Great America

California’s Ill-Conceived Forest Fire Prevention Shortcut

If the California state government and PG&E are willing to put their citizens and customers first then both will employ alternative policies for preventing forest fires, policies that do not harm an already struggling economy.

Instead of improving land and forest management, California is using a wildfire prevention shortcut, sporadically shutting down electrical lines during dry and windy weather. According to a study published in April by the Manhattan Institute, this strategy is costing the California economy millions. 

In 2017 and 2018, California experienced several mega-catastrophe wildfires. This included the Camp Fire, which killed 85 people, practically destroyed the City of Paradise, and leveled 19,000 structures. The cause of this wildfire has been traced to downed power lines installed and operated by Pacific Gas & Electric Company (PG&E). PG&E has the most service territory in California, covering 70,000 miles. Its lines have also been responsible for 44 out of the 45 large wildfires caused by downed power lines over the past 10 years. 

According to the Manhattan Institute report, faulty electrical equipment was only to blame for 12 percent of California’s fires in 2017, but half of California’s 20 most destructive wildfires can be traced to electrical equipment. In 2017 alone, faulty electrical equipment in PG&E territory was responsible for burning 228,271 acres, destroying 8,892 structures, and killing 44 people. CalFire determined that 12 of those 14 fires were caused by faulty equipment owned by PG&E. 

To avoid future fires of this kind, California’s governor and PG&E began imposing “Public Safety Power Shutoffs.” This means that during windy and dry weather, power companies shut off electricity. In October 2019, 1 million residents were affected by outages imposed by PG&E, CNN reports. Of that number, 42,000 customers had their power shut off for 55 hours. 

This new report demonstrates that these preemptive shutoffs impose significant costs on thousands of California residents and businesses, while acting as a cheap form of insurance for the electrical company. PG&E was forced to pay 13.5 billion for the role their equipment played in starting fires in California from 2015-2019, reports the New York Times

Preemptively shutting down power lines costs PG&E significantly less than paying for fire damage. Though this strategy may make sense for PG&E, it makes no sense for their customers. 

The Manhattan Institute study weighs the probability of electrical-caused wildfires and the damage caused by such fires with the economic consequences of preemptive electrical shutdowns. Even after taking into account loss of life, the destruction of homes, businesses, and land, as well as the cost of fighting a fire the study ultimately found that preemptive electrical outages cause a higher amount of economic damage. The study estimates that outages impose a cost of $160-$320 upon each customer per day.  

Just like the current debate between continuing COVID-19 lockdowns and reopening the economy, it is difficult to compare economic losses with the potential loss of life. However, Californians should not have to choose between preemptive electrical shutdowns and wildfires—not when there are other options for keeping power lines safe in dry and windy weather. 

The Manhattan Institute’s report suggests several alternatives to preemptive shutdowns. It recommends the active monitoring of equipment by both PG&E personnel and as well as remote technologies like drones. 

Additionally, the report suggests that PG&E could begin to implement smart grid technology. A smart grid would detect a downed or sparking line and could then be shut off in isolation while simultaneously rerouting power to customers through a different line. 

Further, PG&E should consider putting some power lines underground in their most at-risk territories. Underground power lines are often cost-prohibitive, but if done gradually and only where necessary such an infrastructure investment might be worth it. 

Anaheim, California may serve as a helpful model here. Since 1990, the city gradually has been burying its power lines, funded through a 4 percent surcharge on electricity bills, according to the Anaheim city government website.

Why aren’t these other options being considered? It might be that PG&E has a monopoly on its service territory and thus has less incentive to invest in the infrastructure for safer transmission lines.

Even worse than PG&E’s reluctance to invest in new infrastructure is its problem maintaining the infrastructure it already has in place. The report found that some of PG&E’s transmission and distribution equipment in high-risk fire areas is more than 100 years old. Further, PG&E has not been replacing this old equipment at a fast enough rate to ensure safe operations. 

Another report by a California commission found that the Camp Fire was caused by a power line, built over a century ago, that runs through a heavily wooded and mountainous area known for experiencing strong winds. The commission determined that PG&E did not properly maintain this line and was thus responsible for the deadliest wildfire in California’s history.  

The company plans to replace equipment and trim trees around their power lines over the next ten years, but this should be done much more quickly and other measures listed should be implemented as well. 

PG&E is not the only one choosing the easy way out. Both California and the federal government have ignored their obligations to protect citizens and provide them with competent infrastructure. For too long California legislators and governors have deferred to the environmental lobby, refusing adequate forest thinning measures, brush clearing, and have not practiced enough prescribed burns. These policies ensure that California continues to remain at risk for bigger and deadlier wildfires.  

If the California state government and PG&E are willing to put their citizens and customers first then both will employ alternative policies for preventing forest fires, policies that do not harm an already struggling economy. 

Greatness Agenda

Smart Spending of the $6 Trillion of Magically Materialized Money

America today needs the courage that was displayed in the 1930s as we prepared to fight fascism, and in the postwar era as we contained and then defeated Soviet communism. America is now in a new existential conflict, this time with the fascist, racist, expansionist regime that controls the Chinese mainland.

If you’re going to spend money you don’t have, you’d better spend it to create things with genuine value. This is the choice facing Americans today. Estimates of how much the federal deficit will grow in response to the pandemic shutdown range as high as $6 trillion. So how should we spend such a stupendous sum of money?

The last time a huge sum of stimulus money was pumped into the U.S. economy, back in 2009, skeptics were told the money was going to fund “shovel ready” infrastructure projects. President Trump repeatedly has criticized the 2009 stimulus because it wasn’t, in fact, used for infrastructure.

A “Fact Check” written in 2017 by NPR reporter Danielle Kurtzleben made a feeble attempt to debunk Trump’s claim, saying Trump is “mostly wrong” about this. Funny though, the facts cited in Kurtzleben’s own article demonstrate that Trump was “mostly right.” Of the $800 billion in 2009 stimulus spending, only $81 billion, barely 10 percent, was used for infrastructure.

One may argue that any money going into the economy, for anything, has at least a short-term value, and is necessary in a crisis. That’s obviously true, and this time around, a lot of stimulus money is going to go to be used to provide short term but very necessary relief to households and businesses that would otherwise go under. But what about long-term value?

Usually lost in the debate over just how long the United States can continue to materialize dollars out of thin air is that the answer is affected by what is done with all that money. Specifically, how much of the money is invested in projects that will pay long-term dividends?

How to Misspend $6 Trillion

If you ask the Democratic Socialist schemers, abetted by the NeverTrump idiots, traitors and mercenaries (e.g. the Lincoln Project), 2020 is a chance to fundamentally transform America. The Democratic Party’s socialist agenda is well known, even if the consequences of that agenda are deliberately obscured. And their agenda grabs hold of and runs with every crisis, including the current really big one.

Imagine a national “contact tracing” army, backed by ubiquitous drones and an AI-enabled data gathering panopticon. Expect to be micromanaged not only in matters of health—whether or not you’ve gotten your vaccines and been chipped – but also just exactly how well you’re minimizing your carbon footprint. Private property and free speech slowly will become a memory. The middle class will go extinct. American citizenship will be meaningless.

And all that money? It will pay for a bigger public sector nomenklatura than ever, along with a comprehensive and very costly assortment of handouts to a population convinced that hard work is for suckers. Some money will be to subsidize “clean” energy, so that renewables combined with severe rationing will enable the dismantling of the fossil fuel industry. Eventually, American insolvency will trigger an economic depression from which there will be no recovery.

This path is more than fiscal malpractice. It is national suicide. There is an alternative.

