We want to make goods and services in the U.S. and create high-paying jobs and prosperity. But what really is the national government’s role in fostering these plua robust infrastructure? Caution: For every action, there is an equal-and-opposite government program.
Amid ample favorable media coverage, critics have questioned some AJP premises. Among these: that it will “create millions” of “good-paying jobs”; that federal spending constitutes “investment” (let alone “ovedue” investment); that federal spending is preferable to others’ spending or investing the same dollars; and that the AJP and Biden will “reduce deficits” 16 years from now.
And never quite clarified is how $28 trillion in federal debt is not stimulus enough, already.
Most noted has been the rebranding of social spending as infrastructure. But Biden is not hiding that much of what he calls infrastructure is instead further down payment on a government-centric “caregiving economy” encompassing childhood to old age. Elements include $400 billion for expanding elderly and disabled long-term care through Medicaid, and “affordable housing.” Even the Associated Press noted the “rhetorical gymnastics” entailed in the rebranding. In merely two months Biden has easily eclipsed Obama’s State of the Union calls for free community college and enlarged paid work leave, seen as transformative in their time.
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On the bits of the AJP that do constitute old-school infrastructure, working in Biden’s favor is bipartisan consensus that government can spearhead frontier areas. In his March 31 Pittsburgh speech announcing the AJP, Biden cited battery technology, biotechnology, computer chips and clean energy as targets for spending.
But if capitalism is vital to wealth creation at small and medium scales, it is even more important at grand scales in a modern technological society. If the central government is in fact not the wellspring of prosperity, that has major implications for what a genuine infrastructure package would entail and changes our entire conversation.
A clue that the model is wrong and a course correction is in order may be found in Biden’s very arguments for the AJP. Biden wants to “rebuild the backbone of America” But why would something be wrong with America’s backbone? It cannot be that government is smaller than it used to be.
Biden’s AJP description says, “After decades of disinvestment, our roads, bridges, and water systems are crumbling. Our electric grid is vulnerable to catastrophic outages.” But why would any of this crumble? We don’t periodically lament “disinvestment” in big box stores, tech companies, fast food restaurants, Sheetz road stops and gas stations, and fret that these all are “crumbling.” Those are infrastructure too; certainly moreso than much of what is in Biden’s plan, and they keep growing. Like Jay Leno used to say in the old Doritos commercials, “Crunch all you want. We’ll make more.”
Biden talks of “modernization” of infrastructure, that would entail cutting government’s dominance of it. Unlike ongoing private investment, interest subsides after the ribbon-cutting at big-government projects. Biden’s is a quest destined to deliver tomorrow’s equivalents of yesterday’s ill-fated and leap-frogged National Road, C&O Canal, and appropriation-plagued Superconducting Super Collider. Those are nothing compared to the Lovecraftian desolation to come should Biden get his misguided way.
Other entities in society create big-wealth better than Washington does, and there is a vast supply of money for it if government and its permitting mazes get out of the way. Alas, the New New Deal Biden is pursuing via his legislative triad is nothing new despite the emphasis on “upgrade” and “modernization.” In the 21st Century, getting clean, fresh water piped into a home is not a mystery, nor something to occupy a national government. Keeping things local and leaving money in the states in the first place can better prevent the “crumbling” and “disinvestment.”
A superior posture from which to boost infrastructure would be a concerted effort to separate state and economics, and to expel to policies of radical progressivism. To set the stage for that, it helps to appreciate how we got where we are.
Attempts were made at major central government undertakings in America’s early years, particularly for “internal improvements,” protective tariffs, and a central bank. Alexander Hamilton’s mercantilist Report on Manufactures encouraged industry subsidies and tariffs, paving the way for Kentucky’s Sen. Henry Clay and his American System of subsidies for roads and canals and other internal improvements, a national bank, and tariffs (vetoed by presidents Madison and Monroe). Thoroughgoing centralization had to await Lincoln and his embrace of the Clay approach, war mobilization, and constitutional reinterpretations that enabled massive national government expansion.
