The real challenge we face is how to switch out of the hyper-financial mode of the last two decades. It is not to rescue zombie banks.
The economy, even our continental-sized economy, functions in billions, not in trillions. This needs to be said at a time when the financial perspective still dominates discussion of how to rescue our economy and leads many to say that billions are not going to help us. Actually, billions will do more than most seem to think.
Here some numbers -- and sources for those who want more.
The ASCE (American Society of Civil Engineers) estimated that the U.S. needs to invest an average of 300 US billion a year over the next 5 years. That is $1.6 trillion over a five-year period to bring the nation's infrastructure to good condition. Much of this money has already been allocated, but roughly a third would require new funding. This means $530 billion more spent over a five year period in order to bring our infrastructure to a good level.
This spending on infrastructure creates jobs. For example, one US government study concludes that for each $1 billion of federal spending on highway construction nationwide, 47,500 jobs are generated annually. Five million jobs could be created if we invested $1.6 trillion over five years in our infrastructure.
The Congressional Budget Office estimates that "infrastructure spending is twenty percent below what would be required to simply stay in place, let alone to begin to repair the damage of years of neglect and move forward." For instance, the EPA's entire budget under Bush in 2008 was $7.5 billion.
The US is, of course, an extreme case -- with a far less modern infrastructure than most Western European countries. And the preceding Bush years have made it even more so. Net investment in physical infrastructure has declined over time. The US spends 2.4% of GDP on infrastructure: 1.7 percent of GDP is for transportation and 0.7 percent is for water supply and sewerage. Within transportation, over half is for highways and 0.35 for mass transit (minus rail), and less than 0.05 percent of GDP is for each water transportation and rail (both passenger and freight).
According to ACSE most components of America's infrastructure are poor or mediocre, and all sectors except aviation have declined since 2001. For instance, by 2007, 26% of the nation's 599,893 bridges were rated structurally deficient or functionally obsolete.
Yet, even starting out with this disastrous situation, the basic needs for upgrading these diverse types of infrastructure are in the billions, not in the trillions. This is the real economy, not the world of hyperfinance.
Total federal spending on transportation needs is approximately $60 billion annually. But we will need an estimated $155.5 billion annually to improve the nation's surface transportation infrastructure conditions. Checking government budget requests, I have been able to account for $40 billion to highways and $9.5 billion to transit. I have been unable to verify fully but it looks like the other $10 billion goes, among other items, to bridges.
Here is a list of some massive projects for maintaining and for developing key infrastructures....and it is all in the billions. Seen this way, a billion still feels like real money.
Mass Transit: The Federal Transit Administration (of the Department of Transportation) estimates $14.8 billion is needed annually to maintain conditions, and $20.6 billion annually is needed to improve to good condition.
Roads and Bridges: U.S. DOT estimates that the maximum investment level required to eliminate the backlog for bridges and to implement all proposed highway improvements is $131.7 billion per year for the next 20 years. "It will cost $9.4 billion a year for 20 years to eliminate all bridge deficiencies"12 which amounts to $188 billion over 20 years.
Dams: "It is estimated that $10.1 billion is needed over the next 12 years to address all critical non-federal dams -- dams that pose a direct risk to human life should they fail."
Ports: "Simply by improving our port system to be as efficient as those in China or Singapore -- so that goods spend one day waiting in ports rather than two days -- we could increase our exports by over $10 billion a year and support almost 60,000 jobs. Improving transportation infrastructure elsewhere could have similarly large impacts on our export performance." (Another way of saying: we should do more making and make it exportable).
Inland Waterways: Of the 257 locks on the more than 12,000 miles of inland waterways operated by the U.S. Army Corps of Engineers, nearly 50% of the locks are functionally obsolete. By 2020, that number is expect to increase to 80%. The cost to replace the present system of locks would be more than $125 billion. Of the 257 locks in use in the United States, 30 were built in the 19th Century; another 92 locks are more than 60 years old: they are constructed with a 50 predicted lifespan. Barges are an ideal transport mechanism in terms of load, cost and carbon emissions but we are focused on highways ignoring the maintenance of waterway infrastructure.
Railroad Freight: For railroads to maintain their current share of freight in the US and to accommodate the anticipated increase in total freight carried. The railroads require between $175 billion and $195 billion in investments over the next 20 years. Much of this will be private, but about $30-50 billion will need public support.
Drinking Water: The Congressional Budget Office estimated the nation's needs for drinking water investments at between $10 billion and $20 billion over the next 20 years. To this we should add the $178 billion to $331 billion in anticipated pipe replacement costs over the same 20-year period.
Sewage/Waste: According to EPA estimates, the US needs to invest $390 billion over the next 20 years to replace existing waste treatment systems and build new ones to meet increasing demand. The EPA's 2004 Clean Watersheds Needs Survey calls for an estimated investment of $134.4 billion for wastewater treatment and collection systems, $54.8 billion for combined sewer outflows, and $9 billion for storm water management. If this is not done then we risk losing the gains that have been made in cleaning up the nation's rivers, lakes, and streams since the enactment of the Clean Water Act in 1972.