Obstacles to Spending $6 Trillion Wisely

The biggest hindrance to wise spending is understanding that tangible projects have to be funded, not just expansion of government and expansion of welfare type programs. The other major hindrance to wise spending is the propensity over the past few decades to spend most of the money meant for infrastructure on planning, mitigation, side projects to appease special interests, litigation, and consultants, while absorbing the cost of endless delays.

When examining successful infrastructure projects in America’s past, it’s too easy to attack them from a libertarian perspective, while ignoring their biggest virtue: They got done. They got done with most of the money actually being used for labor and materials. Sure, the Works Progress Administration during the 1930s was a government-funded endeavor. But the Grand Coulee Dam and Hoover Dam, along with countless other water reclamation projects, are the reason the American west was turned into a breadbasket for the world, and the reason Americans produced enough electricity to smelt aluminum and build the bombers that won World War II. Results matter more than ideology.

Similarly, in the 1950s, the interstate highway system was a government-funded endeavor. But those roads enabled modern cities and transportation to evolve, catalyzing America’s economic growth at the time, and like those dams, yielding benefits to this day. Even in the 1960s and into the 1970s, big infrastructure got funded and big infrastructure got built. In California, it took only six years for the gigantic San Luis Reservoir, with a capacity of 2 million acre feet, to go from concept to being fully operational.

Today, using California as a typical modern example, the proposed Sites Reservoir, of nearly identical design to San Luis, is expected to take 30 years to complete. That’s if they build it at all. We have paralyzed our nation, and the reasons for it aren’t hard to figure out. Everyone has their finger in the pie. Everyone has to get paid off. Special interests have taken over the process of building anything in America, and they will destroy us.

A wonderful, scathing essay recently published on American Greatness by the pseudonymous L0m3z titled “Bound and Gagged by the Bugmen,” goes a step further. The author identifies “Bug” as the language and jargon adopted by bureaucrats and “experts,” language that offers little in the way of clear meaning and much in the way of obfuscation and obstruction. Towards the end of the essay, the author writes:

None of this can be done—not the flying cars, or the space travel; there will be no fourth Industrial Revolution—until and unless there is a common language with the capacity to inspire it… Bug language will not allow it. It cannot support its vision. It can only pervert, and inevitably thwart all that dare to be heroic. Bug language cannot be allowed to persist. And we must stomp it out with the heel of our boot.

The New American Renaissance

The American Left, in its uncritical embrace of the pandemic emergency regardless of the extremes to which it may take us, and in its advocacy for declaring a “climate emergency,” are on to something even if their priorities are terrifying. They want to stomp out opposition to their agenda.

For the American Right to overcome the Left and inspire voters requires more than just exposing the corruption and anti-American essence of the Left. It requires stomping out the parasitic bug culture and bug language that sucks the life out of any endeavor that so much as scratches the earth, whether using public or private funds. And to do those things, a bold agenda must be set that proposes spending money on things we can see; things that will last. Here are examples:

  • Invest more in strategic military technology and decouple all essential supply chains from China.
  • Approve expansion of mining throughout the United States, whether it’s lithium in California’s Mojave Desert or uranium on the Colorado Plateau.
  • Accelerate spending on research and development of fusion energy.
  • Accelerate approval of nuclear power plants throughout the United States, utilizing the latest and safest large scale and smaller modular designs.
  • Fund NASA and private contractors to establish a permanent base on the water rich South Pole of the Moon before China claims it, and subsidize robotic prospecting and mining of the asteroid belt.
  • Reform federal laws such as NEPA and override state laws that prevent new housing and manufacturing on open land.
  • Federally fund new highways and connector roads to enable suburban expansion and upgrade and widen existing highways.
  • Accelerate FAA establishment of air lanes for passenger and freight drones.

America today needs the courage that was displayed in the 1930s as we prepared to fight fascism, and in the postwar era as we contained and then defeated Soviet Communism. America is now in a new existential conflict, this time with the fascist, racist, expansionist regime that controls the Chinese mainland.

These programs, and others like them, must be done with a sense of urgency. Showering money on these types of tangible programs, assuming the bug people don’t siphon off all the money, will guarantee American economic and technological preeminence for another century.

Transmuting America’s so-called fiat money into modern, robust infrastructure, breakthrough technology, space industrialization, and military supremacy is feasible alchemy. Let’s get started.

Greatness Agenda

Infrastructure Next

Issue ‘Trump Bonds’ to beat the coronavirus pandemic and rebuild the country. This can’t be business as usual or a Democrat giveaway.

Almost everyone, Republicans and Democrats alike, agrees that the United States needs a massive infusion of infrastructure development—especially now to boost the debilitating coronavirus effect on the economy.  

Donald Trump is a builder by profession, and he should do a deal now with Congress to avoid a receding economy and rebuild the country in this time of novel coronavirus warfare. 

To make this happen, the manner in which infrastructure projects are currently undertaken needs to be overhauled. In essence, we need new finance, regulatory, and political infrastructure to support more privately financed development in physical infrastructure. This can’t be business as usual or another expensive Democrat giveaway.

Federal infrastructure development too often gets bogged down in bad management and cost overruns. There is a misallocation to low-value activity and too many “bridges to nowhere” all due to politics. 

At the state and local level, where a lot of infrastructure is owned and operated by the government, there is little to no political will to move toward a user-pays system and to properly maintain roads, bridges, waterworks, power systems, and airports.

Among the steps that can overhaul how infrastructure projects are conceived, financed, and managed is to end tax-exempt financing.  

State and local governments, using tax-exempt finance, build about 90 percent of all infrastructure in the United States. This severely limits the pool of private capital and creates market distortions in how capital is allocated. 

In addition, the United States needs regulatory reform and new sources of capital, as well as scalable tools to locate, fund, and deploy infrastructure capital where it is most needed.

Policymaking needs to overcome the hurdles to private involvement in infrastructure. A longer-term focus and a vision rooted in the private sector from the Trump Administration is essential. Time is of the essence. It should be infrastructure next—and on a bipartisan basis and as a jet engine to relaunch the crippled U.S. economy. 


As long as infrastructure is owned and operated by state and local governments, there will continue to be little to no political will to move toward a more efficient and rational user pays system. That needs to change. 

Infrastructure Needs

A worthy 21st-century infrastructure policy for the United States should address these four interlocking issues:

  • Creating more sources of capital;
  • Creating more scalable tools;
  • Providing regulatory relief for permitting and for federally subsidized loans; and
  • Improving coordination on deal sourcing between private investors and the government (a Deal Syndicate Desk at the Commerce Department, to act as a mechanism for coordination of all infrastructure investments).

 There are a number of related, supporting requirements, which also need to be addressed if a new infrastructure plan is to be truly effective and benefit all.

On Regulatory Reform: We need a conversation on regulatory relief, which must be part of any new policy or funding about infrastructure development and financing. Davis-Bacon labor rules, duplicative environmental impact statements for permitting, and overregulation must be culled in anticipation of the projects ahead. 

On Creating New Sources of Capital/New Scalable Tools: The United States does not need a new, bureaucratic and politically based infrastructure bank. That is a particularly bad idea because it gives too much power to a single bureaucratic entity to allocate capital. Even in the private sector, banks are necessary conduits for allocating capital, but the market must be the final arbiter of how capital is deployed. 

At the same time, we do need an innovative and agile mechanism to locate, fund and deploy capital where it is most needed and where it is best suited, a scalable system capable of performing under the expanding workload as urgent infrastructure development gets underway. 

