Magazine | October 4, 2010, Issue

Bank of America

Obama’s $50 billion infrastructure folly is not without precedent

Normal countries have governments. The United States has a bank, and it is in the business of making the oddest assortment of loans you’d find outside of the secret Enron archives. Would you like to take out a loan against 94 percent of the cash value of a life-insurance policy you’ve had for only one year? There’s a federal loan for that. Building a dormitory to house the transient laborers who bring in your peach crop in the summer? ¡Sí, se puede! There’s a federal loan for that, too, with excellent terms: 33 years at 1 percent interest. Perhaps you would like to secure financing through an “extramural clinical research loan repayment program for individuals from disadvantaged backgrounds.” Bank of America — the real Bank of America, Barack Obama, CEO — can hook you up.

So when President Obama announced that his next Big Idea for the economy was to take $50 billion of your hard-earned assets and use part of it to finance an “infrastructure bank” — not just a new infrastructure program, but an infrastructure bank — it was hardly an exercise in financial radicalism. Banking is what Washington does. With the exception of the actual central bank, the Fed — which is more of a hedge fund (an upside-down, Bizarro World hedge fund, whose managers pay the very highest prices for the very worst assets) — the entire federal apparatus, from the Pentagon to the USDA to the hive of haplessness that is the Department of Education, is in the banking racket. The government’s toothless loan-sharking is especially prodigious when it comes to so-called infrastructure programs, which are more accurately described as transportation programs (which are really more accurately described as highway programs).

Usually, this taxpayer-subsidized usury-lite happens under the rubric of economic development. Say you find a nice cheap little piece of land on which you’d like to build a factory, and it’s perfect in every way except one: no direct access to the highway. Maybe there’s another piece of land with good highway access, but it costs more (which it probably does, precisely because it has good highway access). If you know the right people and pull the right strings, then a combination of federal, state, and local authorities will either build you an on-ramp or see to it that somebody loans you the money to build one at concessionary rates and on generous terms. It probably would be cheaper, easier, and morally cleaner for the state and local governments just to write a check to businesses that create jobs in their jurisdictions, but that’s too obvious, and it looks sort of bad to the yokels. So instead of bribing businesses with direct handouts, we bribe them with indirect handouts, and we call it an economic-development policy. If your business is an industrial or manufacturing concern, politicians will line up around the block to pave whatever needs paving and asphalt whatever needs asphalting for you to create those jobs.

#page#And there’s a lot more of that going on than you might expect. Even though the extraordinarily productive service sectors of the U.S. economy create a lot of output that can be delivered by e-mail rather than by truck or train, manufacturing remains the second-largest single sector, trailing only wholesale trade. In fact, the idea that the United States has entered a “post-industrial” phase is largely a myth. Measured by output, the U.S. economy is much more industrial-looking than Washington’s scary bedtime stories about McJobs and outsourcing would suggest: After wholesaling and manufacturing, the biggest sectors are indeed those service-oriented industries — retailing, finance, and health care — but these are followed by a massive construction industry that is nearly as large as the health-care sector. In terms of economic output, the warehousing and transportation of goods bigger than the software industry or the accommodations and food-services industry — to take the two poles of the services economy — and several times the size of the education sector. U.S. factories, as Cato Institute scholar Daniel Ikenson has reported, produce 21.4 percent of the world’s manufacturing value added, 60 percent more than China’s (without a billion semi-indentured workers earning Third World wages or a for-profit police state — take that, Tom Friedman!). We’re making a lot of stuff and moving it around.

So, build a bunch of roads, railways, runways, and bridges, right? After a bipartisan stimulus campaign that now has cost the country more than the Iraq and Afghanistan wars combined, what’s another $50 billion?

In truth, we’re already probably spending way too much on infrastructure — a fact that is not exactly blisteringly apparent from the crumbling state of many of our country’s roads, bridges, and airports. It’s not how much you spend, it’s what you spend it on. We’ve wasted so much money on transportation spending, in an appropriations process that is so nakedly self-serving and corrupt, that the stench of the last major highway bill was enough to awaken even the constitutionally slumberous caucus of appropriations-happy congressional Republicans — eight of them, anyway.

