By Nancy Spannaus
May 15, 2019—On May 8, the House Transportation and Infrastructure Committee, under Chairman Peter DeFazio, took a baby step toward increasing Federal spending on vital national infrastructure. It passed out of Committee HR 2440, a bill which would allow the Army Corps of Engineers to utilize the buildup of funds in the Harbor Maintenance Trust Fund to carry out necessary dredging operations in the nation’s ports.
The Harbor Maintenance Trust Fund, established by the 1986 Water Resources Development Act, currently contains a balance of $9.3 billion. This money has been accumulated from very small user fees paid by shipping importers, but, under current law, has been unable to be spent unless specifically appropriated by the Congress in budget legislation. Those appropriations themselves have been subject to irrational budget caps, and thus the Trust Fund monies have not been spent as intended. According to the testimony of DeFazio and others, these funds have instead been used to reduce the apparent deficit in the Federal budget!
If HR 2440 goes on to become law, it will exempt the harbor repair spending from the budget caps, and permit the Army Corps to proceed with the much-needed dredging operations at U.S. deep draft ports and coastal waterways, both now and in the future.
A very small step, and one that begs the overarching question: This is no way to run a country! Basic infrastructure spending—from ports to railroads, roads, water systems, and power plants–involves investments and commitments over the long term, and thus a reliable source of funding over that term. Our major infrastructure projects—the TVA, the Apollo program, the Transcontinental Railroad, just to name a few–have taken a decade or more to accomplish. Making such infrastructure dependent upon the government’s cash flow, and the political ebbs and flows of the Congress, is nothing less than economic sabotage. It is the results of that sabotage which we see in the collapse of our bridges, railroads, water mains, and roads.
An American System Approach
Fortunately, American history is rife with examples of effective ways of funding vital national infrastructure. These methods drew upon the thinking of American System founder Alexander Hamilton, who created a financial system based on the idea that money (including debt) was a tool for creating a physically productive economy, not a good in itself, and should be managed for that result.[1] That idea lay at the heart of his Bank of the United States, and of variations on that institution which followed.
In a post back in August 2017, this blog explored one of the concepts for funding vital infrastructure, capital budgeting. Capital budgeting is a common-sense concept of separating long-term capital spending from short-term operating expenses. It is used by states and localities, who regularly fund infrastructure with bonds, and by households, who take out long-term mortgages for their major capital investment, their home. But the Federal government has eschewed this approach.
Instead, our greatest Presidents have utilized other funding devices in order to proceed with major infrastructure projects. The most relevant in the current connection is the Franklin Delano Roosevelt’s Reconstruction Finance Corporation (RFC).
As Stuart Rosenblatt explained at length in his series on FDR’s economic mobilization for World War II, FDR revamped the Hoover-established RFC, and turned it into a de facto National Bank. Although backed by the Federal government, and reliant on government bonds, the RFC was able to make loans to businesses and government agencies without going through a Congressional appropriations process. This freedom was absolutely essential not only to responding in a timely fashion to deal with the emergency conditions that were destroying the population, but also, crucially, to creating the industries and output required for fighting the Nazis.
To many today, of course, this approach would be considered “fiscally irresponsible;” that charge was thrown at FDR and his right-hand man Jesse Jones as well. But the proof of the wisdom of the approach was not long in coming. The RFC’s loans to major infrastructure projects (and the employment of the workforce required to build them), ended up bringing in the increased tax revenue which the Federal government needed in the relatively short term. And over the longer term, the lion’s share of the RFC’s loans was repaid. All due to the wise choice of infrastructure investments that increased productivity.
A National Infrastructure Bank
The RFC was abandoned in the 1950s, although some of its offshoots, such as the Export-Import Bank, have survived to the present day. Meanwhile, the lack of investment and modernization of our basic economic infrastructure crippled our nation’s productivity. We have been a finance-based economy resting on a crumbling, rusty physical base. At the same time, we have built up a huge superstructure of gambling debts which threatens to collapse at any time.
The best solution today calls for taking a page from Hamilton’s original plan for the Bank of the United States: using our vast government debt as the basis for capitalizing a new national bank dedicated to infrastructure spending that will revive our nation’s productivity. A plan for just such a National Infrastructure Bank, capitalized to the tune of $4 trillion, is circulating in Congress and leading political circles.
We can, and must, do better than baby steps on vital infrastructure. We have children being poisoned with lead-polluted water, commuters taking their lives in their hands every time they go to cross from New Jersey to New York City, farmers watching their livelihood (and our food supply) inundated by floods which the prudent investment in flood control decades ago could have mitigated, if not prevented. This is an emergency that calls for bold action.
Take a look at the National Infrastructure Bank proposal on this blog. And let’s get going.
[1] This statement is, of course, a necessarily inadequate condensation of Hamilton’s thought as he created the U.S. financial system. For a fuller discussion, see my book Hamilton Versus Wall Street: The Core Principles of the American System.
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Tags: American System, budget, capital budgeting, harbors, infrastructure bank, Nancy Spannaus, Peter DeFazio, Reconstruction Finance Corporation