To start, the United States needs to eliminate tax-exempt bonds and replace them with “Build America Bonds”—which hereafter should be called “Trump Bonds”—that would subsidize the issuer rather than the investor. They would focus on ways to jumpstart the economy coming out of the economic pandemic. 

This would open the market to a large number of global investors rather than limit the pool of capital to just U.S. taxpayers. 

We also need new user-pays road and infrastructure-financing projects, made possible by private sourcing and the placement of such deals. Ideally, these deals would be coordinated in a new “syndicate desk” in the U.S. Department of Commerce that would operate like similar desks on Wall Street.

A syndicate desk is used to launch a new deal and gather enough data to execute it properly and successfully. In Wall Street firms, a member of the syndicate team performs research by talking directly to investors or by going through an investment bank and talking to appropriate parties. This provides a better understanding of the relevant market dynamics and variables. After gathering enough data, the syndicate team reports the findings to those wishing to launch a new deal and then collaborates with them in order to make a recommendation that is feasible and sellable. Such a syndicate desk at the Commerce Department would work in tandem with the capital markets and interface from the government side on all infrastructure deals.

The present approach to infrastructure limits the pool of private capital to projects where the financial benefits from bond financing accrue almost entirely to retail investors and banks that pay federal taxes and depend on public securities, primarily those with an investment-grade rating. This overly concentrated approach is susceptible to demand and supply imbalances, creating market distortions in how capital is being allocated. 

A new infrastructure plan would work to overcome these distortions and create both viable projects and adequate private-sector funding from the widest source of funders. 

Damaged Bridge along Mulholland HIghway, the steel beams melted from the extreme heat. The Woolsey wildfire started on November 8, 2018 and has burned over 98,000 acres of land, destroyed an estimated 1,100 structures and killed 3 people in Los Angeles and Ventura counties and the especially hard hit area of Malibu. California, USA

Universal Images Group via Getty Images

The Politics of Infrastructure

A lot of the country’s infrastructure is owned and operated by local and state governments. The politics of governmental budgeting often impair the maintenance of infrastructure assets. It is time to overcome the lack of political will to change this and move toward a user-pays system. This will let the United States maintain the critical assets that drive our economy more reliably and consistently.

Time and Uncertainty Cost Money: The length of time and the added cost burdens (soft and hard) imposed by extremely lengthy environmental impact studies and design and permitting processes balloon project costs. This creates uncertainty and causes very long lead times before project revenues and benefits can be realized. This results in government capital, with low expected returns, being the only de facto source of financing—another capital allocation distortion. 

Funding vs. Financing Shortfalls: There are many capital and financing sources interested in infrastructure investments. But they are not being matched efficiently with infrastructure development needs. The problem is a lack of funding to pay for infrastructure projects. This underscores the importance of more user fee models. 

Maintenance, Operations and Revenue Discipline: Infrastructure requires not only large upfront investments, but also reliable ongoing investments in the operations and maintenance of assets. Deferring maintenance can result in repairs that can cost 10 times more than regularly scheduled maintenance would cost. The political nature of government budgeting makes it too easy to defer maintenance. It also makes it hard to increase fees/rates/charges on par with inflation, much less with real costs. In short, governments are not good at maintaining infrastructure or maintaining discipline or increasing required revenues 

Overly Prescriptive Designs vs. Outcome/Performance-Based Metrics: Governments meddle too much and act in an overly prescriptive manner when building infrastructure. It doesn’t matter if the transit line seats are red or blue, just that the trains are on time and clean. Infrastructure needs to be evaluated and designed based upon the desired outcomes—what should be termed performance-based infrastructure.

Alternative Delivery and Risk Transfer: Modern, democratic government’s core competency is not building projects. Nevertheless, government’s lower financing costs from the subsidy provided by tax-exempt bonds create an advantage that puts government officials in the driver’s seat. This causes them to believe they should be the developer/builder/owner of infrastructure assets, again distorting ownership decisions.

Cost overruns and change orders by contractors too often drive up project costs. The tendency for governments to meddle and overengineer projects dramatically increases costs. Creating a level playing field by allowing Trump Bonds for any infrastructure project, regardless of ownership/operations or eliminating tax-exempt bond subsidies altogether, would eliminate this ownership distortion and permit more construction/ownership risk transfer to the private sector. The American infrastructure market would function more like other markets that do not have this ownership distortion caused by tax-exempt bonds.  

National Infrastructure Banks as Early Stage Developer or Aggregator: There are many risks in creating a National Infrastructure Bank. If created, it should only serve to make more capital available and not to compete with capital markets. Otherwise, it would replicate the distorting effects of the failed Fannie Mae/Freddie Mac model in housing.

Even if a NIB would merely consolidate the various existing federal loan programs at the Department of Transportation, the EPA, or Commerce there is the risk this may create another slow and cumbersome bureaucracy and also that it would have a bias about which projects get funding.

At most, a NIB could serve a role by providing more “development” or seed capital for projects that have too long a lead time before revenue stability for private capital. But the NIB should look to resell such projects into the markets once up and running and recycle the funds. They should also provide access to capital for smaller issuers who the SEC would prefer did not access the broader private capital markets. 

Private Infrastructure

Few infrastructure projects are truly national endeavors, such as the interstate highway system of sixty years ago. Most projects are of local and state interest and value. As the federal government oversees infrastructure projects across the country, however, it too often gets bogged down in bad management and cost overruns. There is a misallocation to low-value activity and too many “bridges to nowhere” due to politics. Decentralizing policy to the level closest to reality that includes financing, management, and ownership, is a better way ahead. 

In addition, while government has often underwritten expensive, high-risk investments such as early forays in space exploration, the private sector is more likely to make sound investments in fundamental needs. And these are made without gigantic and unnecessary subsidies, strings attached, and overregulation. Privatization promises to improve economic efficiency, add more economic growth, and reduce financial burdens on the U.S. taxpayer. 

Most of America’s infrastructure is actually provided by the private sector, not governments. 

Indeed, private infrastructure spending is larger than all federal, state and local government infrastructure spending combined as measured in gross fixed investment in the National Income Accounts. Private infrastructure involvement in the U.S. is five times larger than total non-defense government investment. It should be allowed and encouraged to grow, not thwarted.

Spurring private infrastructure will equate to greater economic growth and investment. Past governmental efforts in infrastructure spending have shown numerous problems and failures regardless of which political party was in power. They have been typically laden with pork-barrel politics, earmarks, and bureaucratic mismanagement. Money is often misallocated.

Amtrak is a case in point. Investments are inefficient because supply and demand are not balanced by market prices. Water pricing is another good example, demonstrated by greatly underpriced irrigation in the western United States. 

Mismanagement is the rule as incentives are not ensured or undercounted. The “Big Dig” in Boston exploded in cost to five times the original estimates. This is the norm, unfortunately, in government-based projects.

Washington’s mistakes are too often replicated around the country. High-speed rail, for example, has induced the states to spend money on uneconomical and unnecessary infrastructure. Policies on regulation, such as Davis-Bacon labor rules, raise the costs of infrastructure by demanding a one-size-fits-all mentality. These regulations and rules simply do not work as states have diverse needs.

The answer is therefore decidedly not more federal intervention but greater private involvement.

The United States is actually bucking global trends when it comes to private infrastructure. Worldwide the trend is toward infrastructure privatization. Since 1990, some $900 billion of state-owned assets have been sold in Organization for Economic Cooperation and Development (OECD) countries, of which 63 percent are infrastructure assets. 

The OECD says this is due to a failure to deliver “efficient investment with misallocation across sectors, regions, and time due to political considerations.” In a recent report, the OECD concluded a “widespread recognition around the world of the need for greater recourse to private sector finance in infrastructure.”  

