Although political rancor can make it hard to detect, the smartest money on Wall Street is practically begging for a major infrastructure investment from Congress, one even larger and more sustained than what President Biden is proposing.
Yes, the chief executives of some big financial institutions, like JPMorgan Chase’s Jamie Dimon, have begun hand-wringing about inflation risks stemming from more government spending — particularly if much of it ends up financed with debt, which could be more likely than the White House may wish to admit. But the financial markets themselves are sanguine.
Just look at the mechanics: Demand for interest-bearing Treasury bonds — safe assets that are issued whenever the government creates more debt — remains very high, meaning that interest rates are near historic lows and inflation expectations are mild. For now, there’s no hint of the currency debasement feared by inflation hawks.
As my colleague at Cornell University Paul McCulley, formerly the chief economist at Pimco, has put it, “Wall Street is screaming at the fiscal authorities to spill red ink.” In responding to this call, Congress might do well to limit bean-counting over the bill’s each and every revenue stream and instead go much further in beefing up the Biden plan’s “buy American” provisions.
The very definition of infrastructure has taken up much of the oxygen in this policy debate so far. And it’s certainly critical that we expand our understanding of the term beyond the need to repair, replace, expand and maintain the nation’s physical backbone, much of which was nailed together 60 to 90 years ago and has fallen well behind 21st-century standards.
Still, it’s just as crucial that Mr. Biden unleash — on the behalf of both manufacturers and workers — one of the government’s most underused levers of power: direct federal procurement, the ability of the government to buy, directly, whatever goods and services it desires for as long as it wants.
By cracking down on the bureaucratic web of waivers in Buy American laws that corporate lobbies have won and by expanding direct procurement beyond the eight years proposed in the plan, Mr. Biden and Congress can make real his early, loose promises that the new infrastructure projects would use goods from domestic manufacturers.
As he told a joint session of Congress, “There is simply no reason why the blades for wind turbines can’t be built in Pittsburgh instead of Beijing,” much as there is “no reason why American workers can’t lead the world in the production of electric vehicles and batteries.”
If the U.S. government is to compete with countries that have already helped create modern infrastructure markets domestically, its procurement commitment must extend long enough to galvanize large-scale private-sector capital investment in plants and equipment.
This underappreciated power of federal procurement — of the public’s ability to kick-start innovative markets by itself — may be the most accessible way to reverse the corrosion of our manufacturing base and restore the well-compensated, middle-class jobs Mr. Biden pledged to bring back.
The United States has suffered for decades from low levels of private and public investment in innovative plants and equipment and in public goods. As a result, instead of assisting in organizing needed capital for such investments, U.S. markets have devolved into self-described investors trading existing shares of companies among themselves.
Pair that with the creation of buzzy markets for SPACs, blockchain tokens, digital artworks and more, and it seems clear that a wild amount of trading nowadays is done in the hope that a greater fool will emerge to pay more for that which one has already paid exorbitantly.
That’s what happens when businesses and governments don’t redirect underutilized capital into investments in real private and public productive resources.
It’s a function of two decades of an ever-growing volume of excess capital in an ever-shrinking number of private hands. The U.S. government has tried for roughly 40 years to chiefly use tax incentives to entice the private sector to invest in domestic production. But business leaders have largely passed on the invitation — in part because manufacturing goods abroad just remains so cheap. Investment pours into low-regulation, low-wage countries, while suppressing American workers’ real wages. The China Shock, which many academics in recent years implied had come to an end, has only broadened.
All of which brings us back to the global bond markets — the part of Wall Street most relevant to gauging sentiment about public finances — which near term are clearly signaling, with ultralow U.S. federal borrowing costs, that there is ample fiscal room for the government to act.
In addition to leveraging procurement power, the president should push to commence the withdrawal of the United States from treaties like the World Trade Organization Government Procurement Agreement, which largely bars signatory countries from favoring domestic producers, and immediately use his executive authority to suspend a raft of ill-advised waivers of the nation’s original Buy American laws.
Such moves would surely face resistance from lobbies. Pulling off the policy shift would necessitate decisive legislation and rigorous compliance requirements, as well as an orderly phase-in so that U.S. manufacturers can absorb the spending, create more capacity and hire more workers at good wages — all while avoiding inflation-inducing bottlenecks or extended shortages.
Despite generally high comparable labor costs here in America, an enlarged, modern manufacturing base could make our goods more competitive both at home and abroad. There are plenty of higher-wage labor markets in Europe and Asia that produce goods desired throughout the world.
There is another, more punitive, way of attempting to restore American competitiveness. During the last administration, America tried to wield the blunt instrument of protectionism — tariffs and related policies — in pursuit of restoration, but without any meaningful success.
In May 1932, another time when the economy was shaken, the American people divided and democracy threatened, Franklin Roosevelt issued a call. “The country needs and, unless I mistake its temper, the country demands bold, persistent experimentation. It is common sense to take a method and try it: If it fails, admit it frankly and try another,” he said. “The millions who are in want will not stand by silently forever while the things to satisfy their needs are within easy reach.”
Today, a long-term program to rebuild, expand and maintain public infrastructure, in the broadest of senses, is within reach. It could fuel U.S. competitiveness and improve household living standards for decades to come.
And the side of Wall Street that really matters is waiting, impatiently.
Mr. Alpert is a senior fellow in macroeconomics and finance and an adjunct professor at Cornell Law School. He is the founding managing partner of Westwood Capital and the author of “The Age of Oversupply: Overcoming the Greatest Challenge to the Global Economy.”
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