By Nancy Spannaus
March 26, 2023—Looking for a solution to crippling inflation and the danger of a banking collapse? Unfortunately, you won’t find it in Washington, D.C. these days. Instead, the substantive debate about putting the U.S. economy back on track is occurring in state capitols from coast to coast. That debate centers on the proposed National Infrastructure Bank (NIB), a $5 trillion Hamiltonian institution which would put a portion of our national debt to work creating an estimated 25 million jobs rebuilding our crumbling infrastructure.
Over the past three months, resolutions of support for the NIB have been debated and passed in three major U.S. cities: Detroit, San Francisco, and New York City. Both the Los Angeles City Council and the California State Assembly took similar action at the end of 2022. Meanwhile, extensive debates on the NIB proposal, and how it would deal with ongoing crises, have occurred in legislative committees of the Washington state and New Mexico Senates. (Both committees passed the proposed memorials supporting the NIB.)
These discussions are augmented by frequent Zoom “town halls” of NIB supporters, which draw union leaders, local politicians, and citizen activists who are actively campaigning for the NIB. Many of these discussions draw up to 100 people. (For more information, including videos, on the resolutions and debates, click here.)
What about Congress?
This is not to say that there are no Congressmen who have taken up this fight. Rep. Danny Davis (D-Ill) introduced legislation for the NIB in both the 2019-2020 and 2021-2022 Congressional sessions. The 2021 bill, H.R. 3339, had 19 cosponsors when it expired with the session at the end of last year.
However, despite strong support for the NIB (which would require no new Federal taxes) from Republican Party members in various states, no Republicans have signed on to Davis’s bills. Clearly, this roadblock has to be removed in order to enact a desperately needed NIB bill into law.
On the other hand, the recent wave of bank failures has jolted some Senators into action on the financial front. Senator Elizabeth Warren has been actively campaigning for tighter regulations. And when Janet Yellen was testifying before the Senate Finance Committee March 16, Senator Maria Cantwell (D-WA) asked the Treasury Secretary and former Fed chief if it isn’t time to reinstate the Glass-Steagall Act,[1] i.e., the clear separation between commercial banks and investment banks adopted in 1933 during the administration of Franklin Roosevelt as a response to the crash that led to the Great Depression.
Predictably Yellen replied that the SVB was not an investment bank and therefore was not involved in the market operations; but then she admitted that the time will come when it will be necessary “to evaluate whether changes in regulation and supervision will be necessary.”
In recent days, former Secretary of Labor Robert Reich has also urged the reinstatement of Glass-Steagall, arguing the need to make operations in the banking world “boring” again, that is, disconnected from the world of financial gambling.
Reich explains that the problem is widespread because the decades-long process of deregulation has transformed the American economy in fundamental ways: the profits of the financial sector of American companies have increased from a maximum of 15% in the 1950s and 1960s, up to 30% in the 1980s, and then to 40% in the 2000s. The problem is that finance has become the driving force behind economic “growth,” with a series of speculative schemes to extract income streams from the real economy, complete with related collapses and crises that have often generated great economic suffering for the population, but bailouts for the banks and their shareholders.
Thus, there are many sectors of the economy where a reduction in financial margins could trigger a process of reverse leverage, with a spiral that is difficult to stop due to the lack of a solid base of support in the physical economy: when the financial part is bigger than the real physical part, bubbles can burst catastrophically. In short, in an economy unbalanced towards finance, the increase in interest rates risks causing crises in many sectors; the SVB may be just the tip of the iceberg.
Why an Infrastructure Bank?
The National Infrastructure Bank proposed by the NIB Coalition and outlined in HR 3339 would be a major contribution to correcting the imbalance between financial speculation and investment in the real economy, as well as meeting the crying needs for upgraded physical infrastructure. The Bank’s mandate would be strictly for investment in projects ranging from roads and bridges to high-speed rail, low-income housing, water projects, and broadband. Wages would be set at Davis-Bacon rates, and materials would be supplied by American producers. As the NIB’s chief economic spokesperson, Alphecca Muttardy has put it in many of the webinars, the result would be to “supercharge” economic growth, resulting in expanding industries, living standards, and the tax base.
Given the size of the Bank, it would be capable of meeting the entire unfunded portion of current infrastructure needs ($2.6 trillion, as estimated by the American Society for Civil Engineers), as well as provide financing for the new projects such as high-speed rail. It is an open secret that the 2021 Bipartisan Infrastructure Bill’s funding falls far short of the requirements for remedying even such urgent needs as replacing contaminated water pipes, and replacing dangerously unreliable 100-year-old tunnels and bridges on which millions rely.
The NIB’s capitalization by privately owned government bonds would follow the example of Alexander Hamilton’s First Bank of the United States, and the second one as well. Public credit (bonds) would be exchanged for bank stock, serving as the capital base for the issuance of low-interest loans to municipalities, authorities, and states for infrastructure projects, many of which have been sitting waiting for funding for years, if not decades. No new borrowing would be required to fund the bank.[2] A similar principle was put to work by the FDR-era Reconstruction Finance Corporation (RFC), whose lending operations, based on government-backed credit, ended up making a profit for the Federal government.
And Inflation?
The NIB will help us move from an economy dominated by financial bubbles, to one of solid economic growth. This shift is also key to dealing with the problem of inflation.
As Cornell Professor Robert Hockett has pointed out during NIB town meetings and elsewhere, the Fed’s approach to trying to tamp down inflation ignores some fundamental truths. If inflation is too much money chasing too few goods, it would seem obvious that we should be producing more goods, starting with those required for a decent living standard! This is clearly the case, and increasingly admitted, in the area of housing, but applies in numerous other areas as well, especially those where production was reduced during the pandemic. (Of course, there is also the factor of companies simply jacking up their prices because they know they can get away with it.)
The current Fed approach, which deliberately intends to increase joblessness and keep wages low, is the opposite of what is needed to rebuild decaying infrastructure, improve living standards for all, and reduce inflation. Alexander Hamilton himself polemicized against usury back in 1791, arguing for the abundance of affordable credit being made available to farmers and manufacturers. Today, usurious interest rates (just look at your credit card rate) are so common that many people don’t even know what the word usury means.
High interest rates have their uses, when they are a tool to clamp down on rampant speculation. But just the opposite has been the case for decades, and Congress has shown little inclination to reverse course.
Yet reality, and public pressure, does have a way of ultimately asserting itself. Therein lies the hope that the active and growing movement for establishing a Hamiltonian National Infrastructure Bank will finally push its solution onto the national agenda. After all, it represents an actual way out of our deepening crisis, and there are currently no workable alternatives in sight.
[1] For more on the history of Glass-Steagall, see https://americansystemnow.com/a-timely-argument-for-glass-steagall/.
[2] A detailed description of the funding mechanisms is available in presentations available on the NIB Coalition site.
Tags: Alexander Hamilton, Coalition for a National Infrastructure Bank, Glass-Steagall, inflation, infrastructure, Nancy Spannaus, National Infrastructure Bank