Statutes passed since the late 19th century expanded executive power and changed the relationship of the individual to the state. The Interstate Commerce Act arrived a century after the Constitution, followed by the Sherman and Clayton antitrust Acts, a permanent central bank immune from audit and a progressive federal income tax and later mandatory withholding.
The New Deal era brought Social Security and regulatory centralization. It ushered in the Federal Communications Commission, the Agricultural Adjustment Act (at a time when farming comprised 25 percent of the economy), National Recovery Administration cartelization, along with the minimum wage, labor, and hour regulations (productivity gets too little of the credit for such luxuries as an eight-hour day).
Biden’s legislative triad would expand upon these progressive victories plus post-New Deal Great Society programs despite (one hopes not because of) their dependency-inducing effects on otherwise self-sustaining families. Federal involvement in education funding, curricula, and programs from pre-kindergarten to graduate school underwent a “dramatic expansion” starting around 1960, followed by 1965’s Elementary and Secondary Education Act. Biden would interfere anew in public education, where, unfortunately no more than 35 percent of the nation’s public school students are proficient in reading and math.
The 20th Century government expansion was by no means exclusively a liberal partisan phenomenon. Republicans initiated the Sherman Act, and boosted the regulatory arsenal with the Environmental Protection Agency, Occupational Safety and Health Administration, Department of Energy, Department of Homeland Security. They bestowed interventions like TARP, the Troubled Asset Relief Program in 2008. Plenty conservatives today reject laissez-faire in favor of an expanded state mission (“national conservatism”) and industrial policy.
So the point of all the foregoing is that it takes some doing to envision a different infrastructure growth-and-renewal model entailing economic liberalization. Network regulation has been a problematic for capitalism for over a century. In the formulation of Fred L. Smith Jr., resources not “privatized” or integrated into wealth-creating institutions of the free competitive marketplace prior to the onset of the Progressive era—airsheds, airwaves, airspace corridors, watersheds, lands, roadways, ocean resources, environmental entities, low-earth orbit—remain under the control of the state. Changing that has been the neglected role of policymakers when it comes to infrastructure and truly large-scale capitalism.
Wealth creation, including that of nimble and sustained large-scale infrastructure wealth and both basic and applied scientific knowledge, is not rooted in pocket-to-pocket transfers—we have those already. Rather, prosperity depends upon the introduction of and evolution of property rights in complex new kinds of assets. A sound national government’s role in creating wealth is properly circumscribed to creating the conditions and legal environment such that the appropriate parties may pursue escalation of physical and intangible assets undisturbed by the gales of the federal appropriations process. That is the kind of basic function that should occupy Washington. With that being the duty, let’s look at some of the problems of the legacy approach.
Problems with the Biden Approach to Infrastructure
Government steering while the market merely rows creates artificial and unsustainable booms and ultimately constrains infrastructure. Biden criticizes the spending skeptics who ask of his spending, “What do we get out of it.” But, like the lack of self-awareness entailed in pointing to existing decaying infrastructure, Biden inadvertently makes the critics’ case for them by asserting “they said the same thing when we flew into space for the first time” Yes, man has been to the moon, but hasn’t been back in over half a century because the government-steering model likes the last step to be first. Biden and others point to the space program’s spinoffs. Well, OK; there are the digital flight control systems, food preservation and GPS Biden mentioned. And memory foam. But Velcro, Tang or Teflon did not come from NASA as commonly thought. Current regulatory policies toward space commercialization strongly favor not private adventurers but government partnerships.
Biden talked of “building a nationwide network of 500,000 charging stations” and allocating $174 billion for “investments” in plug-in electric vehicles. Yet when distance-before-recharge “range anxiety” becomes less of an issue thanks to entrepreneurialism in battery research, the layout of these stations will be obsolete like the aforementioned C&O Canal. And, Biden didn’t say: Will there be toilets, sandwich kiosks, car washes and tire pumps at his stations? This network truly is a job for the private sector rather than government rulemaking if ever there was one. This mindset ignores that other nationwide networks need to be built, too, which points to new business models serving them all.
Smart cities surprisingly were not mentioned in the Biden template but their incorporation in a plan would be inevitable. The problem, though, is that so far proposals for these exhibit the same top-down mindset wherein the “public” component of the public-private partnership (PPP) model will dominate.