The United States currently is lagging far behind Australia and Europe when it comes to private spending on infrastructure. Other countries have moved far ahead of the United States in the privatization of infrastructure, such as roads, tunnels, and bridges. According to Public Works Financing, only one of the top 38 firms doing transportation infrastructure around the world is American; and of the more than 700 projects underway globally, only 28 are in the United States. This is corroborated by numerous findings from the Government Accounting Office, the Congressional Budget Office, as well as from Ernst and Young and the Brookings Institution.

LOS ANGELES, CA - APRIL 7: An aerial view shows a message of hope as coronavirus infections accelerate on April 7, 2020 in Los Angeles, California. The Los Angeles County Department of Public Health is warning residents of a spike in coronavirus infections this week and are asking residents to put off going to the store to buy groceries if they have enough food to last till next week.

David McNew/Getty Images

A Missed Opportunity

Infrastructure is a complex issue that crosses economics, engineering, policy, and finance. The American Society of Civil Engineers (ASCE) has elaborated a number of dramatic costs the country suffers by not addressing our U.S. infrastructure crisis, including:

  • $1.3 trillion loss in GDP
  • $3,100 per year drops in personal disposable income per U.S. household
  • 3.5 million job losses
  • $1.2 trillion in revenue costs to U.S. businesses
  • $611 billion added costs to U.S. households. 

The National League of Cities reported in 2019 on declining American infrastructure and detailed 10 challenges facing U.S. cities, of which, “fragile fiscal health” and “deteriorating transportation infrastructure,” were the first and second priorities. 

In recent years, political polarization has meant infrastructure development and repair has suffered. The federal political stalemate has nearly strangled U.S. infrastructure investment. Whereas European nations spend five percent of GDP, and China nine percent of GDP on infrastructure, the United States only invests 2.4 percent of its GDP, and that number is on the decline. 

Experience shows that when private businesses take risks and put their profits on the line, funding is more properly allocated to high-return projects that are completed on time and on budget, i.e., in the most efficient manner possible. Private infrastructure is also more efficient because it can tap the capital markets to build capacity and meet market demand without having to rely on slow, cumbersome and politicized government budgets.

Policymaking needs to overcome the hurdles to private involvement in infrastructure. We need to realize that private infrastructure is not a new idea. Almost all of the U.S. urban transit systems used to be private. Earlier turnpikes built thousands of miles of roads. Private markets financed the entire industrial revolution of previous centuries in both the United States and in England. 

The Muni Market Today

The term “municipal bonds” or monism describes bonds issued by states, counties, cities, school districts, public utilities, ports, and other units of government that are not national in scope. This is what is called the muni market. 

With more than 1 million bonds in the market and total par value of over $3.6 trillion, and more than 50,000 individual units of government-issued bonds, the total number of bonds sold each year varies from over $200 billion to just under $400 billion.

The defining characteristic of this muni market, of course, is that investors do not pay federal income tax on the interest they receive. This muni exemption has been part of the U.S. tax code since before the progressive income tax was instituted in 1913. Even with this expansive tax-exempt market supply, elasticity of state and local capital investment is falling short.

Every few years, the American Society of Civil Engineers (ASCE) issues a Report Card of America’s Infrastructure. It has highlighted a growing gap between actual and needed levels of state and local capital investment on infrastructure. Grading U.S. infrastructure a D+, the report enumerates $3.6 trillion of essential, urgent capital investment needs—which is, ironically, about the size of the entire current municipal market.  

The U.S. Treasury forgoes revenue as a result of the muni exemption. This tax expenditure is estimated at $14 billion annually. The Congressional Research Service suggests the tax subsidy is actually closer to $28 billion a year.. 

As part of the American Recovery and Reinvestment Act of 2009, Congress authorized a stimulus of temporary new borrowing called Build America Bonds. The federal government in effect paid a subsidy to any state or local government that sold these bonds. This is in contrast to traditional munis, where the subsidy flows to investors who buy the bonds.  

Noticeably, in recent years the muni bond market shrank for the fifth straight year, falling to $3.65 trillion, according to Federal Reserve data. The overall muni market has shrunk by over $150 billion from its peak in 2010. This reflects a reduced issuance, as municipal governments have become less prone to debt and less aggressive borrowers. Many are unwilling to raise taxes or reduce funding for existing services to finance new infrastructure. The muni market has also suffered from a significant shift in credit quality. AAA ratings are now uncommon as major bond insurers began to lose their own high ratings in the wake of the credit crisis. 

Alternatives to Debt Financing for Infrastructure

There are two alternatives to traditional tax-exempt debt financing: pay-as-you-go and public-private partnerships. 

The pay-as-you-go alternative is used to finance a capital investment with current resources rather than borrowed ones. Pay-as-you-go has many advantages because it is flexible and allows a government to procure a capital asset at the best available timing and pricing. It is also more transparent. The cost to procure is the purchase price of the asset. Debt financing comes with interest payments and transaction costs paid over many years. However, pay-as-you-go financing is difficult because it is not scalable. Large projects cost too much, and reserves are rarely in place.

Public-private partnerships are an agreement where partners from both sectors share risks and rewards of delivering and operating an asset over an extended period of time. Successful public-private partnerships are predicated on trust and a fair sharing of relevant risks. Failure can have significant financial, legal, and political consequences. Many experts suggest that for these reasons, PPPs are not a robust alternative to traditional municipal bonds, while experimentation continues.  

President Trump’s proposed policies will have an immediate effect on the municipal bond market for investors in a number of decided ways. Trump Bonds would be seen as a way to create jobs and stimulate the economy. President Trump has said he wants to use them to create more infrastructure and repair old and outdated infrastructure. Again, since they would not be tax-exempt, these bonds are more appealing to international bondholders and institutional investors who are not eligible to claim an exemption. In this sense, they widen the market and bring in new, large participants. Private sector infrastructure could be greatly enhanced by more of these bonds.

Recent analysis by a number of research and ratings agencies further suggests that the Trump tax plan will affect the municipal market because it would eliminate or reduce tax exemption for municipal bondholders. This will reshape who buys municipal bonds. If the tax exemption on income earned from the investment were eliminated for the wealthy, there would be little motivation for such bondholders to buy more municipal debt. 

Solutions and Opportunities

Historical approaches have proven insufficient to address our growing U.S. infrastructure gap. Public infrastructure (roads, bridges, transit, water, wastewater, energy, social) is fundamentally local and highly fragmented. 

Federal funding and new programs should be leveraged to transform the infrastructure market and encourage more market-based solutions, rather than just federal handouts. Federal initiatives should be used to create more scalable financing markets, level the playing field for more private sector involvement, provide “at-risk” capital, depoliticize the selection of projects, and create more efficient vehicles for small and rural issuers to access capital. Regulatory and permitting burdens need to be reduced or streamlined. 

Finally, essential infrastructure needs more dedicated funding sources from project-related revenues, local revenues, or user fees from the ultimate beneficiaries. A menu of solutions to address existing challenges, not one silver bullet, is necessary. 

Almost everyone agrees that the United States needs a massive infusion of infrastructure development starting this year. That is even more critical as a way to move the country out of its short-term recession due to the COVID-19 pandemic. Over 70 percent of Americans of all political persuasions want government at all levels to do more about improving and building new infrastructure. 

The fourth industrial revolution is underway and includes artificial intelligence (AI), driverless vehicles, supersonic aircraft and a raft of emerging technologies all of which demand new and better infrastructure such as the “internet of things,” robotics, 3D printing, nanotechnology, biotechnology, and quantum computing. The new digital revolution we are just beginning is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres. Our infrastructure must keep pace with new technologies if the United States is to remain competitive and a center of innovation for the rest of this and coming centuries.

