The Iceberg

Thanks to technological advances like radar and satellite tracking, icebergs aren’t the bane of shipping that they once were, but we can still learn something from them.  Most of the mass of an iceberg is under water, which is why people refer to the “tip” of an iceberg.  Well, the national debt is like an iceberg in some ways.

We see a number, right now over 19 trillion dollars.  That number is so large that nothing in our everyday experience helps us to comprehend it.  It’s almost doubled in less than eight years under the progressive Obama administration and there’s no reason to think that Democrats would curb that growth.  That’s an annual increase of around 9%.  Are your CDs paying that?

What we don’t see is what lurks beneath that number; the impact on our economy and national security.  Like any other debt, the national debt isn’t free; the government must pay interest on that debt to the bondholders.  Interest rates have been at record lows for years but they won’t stay there forever.  As interest rates rise the government will have to pay higher interest on new debt as it’s issued.  This is one part of the debt iceberg we don’t see.  Debt interest is paid from tax revenues, so as the debt rises the government will either have less money to spend on national defense, social programs, and environmental protection or it will have to raise taxes.  A second part of the debt iceberg that’s largely hidden is that the debt eventually has to be repaid as the bonds mature.  This is a huge and growing mortgage on future generations.  Of course that debt can always be refinanced at a higher interest rate but we all know where that leads: bankruptcy.  The third, and least conspicuous hidden part of the debt iceberg is that trillions of dollars in US debt are held by foreign countries.  That gives these countries leverage to demand special treatment and even an economic weapon to use against us in case of a conflict.

Here’s something to think about.  The national debt is now over 105% of the US GDP.  That’s right, it’s higher than the total annual output of our nation.  Anyone who thinks this can go on forever must believe that money grows on trees.

Here’s what we need to bring this situation under control before the iceberg of debt sinks the ship of state:

  1. Responsible elected officials who recognize the problem and are actually willing to do something about it.  This means keeping spending within revenues and actively reducing outstanding debt.
  2. A plan to reduce the outstanding debt.  If we ever get real tax reform (not just more pages of rules) this should be part of it.  For example, under a flat tax we could have Flat+1, where the flat portion covered expenses, 1/2 of the extra 1% goes to debt reduction, and the other 1/2 of the extra 1% goes to upgrading our infrastructure (see “Infrastructure: Circulatory System of a Nation” for more on this issue).
  3. Limits on both the total amount of debt that can be held by foreign countries and the portion of that amount that can be held by any one country.  See “The More You Owe Me the More I Own You” for further discussion of limits on foreign debt.

 

Advertisements

Infrastructure: Circulatory system of a nation.

Once again we’re hearing how our aging infrastructure needs maintenance and upgrading.  We heard it 6 years ago when the “economic stimulus” was launched, but how much infrastructure actually got fixed and how much of that money went to political cronies?  There are very few “shovel ready” projects available at any one time.  We have a gas tax that’s supposed to fund highway maintenance, but does it all really go to that purpose?  Modern, efficient, and secure infrastructure is essential to commerce and national security so why is it neglected except when it becomes politically expedient?

Infrastructure can be categorized in two ways.  The first is as transportation or transmission.  Transportation infrastructure moves people, materials, and goods via roads, bridges, rail lines, seaports, and airports.  Transmission infrastructure moves electricity, communications, water, gas, and oil by wires, fiber optics, towers, and pipelines.  The second categorization is by ownership, either public or private.  While roads, bridges, and municipal water supplies tend to be publicly owned, much of the remaining infrastructure is privately owned, often by more than one company.  It could all be summarized in a matrix

Publicly owned infrastructure shouldn’t be maintained at the whim of political expediency or by pork; it should be an integral part of every budget, with priorities clearly set.  Companies should maintain their infrastructure simply to reliably support their customers.  In some cases tax incentives may be appropriate, while, if national security is being compromised, legislation may be required to force the issue.

Let’s look at a few examples, the first being our electrical grid.  Recent studies have shown that coordinated substation sabotage could black out much of the nation, while some have said that cyber attacks could achieve the same result.  This is a matter of national security that requires correction and coordination between the private owners and the government.  Similarly, a cyber attack on data communications could theoretically cripple our financial institutions.  Municipal water systems are an example of publically owned infrastructure.  Some are nearly a century old and leak as much water as they deliver.  This is a waste of taxpayer dollars and of a valuable resource.  Rail transportation is another example.  Rail is the most fuel-efficient way of moving large cargoes  over land, but, as recent accidents have shown, safety is critical, particularly when transporting hazardous materials.  The rails themselves, bridges, train maintenance, road crossings, and speed limits on curves all enter into safety.  Red-list  bridges are another threat to public safety and commerce.  Seaports are the gateway into the US of most imports, but here security is critical to ensure that WMD’s or illegal drugs aren’t being smuggled in.  There are many more but you get the point.

All major infrastructure projects, such as power plants, shall be built and run by US companies, for three reasons.  One is national security, as a foreign-owned plant could be shut down by a hostile nation during a time of conflict.  Another is to keep US dollars in the US to create and maintain US jobs.  Finally, most people wouldn’t want to be paying their utility bills to China.

Take infrastructure out of the political football stadium and into everyday reality. Establish a temporary joint public/private committee to review the infrastructure matrix, identify needs and obstacles, establish priorities, and present recommendations to Congress and to the states for locally owned services like municipal water supplies. Also reform and simplify the complicated permitting process that delays critical projects for years. This will provide a basis for sound budgeting and legislative action.  Allowing our infrastructure to fail due age, inefficiency, or an attack is not an option for a secure nation.