Upon signing the Infrastructure Investment and Jobs Act on the White House lawn this week Biden declared:
“That’s how our system works. That’s American democracy. And I am signing a law that is truly consequential, because we made our democracy deliver for the people.”
No doubt, American democracy is a giant scam. It has been for a long time. In fact, democratic mob rule supplanted the limited government of a republic with the passage of the Seventeenth Amendment in 1913. This amendment established direct election of Senators by popular vote.
In short, the Seventeenth Amendment allows the Senate to buy votes from their constituents in exchange for delivering federal money back to their districts. This ensures the government acts to meet the collective demand for private prosperity through public spending. It also rewards political corruption and public graft.
For example, 19 Senate Republicans and 13 House Republicans broke ranks to pass the boondoggle bill. They got extra heapings of government lard in return.
Senator Deb Fischer and Representative Don Bacon of Nebraska, who both voted for the bill, delivered $2.5 billion for state road and highway repairs and $216 million for water infrastructure. Bacon said he “thought it was good for the district and good for America.”
We’re all for Nebraska having nice roads and water infrastructure. But shouldn’t residents of Nebraska pay for their own roads and water treatment plants? Shouldn’t all state and local governments be responsible to provide for their own infrastructure? Why does Washington have a hand in any of it?
The reality is this $1.2 trillion infrastructure bill delivers a giant burden to the American people at the benefit of the Washington elite and connected insiders. That’s how 21st century American democracy works. That’s how it delivers for the elite…and not the people.
Over the last 100 years the American system of democratic mob rule has devolved to self-cannibalization. The elites consume the productivity of working and middle class Americans, while indenturing future offspring to debt servitude. After stuffing their faces at the public trough, they toss dog scraps to placate the mob.
By consuming itself, the nation can temporarily live beyond its means. This dynamic is best observed by looking at the growth in federal debt since the turn of the century.
When Y2K came and went without a hitch the federal debt was about $5.6 trillion. Today it’s over $28.9 trillion. In just 22 years the federal debt has increased by over 416 percent. Over this same period, real U.S. gross domestic product has only increased from about $12.5 trillion to roughly $23 trillion – or roughly 84 percent.
The difference between debt growth and GDP growth, as far as we can tell, is a recipe for disaster. Yet this isn’t the half of it…
You see, this growth in national debt relative to national income coincided with a corresponding growth in something for nothing policies. This growth in national debt relative to national income also occurred during a period of especially cheap credit.
Cheap credit, however, can also give way to expensive credit. And as interest rates rise, the net interest payments to service the debt also rise.
Net interest payments on the national debt for fiscal year 2021 were just over $300 billion. This was in a year when the yield on the 10-Year Treasury note was mostly below 1.5 percent. However, it won’t take much of an increase in interest rates to completely blowout the budget.
According to the Committee for a Responsible Federal Budget, interest rates of one percentage point higher for all of fiscal year 2021 would have totaled interest costs of $530 billion — more than the cost of Medicaid. Rates two percentage points higher would have totaled interest costs of $750 billion, which is more than the federal government spends on defense or Medicare. And at three percentage points higher, interest costs would have totaled $975 billion — almost as much as is spent on Social Security.
The greater the federal debt, the more exposed the federal government is to the ticking timebomb of rising interest rates. What if the 10-Year Treasury note jumps to over 15 percent like it did in 1981 to counteract raging inflation?
That would likely mean that net interest rate payments would be made entirely with borrowed money. This along with mass currency debasement is where self-cannibalization ultimately leads.
In the meantime, President Biden and team have hatched a pretty neat scheme to shirk responsibility…
Boondoggle Democracy for the Elites
The main task for politicians is to evade responsibility when it’s discovered that infrastructure spending, like other forms of waste, is flushed down the toilet. Biden knows something about this. He has experience.
When President Barry Obama signed the American Recovery and Reinvestment Act in early-2009 he tasked his Vice President, Joe Biden, with ensuring the $800 billion was spent wisely. Biden put together an oversight team to follow the money. He also pleaded with local politicians to not spend the money on “stupid things.” Little good this did. According to the Wall Street Journal:
“An Alaskan village called Ouzinkie, population 167, received a $15 million airport while some major hubs received nothing. Only about 10 percent of the law’s spending, or $80 billion, was devoted to infrastructure—and very little went to critical work. Funding ‘shovel-ready’ projects promised by Mr. Obama meant that money didn’t go to the bridges most in need of repair but to jobs that could quickly clear the thicket of regulatory permitting. Repaving roads was a typical activity; less than 12 percent of the infrastructure spending went for work on bridges. A promised green-jobs boom never materialized.”
So where did the remaining 90 percent of the money go if only 10 percent went to infrastructure? Does Biden know? We suspect it went to the elites and connected insiders who did a lot of nothing with it while bringing home inflated incomes.
Alas, the newest infrastructure boondoggle bill appears to be a repeat of the last one. Washington’s merely piling boondoggles upon boondoggles. The Cato Institute’s Randal O’Toole writes:
“About half of the transportation dollars in the bill are dedicated to Amtrak and urban transit, modes of transportation that carry less than 1 percent of passenger travel and no freight. While the other half appears to be dedicated to highways, much of that will be spent on projects that will reduce, not maintain or increase, roadway capacities.”
At this point, what’s most important to President Biden is that Kamala Harris, Pete Buttigieg, and other members of his cabinet have a way to shirk responsibility for all the waste to come. Thus Biden announced that former New Orleans Mayor Mitch Landrieu will serve as senior advisor and infrastructure coordinator for the boondoggle bill.
Will Landrieu do a better job than Biden did in this role?
One can only hope. But regardless, it really doesn’t matter…
The Washington elites, thanks to 21st century American democracy, have another boondoggle bill to exploit and feed off. After that, they’ll get another. And countless roads will get repaved whether they need to or not.
for Economic Prism