Since infrastructure projects are notoriously plagued by long pre-construction periods, under-utilization of the P3 and alternative funding models, and an outright inability to gain public support and access to capital, the United States needs a new private-sector plan to accomplish its long-term needs in infrastructure. 

As has been true historically, the United States is not simply lacking capital for infrastructure—capital is cheaper than ever with interest rates moving even lower—but policies are needed to attract this capital and deploy it efficiently for infrastructure based on market principles. We need to tap into the private global capital markets to access private capital to restore and build innovative infrastructure for the 21st century. 

Underinvestment in infrastructure comes as a result of shortsightedness. As long as taxpayer investment in infrastructure is misaligned with politics, which has a short term and expedient focus, we will fail to meet our long-term needs as a country. We need to use the private sector and the measures enumerated to break new ground and to find private sources for infrastructure development.

A focus and a vision rooted primarily in the private sector from the Trump Administration are needed and most timely. It is time to push infrastructure as the fourth leg in the plan to recover from the coronavirus.  

Greatness Agenda

The Inevitable Unraveling of Our Post-World War II Institutions

The days of the Davos crowd as transnational power wielders are shrinking. And it’s not Trump who’s caused that.

Post-World War II institutions are unraveling, and there’s panic here and abroad about it.

The transnational Left is starting to lose the means by which it seeks to shape the world without voter involvement. And the neo-cons are seeing their means of geopolitical intervention weaken.

It’s worth reading what Matthew Continetti wrote recently, after the NATO heads of state meeting and in light of the Tory election win in the UK. Continetti is worried about the “demolition” of the post-war order, which he grudgingly acknowledges is due in part to external pressures by actors like China and Iran but primarily is due, he asserts, to the “inward turning of the United States” to a foreign policy that is “haphazard and improvisational, contradictory and equivocal.” Continetti demonstrates how only understanding half of what’s occurring can badly distort one’s analysis.

From Turtle Bay to Brussels, from Washington to Vienna, the decay of the economic and security infrastructure of the postwar world has accelerated in recent weeks. The bad news: As the legacy of the twentieth century recedes into the past, the only twenty-first century alternatives on offer come from an authoritarian surveillance state.

He’s wrong. There is, in fact, another 21st-century alternative, and it’s one that has been growing out of the very forces that are accelerating that decay.

Continetti’s assumption is that the fundamental design of the post-World War II “economic and security infrastructure” was sustainable. That infrastructure has two salient characteristics: It attempts top-down control of major global systems and it is populated and run primarily by unelected administrative elites.

Sounds a lot like the national attempts at control in many countries. And all of them are unsustainable today. It’s why we’re seeing resistance from middle classes across a spectrum of countries.

The evidence for unsustainability is there before the eyes of the administrative elites, but they are blind to it.

An Utterly Inadequate Design

Consider the entry “Complexity Rising: From Human Beings To Human Civilization, a Complexity Profile” in the 2002 UNESCO-sponsored Encyclopedia of Life Support Systems. As the title suggests, the volume is intended to provide an optimistic path forward for major international programs. And yet, as the author painstakingly describes, increased complexity arises from such things as technologies to the point where neither top-down control nor a view of economies and societies that only focuses on individual elements is sufficient.

Yaneer Bar-Yam optimistically ended his entry by focusing on humanity as a single organism, a metaphor the UNESCO leaders no doubt approved. But the evidence points to a different conclusion. We are first and foremost members of a wide variety of networks that connect us and through which we interact. Social networks ranging from our families to local communities, to dispersed communities of interest, to polities. Financial networks that range from local credit unions to credit card mechanisms that span the globe. Information flows at all levels of origin and distribution. And global trade that no longer is limited to major import and export shipments but now includes Etsy crafts ordered online and sent in modest packages.

Why does this matter? Because in the years after Bar-Yam wrote that complexity entry, we’ve learned more from the new discipline of mathematical networks. Among other things, we’ve learned that there are two very important characteristics of complex adaptive networked systems like societies and economies. First, they have system-wide behaviors that cannot be fully predicted and therefore cannot be controlled. What cannot be predicted cannot be controlled and will often surprise us. And second, they often appear to be quite robust in the face of challenges or damage, right up to the point where they unravel rapidly and deeply.

Do you see the double error that Continetti is stuck in? He does not recognize that the post-World War II “economic and security infrastructure” is utterly inadequate to the task of managing either economies or geopolitical security today. Quite the opposite: the efforts of transnational elites at wider and deeper control of our everyday lives have created the very conditions that foster catastrophic unraveling.

Redundancy on the Rebound?

It’s easy to see the absurd overreach of the EU minutely controlling the size of bananas that British consumers can purchase. It takes a little more analysis to see that the grander ambitions suffer from the same flaws. What network science shows us is that top-down attempts at control remove the resiliency (not to mention the antifragility) of any complex networked system. So, by the way, do lopsided policies ostensibly supporting free markets that quietly, instead, embed entrenched advantages to some players.

Resiliency in networks comes from having local redundancy. If you rely only on the power grid, you’re not very resilient to a major weather emergency or cyber-attack on it. Having some backup power capabilities, and ways to get things done without power for a while, makes you much more resilient to such events.

Local and regional resiliency in networks has a similar impact on the larger networks of which they are a part. With enough redundancy, even major networks can work around significant damage. But short of that, if there is enough local and regional redundancy they can, if need be, decouple fully or partially into smaller networks that continue to function.

For decades many NATO partners not only ignored their financial commitments but also allowed their militaries to atrophy. Some members went so far as to enable flows of sensitive technology to countries like Iran. Continetti has it backward. NATO isn’t being demolished today. It was brought to the brink of utter unraveling by such actions over several decades. The current U.S. administration’s pressures are causing some members slowly to restore some redundancy in NATO’s funding and training, and thereby restore some life to the coalition.

It is no coincidence that this recent NATO heads of state meeting for the first time began to jointly reject Chinese geopolitical moves.

It’s not just NATO at stake, however. The Trump administration has a strong focus on the coordinated use of all means of national power in order, first and foremost, to ensure resilience here at home. Restoring domestic manufacturing, ending unfair trade practices and eyeroll-causing favoritism to today’s China, insisting on free maritime movement through the south Asian waters, lightening heavy-handed regulations that choke innovation and the role of small businesses in communities . . . all of these are designed to restore resilience in our own society and economy first.

A Return to Community

As we restore our own resilience we are better positioned to form effective, mutually beneficial coalitions with smaller networks: with the UK after Brexit, with the Anglosphere, with any other partners who are willing to enter into fair economic, military, and geopolitical relationships. I sincerely hope that a renewed NATO is among those. But with it or without it, the days of the Davos crowd as transnational power wielders are shrinking. And it’s not Trump who’s caused that. It’s smartphones and information flow and the disruptive technologies that enable them.

Continetti is right about one thing. A massively intrusive surveillance state is a very real and daunting possibility. But as the spread of protests from Hong Kong onto the Chinese mainland’s Guangdong province show, today’s tech can be used against such a state if it is sufficiently prevalent and is wielded in time. What such pushback requires is a cause that people see as affecting them and those with whom they are directly connected.

Hong Kong wants the local autonomy promised it in formal agreements. Chinese in Guangdong hear about the Hong Kong protests, learn a bit about the brutal suppression by their government in Xingjian, and want to ensure they are not similarly treated. Britons want to be able to import bananas as they choose, thank you very much. And American communities in the heartland want the dignity and local connections that jobs and small businesses provide.