Congress can’t fund everything, and politicians don’t do tradeoffs well in an environment of “partnerships” and seductive matching grants. Nor does spending does equate with promotion of technology and infrastructure. Remember the nanotechnology craze? Will we be leaving that out this time? What about biotech? Or why not fuel cells and the hydrogen economy instead of EVs? Or robotics and AI (artificial intelligence)? Don’t forget 3D printing. We’re thinking of going to Mars, but how about instead bioengineered gills so humans can live in the oceans and stop exhaling the CO2 that Biden’s triad is worried about? Not meaning to be flip, but the liberties taken by progressive policymakers have reached intolerable extremes. The science not created owing to the political reassignment of taxpayer resources to this or that temporarily favored project or field remains the significant unseen.
Taxpayer funding fosters too many conflicts among the citizenry: It may be an unpopular view, but Americans have a right to fulfill their own hopes and dreams with the money the AJP would seize from them. I’m reminded of a friend excited about the prospect of subsidized rail from Charlottesville to D.C. My response to him was to observe that, “It’s cheaper for me if you ride the bus.” Along with the inevitable funding disruptions in skittish appropriations legislation, taxpayer funding also disrupts processes for sorting out complexities entailed in the creation of new kinds of assets. It creates needless and distracting debates over the merits of basic vs. applied research; over the intellectual property status of increasingly federally funded discoveries given conflicting commons vs. proprietary views of discoveries generated by political investment (creating pressures for poor intellectual property outcomes like compulsory licensing). Public funding invites dubious claims of objectivity of government science compared to “tainted” industry science and fosters the latter’s wrongful exclusion from the marketplace of ideas. It generates conflicts over public access to publicly funded raw scientific data upon which regulation of these new industries get based. All such factors undermine wealth creation, and for that matter, resilience and preparation for the next crisis.
Biden’s government is also forging ahead with race-influenced transfers without much debate over premises and the divisiveness they can inflict. Biden asserts that “the plan prioritizes addressing long-standing and persistent racial injustice. The plan targets 40 percent of the benefits of climate and clean infrastructure investments to disadvantaged communities.”
The damage done by increasingly hefty and dominant government investment goes beyond undermining markets to that of allocating the spoils artificially created when the taxing power gets involved in the very production of knowledge itself. Government’s more appropriate role is that of protecting rights in the property and wealth that new knowledge makes possible.
Taxpayer funding induces politicians to nurture an improper view of technology as a zero sum global race. Calling for “the biggest increase in federal non-defense R&D on record,” Biden talked of “global leadership…up for grabs,” and compared the U.S. unfavorably to competitors on spending. “America lags its peers – including Canada, the U.K., and Australia – in the on-time and on-budget delivery of infrastructure, and is falling behind countries like China on overall investment.” As it turns out, subsidies do not actually alter the ratio of GDP spent on research and development; one displaces the other. More importantly, it was not the power of tax and dispense that made the young United States to leapfrog the world’s economies in 100 years. It was the third-richest country on a per-capita basis in 1900—thirteen years before there was an income tax.
Government funding comes with regulatory strings attached. Aggressive taxpayer funding is incompatible with a future of optimally and lightly regulated science and manufacturing specifically, and with limited government generally.
Granted, some businesses desire government to support their pet project or provide protective regulation. And indeed, each of the realms Biden would boost is already heavily regulated by the central government (a reason for “crumbling”). The AJP package would layer more regulation, compounding big new unneeded government programs with “good union jobs” that would likely boast defined benefit pensions of the sort bankrupting states and that created consternation in early coronavirus packages. That spending of the proposed magnitudes would constitute massive regulatory intervention out of the gate is a feature rather than bug for progressives.
