm employment peaked. In March, the first shocking financial transaction occurred; JP Morgan purchased Bear Stearns for pennies on the dollar. By late spring, the recession spread. Modest job losses steepened. In mid-September, Lehman Brothers, the fourth-largest U.S. investment bank, with 25,000 employees worldwide, collapsed. Credit markets froze. Virtually every major industry haemorrhaged. The entire auto industry teetered on collapse.

Between October 2008 and March 2009, monthly job losses averaged 712,000; the worst six-month period of job losses since 1945. Fall of 2009, unemployment peaked at 10%. When the U.S. economy eventually bottomed in February 2010, the country had shed 8.8 million jobs. In the meantime, the nation’s red ink skyrocketed. The 2008 deficit of $458bn was the largest in U.S. history. It would more than triple the next year. The stunning 2009 shortfall of $1.4trn equated to 9.8% of GDP. Deficits remained above $1trn the next three years. The economy President Barack Hussein Obama inherited had crashed and burned.

2010 – 2016: When Policies Aren’t Bold

In the midst of the crisis, the Democrats claimed “bold” action was required. Congress and the Obama administration pushed through a highly-controversial $787bn stimulus package. It comprised of three components: $288bn (37%) in tax cuts, $275bn (35%) in federal contracts, grants and loans, and $224bn (28%) in extended unemployment benefits, education and healthcare spending. Despite tax cuts being the largest incentive in the bill, GOP opposition was fierce. The Tea Party formed. Conservatives roundly demonized government interference. They claimed moral hazard destroyed free markets and government debt chocked private investment.

Once integrated into the economy, fiscal stimulus kept the U.S. afloat. Between March 2010 and end of January 2017, an average of 190,000 jobs per month were created, 15.8 million in all. Unemployment declined more than half to 4.8%. The auto industry, a driver of millions of subsector jobs, sanctimoniously regained pre-crash employment levels. Methodically, GDP grew each year.

*Note: Despite uninterrupted GDP and job growth during this seven-year period, auto sector employment failed to make new highs.

Meanwhile, Japan’s fiscal efforts failed to end its extended economic quagmire. The UK and other EU members assumed an opposite tack – austerity. They claimed “bold” fiscal tightening was needed. Weakness persisted. Migration back-lash compounded negative sentiment. Brexit soon followed. Regardless of strategy, stimulus or austerity, “bold” was always the operative word when it came to describing policy.

The reality is neither fiscal stimulus employed by the U.S. and Japan nor austerity implemented by EU members was “bold.” In the U.S., any successful funding of innovative technologies was drowned out by criticism elsewhere. Insignificant failures such as Solyndra prompted conservatives to cry that “Government shouldn’t pick winners and losers.” Enough people listened. Sponsored projects failed to create schools of energy. As for austerity, it was “boldly” irresponsible given the economic scenario. In both instances, the tide was going out, not coming in. Few were lifted. Business activity meandered.

Irrespective, that was then. Today, competition has dramatically intensified. The table below depicts leading nations’ GDP growth and GDP purchasing power parity (PPP). China’s near doubling of GDP since 2009 has propelled them to the top of the GDP (PPP) list. Torrid expansion has moved India and Indonesia to 4th and 8th respectively. In aggregate, the EU places second while the U.S. is third. The trend is unnerving. Expect China to pull away while India, Indonesia and other emerging markets gnaw more market share from the U.S. and EU.

*GDP is the value of all final goods and services produced within a nation in a given year. A nation’s GDP at purchasing power parity (PPP) exchange rates is the sum value of all goods and services produced in the country valued at prices prevailing in the United States in a year noted. This is the measure most economists prefer when looking at per-capita welfare and when comparing living conditions or use of resources across countries.

*All GDP (PPP) are 2017 estimates except Euro Area (2016).

2018: New Bold Same as the Old Bold

Since the last global recession, virtually all key economic metrics have advanced. The delta between the two periods are night and day. Yet economic angst blankets the world. To supercharge the economy, President Trump and Republicans resorted to “bold” tax cuts. Consensus estimates predict the “incentives” will expand deficits from $1.5trn to $2.0trn while negligibly stimulating business. To fuel the supercharger, President Trump has proposed a “bold” $1.5trn infrastructure program to rebuild roads, bridges, railways and airports. Trump’s idea is not novel. It is gross hypocrisy. It’s dangerous and certainly not “bold.”

Bold Action Required

A first-class economy requires robust hardware to complement powerful software. Ever evolving, the U.S. was founded on terrific software (regulations, standards, laws and courts to enforce them). Periodically, innovative hardware maximizes the latest software. Six to seven decades ago, that occurred when the government launched four projects: the Manhattan Project 1941, the Marshall Plan 1947, the Federal Highway Act of 1956, and NASA 1958. Each undertaking was revolutionary. Government partnered with private enterprise, a strong middle-class emerged, income disparity was restrained. America became the envy of the world. America was “bold.”

Tax Cuts, Walls, and Repairing Roads and Bridges Aren’t Bold

Today, “bold” is China’s One Belt One Road project. Sixty-eight nations are listed partners. Many reside in the most unstable parts of the world. With new roads, railways, ports and electricity grids, the infrastructure will match or exceed rival nations and extend China’s reach. The risks are high for the $1.2trn project, but the potential payoffs are significant. Yet the upside is capped – roads and bridges are yesteryear.

To keep pace, America will have to renovate nearly every layer of infrastructure. Costs will be astronomical, endless construction will madden every citizen, and productivity will suffer. For what? To maintain infrastructure equivalency with China—a country with physical access to the bulk of the world’s population and fastest growing markets?

America has a choice. Prolong century old technologies or blaze new trails—like the country did in the 1940s and 1950s when the government planned, funded, and delivered once unthinkable technologies. Instead of pouring money into projects with a limited upside, vast public monies should be invested into a 5G network. Unapologetically, federal, state and local funding ought to supplement private research in drones and underground hyper loops that can propel people and goods across North America in a fraction of the time and cost today.

To drive variable energy costs next to zero, massive financial incentives for renewables and energy delivery systems must be employed. All will profit if a commitment to educate and transfer knowledge regarding blockchain technology is promoted.

It’s been a lifetime since America looked one generation ahead. It’s time leaders picked industry winners and losers. Sectors that could pay off for decades—because the next economic crisis awaits—and old cures: tax cuts and tired infrastructure projects will only ensure the GDP gap between China and the U.S. painfully widens.

President Trump; rescind your fruitless tax cuts and recoup the $1.5trn. Float $2trn “Make America Great Again,” infrastructure bonds. With the new found $3.5trn, fund game-changing advancements that stimulate long-term vigorous growth. Spend $25bn to finance your old-school wall. It will be your new regulation to appease your base. It doesn’t have to be your legacy. Cancel two regulations that are holding America back; let roads and bridges crumble.

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