The current unraveling of post-World War II transnational structures is very real and, given the choices of the administrative elites that run and benefit from them, is inevitable. Nonetheless, very good outcomes can emerge if we take heed and restore local, regional, and national resiliency in our various countries.

But between now and then, things will grow more and more chaotic for a while. So beef up your personal and community connections and be ready for the possibility that, as with major weather events, there may well be a period of localized damage. The good news is that we can indeed ride this out together if we’re willing to see what is actually going on.

Greatness Agenda

The Enemies of American Infrastructure

Everywhere on earth, nations are building big infrastructure and providing affordable housing for a fraction of what it costs in the United States.

Between 2008 and 2019, China opened up 33 high-speed rail routes, connecting 39 major cities along four north-south and four east-west main lines. The 18,000-mile network runs trains at an average speed of around 200 miles per hour. By 2030, the Chinese expect to double the mileage of their high-speed rail network by expanding to eight north-south and eight east-west main lines. In less than 20 years, the Chinese have completely transformed their rail transportation network.

This is typical for the Chinese. China is also building three new airports—offshore. Dalian along the north coast opposite the Korean Peninsula, Xiang’an on the central coast facing Taiwan, and Sanya off the coast of Hainan Island in the strategic South China Sea. All three airports are to be built to the highest international levels, with 12,000-foot runways able to accommodate the Airbus A380, the world’s largest passenger airliner. All three are built on “reclaimed land”—the Chinese intend to bulldoze a few mountains into the ocean and flatten them into runways. And all three, from start to finish, will be built in under 10 years.

China’s ability to construct major infrastructure quickly is beyond debate. The Three Gorges Project, the largest dam in the world, created a deep-water reservoir an astonishing 1,400 miles long. Its hydroelectric capacity of 22.5 gigawatts is the largest in the world. This massive construction project was done, from start to finish, in 12 years.

While China Builds, America Litigates

To argue that Americans don’t need high-speed rail, or massive new airports on ocean landfill, or yet another massive hydroelectric dam, is beside the point. Americans can’t do any big projects. 

A perfect example is the Keystone Pipeline, which, if it’s ever completed, will be capable of transporting 830,000 barrels of oil per day south from the tar sands of Alberta to existing pipelines in Nebraska. This pipeline has been tied up in permitting delays and litigation since 2008. Eleven years later, not one mile of pipeline has been built.

Even with aggressive support from the Trump Administration, will Keystone ever get built? Not if an army of environmentalist plaintiff attorneys have their way. According to a recent report by PBS, as soon as a judge dismissed the most recent lawsuit against Keystone, another lawsuit was filed. Another construction season has been lost, another year of delay. “Representatives of a half-dozen other environmental groups vowed to keep fighting in court and predicted the pipeline will never be built,” PBS reports.

Americans could build so much more, for less money, and in far less time, if balance were restored to the process of approving construction projects.

While Americans are divided over whether they support construction of the Keystone Pipeline, everyone supported quickly constructing towers to replace the World Trade Center towers lost in the terrorist attacks of September 11, 2001. One may assume that in the aftermath of 9/11, designs, bids and permitting were fast-tracked, yet it took more than five years before construction began. Freedom Tower, the dazzling replacement to the Twin Towers, didn’t open until 2014, just over 13 years after the towers fell.

By contrast, the Empire State Building was built in 14 months. And while Freedom Tower undoubtedly is constructed to higher modern standards, the added time necessary to meet those by now should be offset by equally more advanced construction practices. A more current example would be the tallest building in the world, the Burj Khalifa in Dubai. This megastructure, more than twice the height of Freedom Tower, was built in just under six years.

America’s inability to build anything big has almost nothing to do with the quality of American engineering, or the capabilities of America’s construction industry. The blame lies exclusively with American politicians, judges, government bureaucrats, and plaintiff attorneys. 

Nobody wants to throw away all environmental protections, but the process now in place of permit delays and litigation has paralyzed the nation. It has become extreme. Americans are wearing out infrastructure that was built decades ago. Thanks to permitting delays and litigation, the costs of replacements and upgrades are prohibitive.

President Trump, who made his billions in the construction business, has done as much as he possibly can to cut regulations on builders, but without support from Congress or the courts, change is incremental. 

In late 2017, when announcing regulations he was eliminating, Trump stood in front of two piles of paper. One set of stacks, barely reaching his knees, represented the federal regulations in place in 1960. The other set of stacks, over seven feet in height, represented the totality of federal regulations in effect today. These regulations, upheld and expanded by courts and bureaucrats, serving as fodder for their delays and extortionate demands, are the reason America can no longer build anything big.

Why Housing Is Unaffordable

Even housing starts are tied up in knots thanks to federal regulations, although differing regulatory environments in various states make a major difference. In California—which will be America if Democrats regain the White House in 2020—it is nearly impossible to build homes.

A particularly egregious example of what California has in store for the rest of America is the proposed Tejon Ranch housing project that has been embroiled in permitting delays and lawsuits for over 25 years. This massive project, a planned community of over 19,000 badly needed new homes, would straddle Interstate 5 in the northwest corner of Los Angeles County. The developers have committed to set aside 90 percent of the land as a nature preserve, after which the NRDC, the Sierra Club, and the Nature Conservancy all withdrew their objections. But it only takes one: The Center for Biological Diversity has filed yet another lawsuit, and another year is lost.

Americans could build so much more, for less money, and in far less time, if balance were restored to the process of approving construction projects. 

The cost of permitting delays and litigation can literally double or triple the costs of construction, or worse. California’s Carlsbad desalination plant was constructed at a capital cost of $17,000 per acre-foot of annual capacity; modern desalination plants in Israel (that require less electricity) are being constructed at a capital cost of just over $4,000 per acre-foot of annual capacity, less than a quarter as much.

Everywhere on earth, nations are building big infrastructure and providing affordable housing for a fraction of what it costs in the United States.

If these environmentalists, bureaucrats, and plaintiff attorneys actually believe in saving a planet and a people desperately threatened by “climate change,” they’re being awfully impractical. How can Americans possibly build seawalls to protect them from the storm surges of a rising sea, or desalinate seawater to take pressure off the drought-stricken rivers, if projects take decades instead of years, and cost many times what they might cost in other nations?

How, for that matter (since environmentalists and the open-borders crowd are birds of a feather) can America add tens of millions to its population through a massive wave of immigration that hasn’t abated in three decades, yet make it nearly impossible to build homes or enabling infrastructure?

Competitive Abundance vs. Rationed Scarcity

The prospects for abundance instead of rationed scarcity are good, if Congress and the courts were to support the president and enact meaningful reforms to a host of environmental regulations that have gone way too far. 

Nuclear power, clean fossil fuel, desalination plants, upgraded roads with high-speed “smart lanes,” high-rise agriculture, flying cars, and spaceports. Entire new cities with millions of beautiful homes on spacious lots—none of this is out of reach. But all of that requires the kind of freedom that developers enjoyed in the 1960s, tempered to modern sensibilities, with balance.

The consequences of not reforming America’s stultifying regulatory climate go beyond denying the American people a life of affordable abundance, delivered by competitive development of land, energy, and water resources. They spell the end of American preeminence, because while Americans spend trillions to pay unionized government bureaucrats and environmentalist attorneys, the Chinese are spending equivalent trillions on cost-effective infrastructure, with plenty left over to develop hypersonic missiles, brilliant pebbles, particle beams, and so on.