The real challenge is to definancialize our economies to a reasonable level.
We need banking and we need finance. But we do not need this kind of financial system. There are hundreds of so-called savings banks in the US that are ok and could be used by the government during this crisis to channel credit directly to firms and households, to support pension funds and help foreclosure-threatened households. These banks would be instructed to do what they know how to do -they would not be allowed to hoard it. This would also be a way of strengthening those small banks. In New York City, for instance, there is Apple Bank -- at this point far more attractive than Citibank for consumer banking accounts.
When we focus on material economic sectors we can revalue the importance of billions, and get out of the mirage of finance's trillions.
In fact the non-security discretionary spending of the US federal government for 2008 was $481 billion, and total discretionary spending of the US federal government for 2008 was $941.4 billion. (Discretionary excludes social security, debt service, and emergency expenditures, "ie, the wars in Iraq and Afghanistan.") Total federal spending is 2.8 trillion. That is less than the 3 trillion in troubled bank assets!
Tonight on Olbermann's Countdown, Keith said the new Obama budget (of which we are all _extremely leery_ of the $700 billion NEW taxpayer dollars, in a (depending on how you count 'em) 2nd, 3'rd, or even 4th huge BAILOUT) plans to save BILLIONS by....
distributing STUDENT LOANS ___DIRECTLY TO STUDENTS____, and BY-PASSING the BANKSTERS who wanted to get their greedy mitts on all that GOVERNMENT GUARANTEED (i.e. ZERO RISK) money, government (bailouts) provided money.
Woo-hoo! This is saving money the old fashioned way... CUTTING OUT the EXTORTIONATE middle man !!
And since students & other working stiff' taxpayers are paying those BILLIONS and BILLIONS of bank bailouts in the first place, no one, anywhere, wants to hear the old canard about how the GOVERNMENT funding & administering Student Loans is somehow "interfering" in "free markets"!!
Hate to get my hopes up on one comment out of a one-hour Countdown show.... but maybe there IS hope for America ?!
- I'm surprised that the feedback (comments) isn't in the hundreds!
OVERALL, Ms Sassen's opEd touches on the vital issue at the heart of the BAILOUTS & Economic Crisis that no one (not even Krugman, Nouribini, and Stiglitz) has yet addressed:
- WHAT is the "TAKE" or "slice" or PERCENTAGE off-the-top that the big banks want to take from the BAILOUT billions, before they actually DISBURSE those funds?
Now clearly.... not only does everyone want to make a profit, but everyone also wants to MAXIMIZE their profits. SO - if the banks want to charge a __30% commission__ in fees, fines, and interest rates for disbursing TAXPAYER bailout billions - who is going to tell them "No"?!
I completely agree with Ms. Sassen' previous articles -
http://www.huffingtonpost.com/saskia-sassen/obama-and-volcker-economi_b_161249.html
Obama has been HOODWINKED by GEITHNER & SUMMERS, the CENTERPIECE of his "STIMULUS package" announced today, is GIVING $750 BILLION _MORE_ to the failed, fraudulent, larcenous, extortionate, & usurious banks!
Ms. Sassen's HuffPost bio informs us that she is a professor of SOCIOLOGY, but unlike the majority of "FINANCIAL COMMENTATORS" out there, Ms. Sassen's articles actually includes lists of cold, hard numbers... they are FAR LESS, in billions, & FAR MORE IMMEDIATELY CONSTRUCTIVE, than the TRILLIONS that the 'Financial Services' industry is demanding in bailouts!
In times of need Working Americans have always stepped up to the plate, few profited off their service and duty, these are the working people those who keep this nation safe, provide services needed and allowed the few to prosper.
Now we face hard times and those who have benefited over the decades and centuries must help to restore this country, they must usher in the new.
Education, Health Care, Fair Housing and Living Wage Jobs. This is what all Americans want and need. In shear numbers these basic human needs should be a birth right.
The wealthy must give back by Investing in Americans making things again, especially in the areas of energy, health care and the sciences. In order to move this country forward Americans need educations and a living wage to support their families.
You are not a Patriotic American if you ship our jobs over seas to fill only your pockets.
The economy sits on the edge of a sword, this can be a peaceful transition or a violent one, either way The American People will have what is provided to all citizens of First World Nations, it is up to those who prospered over the years to give back and choose which path this country takes.
The process whereby PUSHING PAPER within & between largest banks & hedgeFunds TRUMPS _Production) & _CREATION of REAL goods & services_ !
Textbook example, the Big Financials WALLOWING in huge, (overvalued) "profits" 2007 - even as nation's vital roads & bridges infrastructure crumbled!
http://en.wikipedia.org/wiki/Financialization
"FINANCIALIZATION refers to a 'pattern of accumulation in which profit making occurs increasingly through financial channels rather than through trade & commodity production'.”
Two excellent sources on the process: whenever Wall Street & markets see profits sag or go flat, they would THROW A TANTRUM & DEMAND the Fed DO SOMETHING !
This meant either, #1. CREATING FREE MONEY, or, #2. CREATING (more!) FREE MONEY.