As regulatory spending grows, though, so do safety and social risks; but you won’t hear that from progressives. Biden wants to invest in “coastal resilience to sea-level rise and hurricanes”; but would the AJP end the federally subsidized insurance that encourages rebuilding in such places? Biden didn’t say. More generally, “undiscovery” of risky science is not the norm; market disciplines like liability and insurance need to evolve alongside technological innovations, but subsidies can propel risky technologies ahead of our ability to properly assimilate them. Likewise, purported safety regulation can make us less safe. Frontier technologies can make our environment cleaner, but exaggerating benefits of political regulation instead of competitive regulation as Biden’s Modernizing Regulatory Review directive does overlooks hazards of stagnation.
Few of the AJP cyclopean interventions will appear in regulatory cost estimates such as the Office of Management and Budget’s Report to Congress on regulatory costs, or get assessed in the aggregate as required by the Regulatory Right-to-Know Act. Amid all this, the so-called “Internet of things” or IoT will increasingly enable Washington to regulate from a distance without issuing rules at all.
Arbitrariness in infrastructure designation; and federal versus local funding. With infrastructure programs, government competes with the private sector in some key sectors but not others. There is $100 billion for expanding “affordable” broadband, when smartphone penetration in the U.S. is high and getting better and faster. We are adults with access to Home Depot and HGTV, but Biden wants to “retrofit” millions of our homes (and commercial buildings) for alleged green goals (but why stop there). There is $100 billion for overhauling the electric grid, something many thought they’d been paying for in rates while exclusive franchises were enjoyed. There is a national electricity standard requiring of utilities “100 percent carbon-free electricity by 2035” to the exclusion of other benefits. And there is of course hundreds of billions on surface transportation, fixing highways, rebuilding bridges, upgrading ports, airports and public transit systems (all without requiring the liberals that vote for it to ride public transport, alas). Biden’s praise of the “transformative” Interstate Highway System will presumably be squared with Transportation Secretary Pete Buttigieg’s vow to dismantle racist freeways by providing $20 billion to “reconnect neighborhoods cut off by historic investments and ensure new projects increase opportunity, advance racial equity and environmental justice, and promote affordable access.” Not last nor least, the plan proposes to “train Americans for the jobs of the future.” But what are the schools doing now? We noted their lack of success in basic proficiency already. In any event, the federal government has no clue what those jobs of the future will be, so taxpayer funding of education can create a glut of the wrong kind of trainee.
The Biden administration mentions “resilience” 16 times in the AJP briefing sheet. A solid resilience plan would devolve functions from transport decisions to social welfare to states and localities.
Social and economic engineering as infrastructure transform the nation’s character: Biden’s triad represents a fusion between economic and social regulation that, rather than “building back better,” replaces our form of government. Look how closely Biden’s programs echo the 116th Congress’s formative description of the Green New Deal:
“The… Select Committee For A Green New Deal… shall have authority to develop a detailed national, industrial, economic mobilization plan for the transition of the United States economy to become greenhouse gas emissions neutral and to significantly draw down greenhouse gases from the atmosphere and oceans and to promote economic and environmental justice and equality….the Plan shall…include additional measures such as basic income programs, universal health care programs and any others as the select committee may deem appropriate … and …deeply involve national and local labor unions to take a leadership role in the process of job training and worker deployment…. The Plan for a Green New Deal… shall … ensure that the majority of financing of the Plan shall be accomplished by the federal government, using a combination of the Federal Reserve, a new public bank or system of regional and specialized public banks, public venture funds and such other vehicles or structures that the select committee deems appropriate.”
As Sen. Ed Markey sees the AJP, “It’s a way of accomplishing many of the goals of the Green New Deal … to go big and bold to match the urgency of the moment.” And plainly, we can expect to hear more about the Obama-era infrastructure bank approach mimicked more recently in the Green New Deal outline.