Joel Kotkin, editor of and perhaps California’s smartest Democrat, just published a column recently titled, “Will the Democrats End Up Saving California’s Republican Party?” Kotkin argues that the Democrats’ “flawed, draconian positions on what to do about climate change have made things worse for ordinary Californians by raising housing and energy prices as well as chasing employers out of the state, but with only mediocre results.” 

Kotkin explains what’s needed—in California and in the rest of America: 

You need a positive program centered on reining in pensions, reform of schools, better attention to roads, promoting new houses in redundant commercial areas as well as the periphery and cuts in the cost of energy. Focus on these issues would expose Democrats as creatures of special interest—teachers unions, public employee groups, the renewable energy lobbies—whose power hurts middle-class homeowners, a group which has been drifting away from them for a generation.

Kotkin’s analysis is accurate. “Public employee groups” and “the renewable energy lobbies” are special interests. If not one and the same, they are allied with the government bureaucrats and environmentalist attorneys who amass power and money every time they stop or delay another infrastructure project or housing development. They are sapping American wealth, oppressing the American people, and empowering hostile regimes around the world.

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Greatness Agenda

Inflation Vs. Deflation: Only One Choice

The U.S. needs to spend more on its military and new infrastructure, even if that means increasing the federal deficit. There is no palatable alternative.

Critics of government deficit spending correctly point out that perpetual debt accumulation is not sustainable. They’re right. But before they criticize an economic policy that aims to use inflation to whittle away the real value—and hence the actual burden—of accumulated debt, they’d be wise to consider the alternatives. Because there aren’t any.

Deficit spending has been touted as a potential driver of inflation, because only with devalued (inflated) currency can Americans hope to erode the real value of mounting levels of government debt. Continuing to print U.S. dollars, the argument goes, can only lead to too many dollars in the system, and hence a devalued dollar. We should be so lucky.

When American households join the federal government in spending more than they make, the only way to keep this up is to cut interest rates and increase the value of the underlying collateral. This second factor, the value of collateral, is particularly important for the American consumer, who has relied on home-equity appreciation to enable ongoing borrowing which, in turn, enabled ongoing spending beyond their means. The so-called financialization of the American economy over the past few decades has been aimed specifically at boosting the value of assets in order to stimulate more borrowing and spending.

The deflationary risk caused by debt accumulation becomes most acute if and when this asset-price bubble bursts. When the market value of the collateral suddenly becomes worth less than the amount of the loans outstanding, banks cannot extend new credit to the private sector, even at very low interest rates.

If America’s policymakers return to the feckless cowardice of the Obama years, appeasement will again define federal policy.

Another way to put this is as follows: Liquidity is a function of two factors, money supply and collateral. But the impact of available collateral is far more critical to maintaining liquidity than the money supply. According to the most recent data from the U.S. Federal Reserve, in the first quarter of 2019 the total U.S. wealth, all sectors, totaled $98.3 trillion. What happens to the value of that collateral if banks cannot extend new credit? How is a deflationary spiral avoided when no new borrowing is possible, causing a collapse of demand to purchase assets, causing a compounding drop in the market value of those assets?

This is the cascading collapse of liquidity that was narrowly avoided in 2009. But with total market debt in the United States still hovering at approximately 343 percent of GDP, or not quite $80 trillion, it remains a threat to the American economy.

Raising interest rates at this time risks the catastrophic possibility of a deflationary collapse, because if interest rates rise, borrowing and spending slow down, asset values drop because of reduced demand, and one after another, bank balance sheets show loan balances that exceed collateral value. Yet this is the alternative that deficit hawks apparently prefer to managed inflation. It is neither a more virtuous solution, nor is it necessary, nor would it work.

Even if raising interest rates does not trigger an economic calamity, it would merely continue the relentless transfer of wealth in America from the middle class to the investor class—Americans would not have borrowed so much if the economy had not become financialized, making everything cost far more. 

Inflation transfers wealth back from the investor class to the middle class, by eroding the value of their debt. Those responsible Americans who didn’t succumb to the debt temptation should think twice before rejecting the inflation choice. It won’t matter if your bank savings are intact when the banks fail.

How Can Inflation Be Managed to Benefit Ordinary Americans?

If one is willing to assume that inflation is a better pathway out of excessive debt than deflation, the prevailing challenge becomes how to ensure this inflation will benefit ordinary Americans. Since the 1970s, wage inflation has not kept pace with asset inflation. The challenge is to flip that ratio so that asset inflation (and debt devaluation) does not keep pace with wage inflation.

If this can be accomplished, the cost of living for ordinary Americans will actually go down, even in an inflationary environment. Their wages will be increasing faster than the consumer price index, and the real value of their debt and interest payments will be declining. How can this be done?

As I noted in a previous article, two key policy shifts are necessary to ensure wage inflation outpaces asset inflation and the CPI. First, get immigration under control so there is a seller’s market for labor instead of a buyers market for labor. Second, relax the extreme environmental laws that prevent Americans from developing their own natural resources and upgrading their infrastructure. Relaxing these ridiculously excessive, punitive, misanthropic, misused and extreme environmental regulations would also dramatically lower the price of new homes.

Not only does increasing mining and drilling operations within the United States create more jobs, it is a necessary step to take as domestic inflation equates to currency devaluation. By devaluing the dollar through inflation fueled by deficit spending and low interest rates, in-country development of natural resources becomes cheaper than importing them.

Managed Inflation Is the Only Alternative

Critics of deficit spending act as if there is a choice to make, that somehow the circumstances and givens that confront America’s policymakers are not unyielding, that somehow by harping on the virtue of living within our means, they can bend reality. But they can’t.

The harsh reality is this: America’s federal government is locked into a pattern of deficit spending that cannot be stopped in the near future. America’s accumulated debt either will be smoothly resolved via managed inflation, or resolved catastrophically via unmanageable deflation that will cause an economic meltdown.

Moreover, federal deficit spending needs to increase. Now. Because putting aside the fantasies of all who would wish this weren’t so (libertarians, socialists, and nationalists all have such wishful thinkers well represented within their ranks), America is in a battle for global supremacy with the Chinese, who must be contained by the United States waging an expensive cold war that will last for decades. One does not have to be a “neocon shill” to recognize this sad fact. One need only study history, and then observe the actions of the Chinese regime.

None of this macroeconomic reality is meant to absolve the American consumers who decided to sink into debt up to their eyeballs. It doesn’t excuse the students who chose to pay obscene amounts for college tuition, using borrowed money, nor does it excuse the loan sharks who extended them credit, or the criminals who turned higher education into a money-making scam. 

It is not meant to ignore the costly, useless “solutions” demanded and received by poverty pimps and identity fascists. It doesn’t let off the hook all those environmentalist fanatics and their opportunistic “green” crony capitalist puppeteers who tied our economy up in knots, nor does it forgive the public sector unions who made government services unaffordable and inefficient.

It just is what it is. So, where do we go from here?

There is no palatable alternative. If America’s policymakers return to the feckless cowardice of the Obama years, appeasement will again define federal policy. Appeasement of the Chinese by neglecting our military readiness and a firm commitment to containment. Appeasement of the deficit hawks by raising interest rates, as if somehow without inflation we’re still going to whittle away $80 trillion in government and household debt. Appeasement that will turn the fate of the world over to President Xi, and turn America into a debtors’ prison.

The United States needs to spend more on its military, it needs to spend more on its infrastructure, even if that means increasing the federal deficit. The United States then needs to restrict immigration and roll back extreme environmental regulations in order to ensure that wages inflate faster than the consumer price index. This managed inflation would not only whittle away the real value of American debt, but it would serve as a tool to reduce the real value of non-military, non-infrastructure related entitlement spending.