#1. The Fed's main tactic to please banks & markets was to LOWER INTEREST RATES. But now that interest rates are close to ZERO for banks large enough to qualify - THAT source of increasingly "free" money is exhausted.
#2. That drives the fed to... "LIQUDITY INJECTIONS".
This means PRINTING UP billions of FREE MONEY, & depositing, via Fed banks, into vaults of Big banks - who immediately use those BILLIONS to PROP UP "profits" & CHASE STOCK PRICES HIGHER.
http://finance.yahoo.com/tech-ticker/article/7483/Fed-Heads-Back-to-the-Well-Will-It-Run-Dry?tickers=BSC,JPM,TMA
This process is simple enough - like the bank making a mistake, & DEPOSITING $1 million on your or my credit card, but it's not a mistake, WE GET TO KEEP that "money" !
Let's assume that most of the banks are cleansed as our government obligates tens of trillions more than the measly 4 trillion for Freddie Mac and Fannie Mae. What then?
Presently, there is no demand for loans to do any worthwhile value laden project because there is no demand. Why? Because we are either broke or we are waiting until supply and demand reach a level that people feel comfortable to purchase or invest. Therefore, cleansing the corrupt banking system of bad debt is not what the bankers tell us.
As you rightly argue, the answer lies in building and rebuilding our public and private industry that creates the jobs worthy of an educated and anxious populace. Not in rebuilding a corrupt institution that should be half of its present bloated, bullying size and space.
Besides "debt" is the only asset banks have. If they withhold it, they are cutting off their nose to spite their face!
So sitting tight & not spending.
Whose challenge is that? And, how did we come to "financialize" our economy in the first place?
'Financialize' is a little vague.
We can't use “monetize" , already taken.
We need a word that is very clear about what went wrong: TO WIT:
The money system was used to make more money.
As opposed to more jobs or more production capacity or more infrastructure, etc., etc.
We have grown a more “money-centric” economy via the burgeoning financial services industry.
This sector of the American economy received the greatest growth under the privatization - deregulation regime of a generation.
The rich got richer and the poor got poorer because the money supply was not used to promote the type of growth that would create jobs and wages.
This is what my Dad used to call "the priority use of the money supply".
Surely this is what Lincoln had in mind when he stated so clearly:
""The government should create issue and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of consumers. The privilege of creating and issuing money is not only the supreme prerogative of government, but it is the government's greatest creative opportunity. ""
Call it definancialize if you like.
You will get there by changing the priority use of the money supply.
The Greenbacks Transformation.
My understanding is that MIT recently started teaching more of their basic courses in a room where the professor interacts with students on electronic devices and the students work in groups and so on
meaning they are ditching the old lecture/row of desks model. Should our high schools be remodeled as well?
I don't have any knowledge of what is going on in high schools these days but it is hard to believe that there would not be changes considering the change in the way we view information these days.
Education is infrastructure.
Bottom line: While the consumer and US Business works off the large debt they have accumulated, the government must step in and provide the demand in the economy but it makes most sense for the state to do what business would not do: big infrastructure projects.
Don't be fooled by the myth that Japan had a lost decade because the government invested in infrastructure. That is not really true.
Why prop up the price of a house? When you go to Walmarts do you walk in and say "oh, no, look at these low prices, what a disaster!!?
Of course not. Just think. you graduated from high school or college and you got a job and you got married and started looking for a house to start a family. It happens every year with a new crop of grads coming constantly on the market. Why does it help the economy to make it difficult for those people to buy a house or to load them down with the most debt possible by propping up the price of hhousing?
Answer to the mystery? Propping up housing prices is being urged on us to save Wall St bankers. That is the real bottom line.
It is unfair and disingenuous to juxtapose a global financial meltdown and spending programs. On purely financial terms, a 300 billion dollar loan to fix a 2.5 Trillion dollar problem that will be paid back with interest (Quantitative) against spending programs with at best a qualitative payback is no contest.
We must fix the banks. Period. Nothing else can gain traction if there is no money in the ATM. Nothing. It is not helpful to begin a debate pitting capital and expense, especially when we just passed a Trillion dollar stimulus package for this same kind of spending. Some are good projects but others look like an ASCE wish list
Oh. I guess infrastructure is a Trillion dollar problem too. Trillion is the new billion.
If the banks are fixed then those municipalities can get loans for these projects. No?
We are in the process of unwinding the leverage in the economy which means the economy will be contracting and the government is right agent to replace the lost demand in the economy. So, the question is, replace it with what? I say we do what the Japanese did which is to spend on infrastructure.
Suppose the Russian totalitarian state had not launched sputnik? No GSM, cell phones, weather forecasting, etc., etc.,
Government investment can be a very positive thing and we now have a mandate to proceed with government investment. We need to make the right investments. Banks are not going to build roads, etc.
We must be smarter than to create projects to dig ditches only to fill them in later, something which has been done in the name of stimulus.
I object only when we pit apples and oranges against each other nonsensically. The banks will loan the money. The consumer is also the taxpayer. Where do you think, the money comes from?