President Joe Biden’s only legislative accomplishment is the Infrastructure Investment and Jobs Act, signed about 100 days ago. The $1.2 trillion law is supposed to “rebuild the backbone of this nation,” as Biden said.
But a trillion-and-change dollars doesn’t buy as much back surgery as it used to. Thanks to runaway inflation, we’ll have to squint to see anything “transformative.”
The law was always going to be less “historic” than the president billed it.
No matter who is president, the country spends tens of billions of dollars every year on roads, bridges, flood protection, transit and the like. In December 2015, President Barack Obama signed into law a $305 billion, five-year plan, meaning $61 billion a year. Spread over 50 states, it (mostly) kept the bridges from falling down.
What about the latest law? Despite the 10-figure price tag, it provides only $550 billion in new spending, over the new Obama-level normal, over a decade. That is, $55 billion a year.
OK, a 90% increase over Obama-level spending sounds like a lot.
But: That assumes the dollar keeps its Obama-era value. Already, you have to spend $119 to buy what $100 bought in late 2015.
Much of that fall in the dollar’s value came in the past year. Thanks to our current 7.5% inflation rate, the highest in 40 years, you have to spent $107.50 to buy what a dollar bought just last January.
So compared with what $55 billion a year would have bought, in new roads and bridges, in 2015, we’re down to $46 billion a year in new spending, or a 75% increase over Obama-era levels.
But inflation in the building industry is running even higher. As The Wall Street Journal reported last week, construction inflation is up 13% from a year ago. Steel, cement, fuel — the price of everything and everyone is up.
The West’s failure to deter Russia from declaring war on Ukraine won’t help these figures.
If the Federal Reserve can’t rein in inflation with higher interest rates, these numbers compound quickly. Four years of 7.5% inflation shaves 30% off the value of the infrastructure bill. Four years at 13% inflation shaves more than half off.
You can say that the Fed would never allow inflation to rage for so long. The problem is that for four decades, the country has had no real tool for growth but massive debt, powered by low interest rates. Without cheap debt, it is hard to consume as much as we do — and consumption powers the economy.
Households, business, the government itself — adjusted for inflation, we all owe four times what we did in the early 1980s.
It’s not so simple as to say, “Just raise interest rates.” After a decade of zero and even negative interest rates, it’s really hard to do in practice, as the Fed will soon find out. What do house prices look like when mortgage rates are 8%?
Biden didn’t create this problem — but he hasn’t tried to fix it. He proceeds as if more money can fix any problem.
Rather than fixate on a trillion dollars, the White House and congressional Democrats should have decided what infrastructure is important. Instead, they’re obsessed with electric cars, to show how green they are.
The law spends $7.5 billion to build a network of vehicle-charging stations. Not much — only when you don’t think every dollar is important. Why aren’t automakers paying to build out this network, under federal supervision to make sure it is consistent across brands?
Then there’s $25 billion to airports — when a functional airport should pay for itself, through airline fees.
It’s not even so much an ideological argument. We’re all going to fly in a plane and, presumably, ride in an electric car, so who cares who pays?
But the private sector has a prayer of keeping costs down in a high-inflation environment.
The government, by contrast, wants to keep costs up. The infrastructure law has no provisions for making the inefficient and opaque construction industry — the part of it that depends on government contracts, at least — more productive.
We haven’t begun to see what inflation-fueled wage hikes, as opposed to increases in the price of materials, will do to building costs. Half of construction-project budgets are labor, and construction workers will be asking for big raises.
We’ll spend more on infrastructure. But we might not get much more infrastructure.
Nicole Gelinas is a contributing editor to the Manhattan Institute’s City Journal.