Greatness Agenda

Deficits Are Secondary to What You’re Paying For

The U.S. has to use deficit spending to make investments in resilient new infrastructure and military technology that leapfrog our adversaries and bring the nation into the 21st century.

“I am not worried about the deficit,” Ronald Reagan famously said. “It is big enough to take care of itself.”

If you pay attention to the libertarian purists, President Reagan earns mixed reviews on his economic policies. After all, in 1983, the federal budget deficit exceeded 6 percent of GDP. But Reagan was untroubled by federal budget deficits for at least two reasons, and in both cases he has been vindicated by history.

Reagan’s priorities were to unleash the American economy, which he accomplished through deregulation, and to invest in American military supremacy. As the federal budget surpluses of the 1990s and the collapse of the Soviet Union can attest, Reagan had his priorities straight, and got the results he sought.

When it comes to deficit spending and the military challenges facing an American president, Reagan and Trump have a lot in common. Mostly through executive orders, and to some extent through legislation, Trump has deregulated the American economy. He has also successfully reinvested in America’s military.

To put this in perspective, Trump’s projected 2019 federal budget deficit of $960 billion is 4.5 percent the 2019 GDP projection of $21.2 trillion. And Trump’s projected 2019 defense budget of $716 billion is 3.3 percent of GDP. Military spending during most of the Reagan years was around 6 percent of GDP, and during his presidency the federal budget deficits averaged 4.3 percent.

Like Reagan, Trump took office having to clean up after a predecessor whose foreign policy amounted to feckless weakness and futile moralizing. Jimmy Carter faced Soviet aggression, Barack Obama faced Communist China. Neither of them were taken seriously by these adversaries. Both of them neglected America’s military. But Trump’s mess is bigger than Reagan’s ever was.

Bold Investment Will Be Vital to Counter China

To properly deter China, an expansionist, racist, fascist kleptocracy bent on world domination, a high-tech prison camp with 1.3 billion inmates, America’s defense budget should rise to the percentage of GDP that it was during the Reagan years. This would suggest that America’s defense budget for 2019 should rise to 6 percent of projected GDP, or increase by over a half-trillion dollars from $716 billion to $1.3 trillion. Although this increased spending would generate some offsetting new tax receipts, in 2019 it hypothetically could increase the federal budget deficit from the currently projected 4.5 percent of GDP to as much as 7.1 percent of GDP.

Without something approaching that level of new investment, the United States will struggle to maintain and upgrade its existing military assets and, at the same time, conduct fast-tracked investment in next-generation strategic weapons.

In an era where irony abounds, it’s particularly ironic that among Trump’s greatest critics are also those who are seizing upon the trendy new “modern monetary theory” (MMT) to claim that deficits don’t matter. An only slightly oversimplified summary of MMT would be the following: as long as the government has a monopoly on the issuance of currency, then the government can print as much money as it needs, and therefore deficits don’t matter. Just print more money.

There are plenty of lucid criticisms of MMT, but in one vitally important context, some critics miss the point. If resorting to MMT truly is unsustainable in the long-run, then what all that money is used for in the short run matters a great deal.

According to economic sages on the left, such as Alexandria Ocasio-Cortez, the federal government needs to print money—heedless of deficits⁠—in order to pay for free college tuition, free healthcare, and a host of other wonderful benefits. But while the American Left wins elections by promising more benefits, this is not the best use of funds.

Americans upgraded infrastructure to make the nation competitive in the 20th century. The infrastructure investments made in the 1930s are still paying dividends to the American people. Imagine what new and better infrastructure could do.

To the extent military spending goes into the pockets of soldiers who spend the money in America, or they send it home to be spent by their families in America, it has the same Keynesian benefit as more broadly distributed benefits such as free tuition or free healthcare for everyone. But reforming healthcare policy and dismantling most of the education bureaucracy are necessary prerequisites that might actually make increased government spending unnecessary in those areas.

Military spending, on the other hand, has the salutary benefit of making America able to deter China. Spending on research and development for new strategic weaponry also delivers the Keynesian boost, while guaranteeing America’s military remains the most fearsome on earth, and yielding technological spin-offs that benefit America’s private technology sector.

The other place where deficit spending would yield strategic economic benefits is in infrastructure.

Back in the 1930s, after the last debt bubble collapsed and America encountered a liquidity crisis, deficit spending put millions of Americans to work. Unlike the fraudulent “shovel-ready” infrastructure scam perpetrated a few years ago by Obama and his banker cronies, during the 1930s the Americans built hydroelectric dams across the United States. They rolled out rural electrification projects. They upgraded America’s infrastructure to make the nation competitive in the 20th century. The infrastructure investments made in the 1930s are still paying dividends to the American people.

To be fair to President Obama, he did not create the paralyzing, extortionate shakedown that constitutes infrastructure approvals in 21st century America. These days, funding an infrastructure project feeds most of the money into the pockets of attorneys, environmental consultants, and government bureaucrats. Applications take years, and almost nothing ever gets built. For several decades, Americans have been living with an aging infrastructure that was actually built 50 to 100 years ago.

Where the Economy Is Headed Is Bigger Than Any President

To be fair to President Trump, if the economy falls off a cliff, it will be the result of a debt binge joy ride that began in the 1980s. Unlike Reagan, who started his presidency confronting negligible national debt, Trump faces an accumulated federal debt burden nearly equal to GDP. But in a nod to the MMT gang, it is unlikely that more deficit spending will push the U.S. economy off a cliff, because for that to occur, international confidence in the U.S. dollar would have to falter. And how could that possibly occur?

America is the only major economy on earth that has it all —a preeminent military, preeminent technology, the best universities, political stability, human rights, demographic health, abundant natural resources, and diverse industries. As for America’s debt burden, it is less problematic than the many financial challenges facing the European Union and the Chinese, which are the only other economies big enough for their currencies to challenge the United States.

This is why President Trump is right to urge the Federal Reserve to cut interest rates. It helps people living in the United States to devalue the U.S. currency, and it is in the interests of the United States to experience high single-digit inflation across all industries for many years. Devaluing the U.S. currency would force manufacturers to source raw materials and skilled labor domestically, creating more jobs and wealth. Moderate inflation will whittle away the real value of American consumer debt, as well as the real value of the debt burden that confronts American government agencies at all levels.

For all of this to work, however, fundamental changes are necessary in two areas of national policy.

First, immigration will have to be further controlled, in order to turn the job market into a sellers market, bidding up wages at a faster rate than inflation. Second, extreme environmental laws and regulations will have to be repealed, in order to allow U.S. companies to tap America’s rich store of natural resources to replace foreign sources. Without these changes, currency devaluation could be a perilous gamble.

Economists who object to lowering interest rates fear that in an economic downturn, if interest rates are already too low, it will be impossible to rely on lowering them further in order to stimulate the economy. They’re right, but America’s economic prospects versus the rest of the world evoke the parable of the two men fleeing an aggressive bear in the woods. The survivor does not have to run faster than the bear, he only has to run faster than the other human. There is no nation on earth that is positioned even slightly as well as the United States to survive a global downturn.

There are contingency plans to inject liquidity in the markets in the event of a severe downturn. To ensure it is not a fool’s errand, however, a temporary fix, the United States has to use deficit spending to make investments that bring it into the 21st century⁠—resilient new infrastructure, and military technology that leapfrogs that of our adversaries.

Content created by the Center for American Greatness, Inc. is available without charge to any eligible news publisher that can provide a significant audience. For licensing opportunities for our original content, please contact