What of pushback on all this? Politicians rarely think voluntary markets are so splendid that they couldn’t benefit from compulsion. Big government science and investment are long-time bipartisan passions with long pedigree, which is why Republicans will be handicapped in fundamentally challenging the AJP. Senate Minority Leader Mitch McConnell’s complaint, in a series of press releases, is not that the federal government shouldn’t be a player in infrastructure and frontier technologies that are properly the province of the private sector. Rather, McConnell frets that Biden’s AJP is is a “Trojan horse” for tax hikes and more of the kinds of programs Republicans have already yielded to, that it represents a “missed opportunity,” and that it is not “targeted.” McConnell is hardly naive, but the notion of targeting carries little weight in today’s federal administrative state powered by a 16th Amendment. Republicans make similar noises to Democrats about basic research being “underfunded,” and often simlarly take market failure as given, political failure notwithstanding. McConnell assures us, “There would be bipartisan support for a smart proposal.” Republicans are not that far away from Obama’s “conception of competitiveness” that favors “stepping in where the market fails [in] areas such as renewable energy and scientific research are underfunded by the private sector, because returns are uncertain.”
The mid-1990s saw the last of the sweeping proposals for reducing government, such as the privatizing of national labs, curbing business and corporate welfare, and proposed elimination of the Departments of Commerce, Energy and Education and numerous agencies. The opposite approach reigns now, exemplified in new developments ranging from the newly contrived infrastructure of the “caring economy” to the establishment of a Trump-era Space Force before commercial space activities have yet managed a foothold beyond partnerships with government contractors. This will alter development and freedom of activity in the sector as well as alter technology investment more broadly. Therefore when Biden wants to “[r]evitalize manufacturing, secure U.S. supply chains [and] invest in R&D,” few raise the warning in Eisenhower’s farewell address regarding the blurring of research, public policy, and the pursuit of (which? whose?) knowledge.
Modernize Infrastructure with a Separation of State and Economics
A genuine modernization approach to infrastructure wealth program would entail the separation of state and economics and foster a major expansion of private sector freedoms, resources and research budgets. A non-exhaustive survey follows.
Avoid picking technological and infrastructure favorites; and avoid fostering a “Declaration of Dependence” on federal dollars on the part of America’s most crucial frontier industries and wealth creating sectors. Industrial policy is said to entail picking winners. Rather, governments tend to pick losers. While the shiny object is often the big corporate partnership with government, worthy knowledge and ideas are widely dispersed. Coerced investments—detached from consumers’ actual demands—distort trajectories for technologies, industry structure and growth itself. Along with privatizing politically provided goods and services, it has long been proposed by Fred L. Smith Jr. that, rather than trying to improve speeds by picking the particular R&D horses to run on the racetrack, government’s role is to improve the business and regulatory track as such so everyone can go faster; and let jockeys keep more of their earnings. That means liberalization, not central “plans.”
Break down regulatory silos between economic sectors. Dismantling the alphabet soup of regulatory agencies may be the most important reform of all; it is certainly the most neglected. Biden wants to “mobilize private investment to modernize” the nation’s “backbone.” The best way to do that though is not via his spending, but to focus almost exclusively on detailed plans and actions breaking down artificial regulatory silos that preclude coordination and merger among large-scale network industries like electricity, water, communications and transportation. The need for 5G expansion, for example, presents the opportunity to roll back barriers inter-agency barriers and advance hybrid markets and property rights such that these complicated networks can all bolster one another.
It is not proper for major infrastructure and scientific endeavors and applications to proceed walled apart from one another in a federal appropriations and regulatory environment, which aggravates problems like that of setting scientists and disciplines against one another competing for scarce grants and favorable treatment. In certain respects the transportation, telecommunications and electrical networks may be, or could be, one and the same. That powerful new powerful stance, involving complex new business arrangements that we cannot even envision now, would allow U.S. industries to surge and to stand up to that dreaded overseas competition. As it stands, too much of the infrastructure rhetoric is reflective of the constrained mindset whereby politicians think the solution to California’s periodic water crises is some combination of magic, desalination and strict environmental mandates rather than market pricing and grid liberalization not just intra- but inter-network.
With the clearing out of regulatory silos, the list of free-market must-dos can expand to incorporate innovations such as user ownership of grids and networks, smart and transactive grids, creative approaches like permanent free access for citizens providing rights of way to others (as occurred with streetcars), and other innovative ways of dealing with NIMBY barriers that pay people rather than take from them.
