STAFF NEWS & ANALYSIS
False Lure of an Infrastructure Bank
By Staff News & Analysis - August 27, 2010

The One Way Out Of The Recession … Average Americans are noticing what wise economists have been arguing for quite some time: Bubble-driven economic downturns differ qualitatively from standard business-cycle recessions. Not only do they go deeper; GDP takes longer to rebound, and job creation proceeds more slowly. The mechanism is straightforward. As the value of assets used as collateral collapses, so does borrowing. This depresses consumption, and the real economy dips, making it much harder for businesses and households to service the debts incurred during boom times. Household consumption remains sluggish until debt is reduced to a level that can comfortably be serviced out of current income, a process that cannot proceed without an increase in the household savings rate. The larger the debt overhang, the longer it will take to work off the excess. … This is why we need a national infrastructure bank as the linchpin of a public investment strategy driven by economic analysis rather than congressional politics. Rather than bridges to nowhere, we need a bridge to the future. It's time for hide-bound appropriators to get out of the way. – The New Republic

Dominant Social Theme: Fresh approaches will be the best.

Free-Market Analysis: This is an interesting article because it acknowledges what free-market economic analysis has pointed out emphatically ever since the economic crisis began – that it was driven by a reckless and inflationary fiat money expansion. The New Republic article doesn't come right out and point fingers at central banking stimulation but it might as well. Central banks in this day and age are economic arbitrators, so when something goes wrong, the central bank gets the blame as well it should.

But what this article presents is the perspective that current Western (specifically US) state-spending solutions are not going to make a difference. We concur with this and, again, we think it is an important article. It appears in a thought magazine and American and British elites often used prestigious "thought" magazines in the past to float policies that are thus put in play for the larger mainstream media.

Of course we don't endorse The New Republic's solution, which seems like more of the same to us, though it appears to provide out-of-the-box thinking. This is what makes it noticeable. The dominant social theme espoused by the article might be: "These are difficult times and here on the Left we are not going to duck the problem but provide a new kind of solution that should be taken seriously as a result."

By actually acknowledging there is a problem, the article generates additional credibility. By embracing a dilemma it provides additional sincerity. The heavyweight nature of the article's author is also a selling point, as follows: "William A. Galston holds the Ezra Zilkha Chair in the Brookings Institution's Governance Studies Program, where he serves as a Senior Fellow. He is also College Park Professor at the University of Maryland. He is the author of eight books in the fields of political theory, public policy, and American politics."

Here's a little bit about the Brooking's institute from Wikipedia: "The Brookings Institution is a nonprofit public policy organization based in Washington, D.C. One of Washington's oldest think tanks, Brookings conducts research and education in the social sciences, primarily in economics, metropolitan policy, governance, foreign policy, and global economy and development. … Brookings states that its scholars 'represent diverse points of view' and describes itself as non-partisan. The Foreign Policy Think Tank Index ranked Brookings as the #1 U.S. think tank in 2009. The organization's president, Strobe Talbott, was United States Deputy Secretary of State under President Bill Clinton."

Here is what Aim.org had to say about Strobe Talbott (2008): "Former Clinton Official Named as Russian Dupe … The sensational charge against Strobe Talbott is made in a new book based on interviews with a Russian defector. The book, Comrade J, by veteran author and reporter Pete Earley, identifies Talbott as having been manipulated by a Russian official working for Russian intelligence … Talbott himself has just written a book, The Great Experiment, describing his own background in the pro-world government World Federalist Movement and naming a network of friends and close associates that includes former President Bill Clinton and billionaire leftist George Soros. … The purpose of Talbott's book is to promote 'global governance,' a euphemism for world government. It is defined in the subtitle as 'The Quest for a Global Nation.'"

Though the Brookings Institute has been named by the Foreign Policy Think Tank Index as the number one think tank in 2009, there are obviously controversies swirling about the group. While the Institute itself does not define its activities as coming from a leftist slant, it would seem that Talbott's associates such as George Soros are definitely left-of-center in terms of how they position their resources and rhetoric. And in fact the article in Free Republic magazine from Galston proposes what to us is a fairly statist solution to the ongoing economic crisis. This sort of bank was already proposed by the Obama administration, we learn from Wikipedia, and there is legislation on it pending in the House:

The creation of a National Infrastructure Reinvestment Bank was first proposed by Senator Christopher J. Dodd and Senator Chuck Hagel in 2007. Barack Obama backed this proposed legislation in February 2008. Obama suggested that the Bank would borrow US$60 billion of federal funding to invest in infrastructure over 10 years, while leveraging "up to $500 billion" of private investment. It would invest in high-speed trains to provide an alternative to air travel, energy efficiency and clean energy, among others.

According to Obama, the Bank's "work will be determined by what will maximize our safety and security and ability to compete" and it would "create nearly two million new jobs", mainly in the construction industry. According to the text of the proposed legislation funding for the bank would be taken from borrowed funds not to exceed one percent. The Bank would complement existing federal programs to fund infrastructure, such as the Highway Trust Fund or State Revolving Funds. It is expected to invest primarily in surface transport infrastructure, which is likely to include highways and mass transit. …

The original version of the bill expired with the 110th Congress, a different version of the bill was introduced into the 111th Congress by U.S. Representative Rosa L. DeLauro, (D – Connecticut 3rd District) as H.R. 2521. Obama proposed the Bank as part of his $210 billion economic stimulus package. A similar bill has been introduced into the United States House of Representatives as House Resolution 3401 (H.R. 3401). The status of the bill can be tracked on THOMAS, the database of United States Congress legislative information. (-Wikipedia)

The significance of this article to us is the lack of feasibility and the way that it has been presented. The Obama administration has already tried to create this sort of bank without success and now apparently the idea is important enough to recycle. It is from our perspective important not just from a policy standpoint but more importantly from a promotional one. The braintrust around Obama has been trying to portray him as the second coming of Franklin Delano Roosevelt and these sorts of projects might be seen as offering a flavor of the Roosevelt administration.

That does not mean Galston is in any way knowingly involved in what might be characterized as an elite promotion, but the mechanism is undeniable. Such proposals, as we have pointed out many times, are often floated by "think tanks" to give them credibility and then further massaged in thought publications such as the New Yorker, Free Republic, Atlantic, etc. Like trial balloons, reaction is gauged and criticism is teased out. Eventually someone like Galston might find himself on TV talk shows or "Face the Nation." He might be interviewed for a business article in the pages of the New York Times, etc. Such publicity would make the actual legislation more feasible.

So … the article is notable to us because it has from our point of view the profile of an elite promotion – and because of its viability or lack thereof. From a free-market economic standpoint, it is a lousy idea that once more involves the power elite controlled federal government in steering the economy through yet another unaccountable banking bureaucracy.

From a political standpoint, the notion is probably a non-starter (at least currently) as the US Congress is probably going to go through a major upheaval in November. The powers-that-be remain curiously out-of-step with the mood of the nation in our opinion. Web-of-Debt-pundit Ellen Brown's ideas for state banks (which we do not support either) are far more timely from a political-psychological point of view and may have proverbial "legs."

After Thoughts

We think the performance of the Obama administration has been a terrible blow to the powers-that-be who hoped his charisma would carry over and help defuse the anger and frustration that is building in America today. From the standpoint of power-elite meme analysis, this infrastructure bank idea provides yet more proof that the elite is having difficulty identifying with the mood of the larger electorate. That may be more important than the seeming haplessness of the program itself.

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