The 2005 highway bill (which bore the nauseatingly cutesy name SAFETEA-LU, the last syllable of which was a nod to Lu Young, the wife of Rep. Don Young — R., Arctic Porkistan — who was at the time the chairman of the transportation committee) was a disgrace, a $286.4 billion bacon bomb that became infamous for the Alaskan “Bridge to Nowhere” it funded. But that bridge was only one of the 6,300 or so earmarks inserted into the legislation, which also funded such critical national transportation priorities as a children’s museum in Indianapolis, a museum in Warren, Ohio, dedicated to the Packard motorcar, a Henry Ford museum in Dearborn, Mich., and an Erie Canal museum in upstate New York. And the beloved Packard wasn’t even the most retro form of get-up-and-go the bill lavished federal dollars upon: Millions were spent on horse trails in High Knob, Va., sidewalk landscaping in rural Georgia, and bicycle paths in Hattiesburg, Miss. When the tab topped $300 billion, Pres. George W. Bush suddenly remembered that he was a Republican and threatened to veto it; when the cost was trimmed to a lean and mean $286.4 billion, he remembered that he was a politician and signed it.

#page#Funds allegedly dedicated to national transportation priorities find their way into all sorts of tangential-at-best programs, including the dodgy economic-development projects mentioned above. The earmarks don’t just come in the highway bills — they’re built right into the U.S. Department of Transportation’s regular appropriations, too. The 1996 DOT budget contained 167 earmarks; by 2005 there were more than 2,000. The more time the enabling legislation simmers in Congress, the fatter it gets: For FY2006, the original text of the DOT’s appropriations bill contained 66 earmarks, but by the time it was out of conference, it had 1,516. At the request of Sen. Tom Coburn (R., Okla.), the Office of the Inspector General conducted a 2007 review of transportation earmarks. In its own circumspect words:

Our review of 7,760 earmarked projects valued at $8.05 billion within Federal Highway Administration, Federal Transit Administration, and Federal Aviation Administration — which accounted for 99 percent of these earmarked projects — disclosed that 7,724 of the 7,760 projects either were not subject to the agencies’ review and selection processes or bypassed the states’ normal planning and programming processes. There were earmarked projects we reviewed that were evaluated as “highest” priority projects and would have been fully funded regardless of being earmarked. However, many earmarked projects considered by the agencies as low priority are being funded over higher priority, non-earmarked projects; and other earmarks are providing funds for projects that would otherwise be ineligible.

In the Age of Obama, that $8.05 billion is not even chickenfeed, Washington’s chickens having grown far too fat to subsist on such measly morsels. We’re not going to balance the budget by getting rid of earmarks, but those billions in targeted spending for political favorites bring a lot of power with them, and that’s what this “infrastructure bank” is all about: The White House has earmark envy, and it wants to get in on Congress’s action. The “infrastructure bank” would include a panel of experts (has any administration since Woodrow Wilson’s been so in love with panels of experts, or so eager to entrust vast swathes of the U.S. economy to their unaccountable ministrations?) to determine what gets funded and what doesn’t. “Instead of funneling infrastructure money to those states and districts represented by members of Congress with the most political clout, this plan would create a panel of experts to approve projects on the basis of merit,” the Miami Herald editorialized, earning itself a Pulitzer nomination for naïveté. “Experts say this would spur innovation and provide the biggest bang for the buck. It would put money where it makes the most economic sense, not where political influence dictates.” Translation: Experts say we should give them billions of dollars to play with. Somebody in Miami missed follow-the-money day in journalism school.

Said panel of experts would naturally consist of only the finest minds and the most disinterested better angels of our national nature — though skeptics might offer a reminder that this administration has manned its deficit-reduction committee with the likes of SEIU kingpin Andy Stern (“Workers of the world unite! It’s not just a slogan anymore!”) found room for crypto-Marxist 9/11 conspiracy kook Van Jones at the head of one of its czardoms, and installed Donald Berwick, sworn archenemy of “the darkness of private enterprise” and noted medical-rationing enthusiast, to oversee the incremental nationalization of American health care.

It’s not a bank. It’s Obamacare for bridges to nowhere, death panels for highways.

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