Abolish or relax antitrust law. The foregoing implies that abolishing antitrust so that firms within and across industry sectors can combine, initiate joint ventures and create business plans is vital. One cannot envision large scale commercial space ventures taking place without this change. Constraining productive firms (generally exclusively for the benefit of competitors) in politically contrived ways that the marketplace never intended or would dream hobbles entire industry sectors, undermines the infrastructure wealth creation process and harms consumer welfare.
Liberalize electromagnetic spectrum and secondary markets in airwaves such that wireless wealth is freely created with as little interference as possible from scarcity-creating regulators. This is the alternative to the Biden spending and price control oriented call for affordable, high-speed Internet.
Renounce pop-up regulatory campaigns like “net neutrality,” government funded 5G and charging stations that seem to perpetually plague the various network sectors and distract from the liberalizations actually needed.
Encourage, since much regulation is at the state level, reassessment and removal of exclusive franchises that make it not just difficult but illegal to compete with incumbents in areas like electricity.
Liberalize capital markets: Capitalism ranks among the world’s great democratizing forces, but post-Enron Sabanes-Oxley regulation (for one example) has distressed smaller companies and their ability to compete and to fund entrepreneurship. Reassessments, particularly with respect to firms and banks with smaller market capitalizations will always be in order, starting with Congress keeping an eye on Biden’s financial regulators.
Reduce over-regulation generally. Over 60 agencies issue 3,000 regulations within tens of thousands of Federal Register pages every year, along with many more guidance documents, the latter’s extent now obscured by Biden’s own policies. There are many pro-growth options. Proposals have included a bi-partisan Regulatory Reduction Commission; sunsetting rules and putting an expiration date on new ones; requiring fast-track congressional approval for controversial rules and unfunded mandates; small business flexibility; and a basic Regulatory Report Card.
Enact an Abuse-of-Crisis Prevention Act. Like the several stimulus packages of 2020, Biden’s 2021 triad initially emphasized recovery from the Covid crisis. That is now downplayed in favor of the purported merits of progressive programs themselves that got their nose under the Covid tent in 2020. That the virus would be exploited n such fashion was not merely predicted by the alarmed, but unashamedly avowed by those seeing the pandemic as providing political cover, from Justin Trudeau, to U.S. congressman and to the World Economic Forum. Biden’s approach, if allowed to advance, will have pre-weakened the United States in the face of the next crisis, ensuring still greater reliance on government intervention then. With government so large, Washington will be able to increasingly influence what one can even propose as research in the wake of the AJP. This was made clear by the flurry of executive orders on Biden’s first day in office, which confirmed his lack of interest in tolerating dissent or nonconforming ideas. Big-government proponents do not waste crisis, unfortunately; so classical liberals need to force them to by legislatively putting an end to their abuse of crises and economic shocks to advance unrelated coercive political agendas.
The longstanding debate over central planning vs. free enterprise is not lost by the latter simply because our economy has become high-tech, nor because politicians feel a need to react to a downturn to which they contributed (little in public policy had been more anticipated than pandemic). Bolstering manufacturing and investment and science requires vigorous competition among ideas for funding, not New New Deals fostering costly, scarcity-inducing progressive ends. The underlying problem now is that, if both parties think government can steer big technology and frontier investment (and they do), there’s no reason Republicans can offer for why it cannot steer K=12 education, retirement and health care, and pretty much anything else. That’s what Biden knows with regard to his pending American Families Plan.
Politicians often call for “change”’; here we call for folding money instead. Large-scale federal “investments,” interventions, subsidies and regulations will foster an economy made up of suboptimal semi-commercial entities that bear no resemblance to what they would have under competitive enterprise. The economy at large cannot approach its potential under these conditions. Biden’s AJP and its like will render the U.S. poorer, weaker, more regulated and more shackled to Washington.
Our countrymen have their own favored technologies, too, but generally not the resources to come to Washington to lobby their way into the graces of the AJP and the capital-P “Plans” to follow. It would be fairer to give taxpayers a deduction and choice of which technologies to support, and to share in profits—the same deal they get from private investments.
The greatest of America’s wealth is yet to be created. One can have faith in the federal government—if it sticks to what government is supposed to do. Limited government is how America won the past, and that is how America will win the future. A course change in 2021 is in order.