2016 Election – Page 85 – The Wrongologist

Pant Suit vs. Pant Load, Part III

(Note: this week there will be no Sunday Cartoon Blogging, since Wrongo will be visiting MA and PA through Sunday, returning on Monday.)

Wrongo and long-time blog reader Terry engaged in a short email dialog on how to “fix” the US political system. We were concerned that there is no individual Congressperson accountability. A backbencher can follow an agenda that can imperil our nation (and a few have done just that) without consequence.

But in America, accountability is managed by election district. Your only alternative is to round up enough votes to replace poor representation. So, if you wanted to reform the impact that money has in our politics, or the way the filibuster works in the Senate, you have to reform Congress.

Yet, under our Constitution, only Congress can reform Congress. And today, there are three parties vying for control of it, and since they rarely are willing to work with each other, not much gets done. So you can completely forget about Reform.

And the parties have not been willing to deal with the not-so hidden desperation in America that shows up in statistics like increasing opioid addiction and suicide rates. The political class ignores how lethal the US economy is for the less fortunate: The New York Times reported this week that US death rates have risen for the first time in a decade.

The increase in death rates among less educated whites since 2001 is roughly the size of the AIDS epidemic. One reason is the use of opioids. And, despite Mr. Obama’s speech in Elkhart, IN where he said our economy is doing well, there has been a spike in suicides to levels higher than during the 2008 financial crisis.

The little people know that the economic policies followed by both parties have brought income inequality to Gilded Age levels. They know that all of the post-crisis income gains have accrued to the top 1%. Unlike in China which continues to grow, our economic expansion has brought with it high unemployment and underemployment, particularly among the young.

As a result, people feel powerless. In fact, a RAND survey in January found that 86.5% of GOP voters who strongly identified with the statement “people like me don’t have any say about what the government does” were Trump supporters.

And, since so much of politics is about corralling money into the bank accounts of our politicians, your Congresspersons have no intention of listening to you unless you have given at least $10,000 to their campaign fund, or are the CEO of a major employer in their district or state. In US politics, money=speech. But, there is little meaning to free speech without free access to influence the political process.

Many of us feel nihilistic about our politics and our government. So the Pant Load’s support seems a lot like a form of public political vandalism where The Donald is the can of spray paint.

Most people can see that a large portion of Americans are poorer with each new election cycle. After all, the reason Trump (and Sanders) are doing well is because many, many workers are seeing their job security, income security, and retirement security all go up in smoke. That’s no mystery, just the natural outcome when the government fails to represent the people in favor of the rich who fund their campaigns. It’s no wonder the Pant Load is easily corralling the frustrated.

But can the Pant Suit reverse the Democratic Party’s abandonment of the working class in America?

We know that she needs to focus on drawing more potential working class and young supporters, but so far, Democrats are content to run only in their municipal strongholds, following a strategy of stitching together interest groups, largely in states with big urban populations.

Energizing people around the fact of our corrupt political system is both a way to get higher turnout, and a way to elect members of Congress and state legislatures to fix the corrupt system. That is Bernie’s message, what he calls a “political revolution.” But Sanders is not the person to bring this about. Consider Sanders just the messenger.

Strategically, the Pant Suit needs to figure out how to get folks energized enough to vote for her and against Trump for reasons that don’t so paralyze them with fear that they stay home. If she is successful, it could be the start of re-establishing the New Deal coalition, and a re-installation of the principles of the civil rights movement.

That’s a huge job that will not be completed in one election cycle.

This threat is the GOP’s worst nightmare. They have worked for 40 years to eliminate these ideas, so expect the GOP to unanimously support the Pant Load:

COW Never Hillary

The Bernie Dems will rally behind Hillary for similar reasons.

Trump/Arpaio 2016: Because immigrants are the greatest threat to the nation.

Will Take-Home Pay Grow?

One of the big questions that we must force Hillary Clinton and Donald Trump to address is: Where will growth in take-home income come from?

If we look at pay, despite recent improvements, real average hourly earnings have declined since the 1970s:

Real Hourly Earnings 2016

Source: Advisorperspectives.com

At the same time, the average hours per week have trended down from around 39 hours per week in the mid-1960s to a low of 33 hours at the end of the last recession. It is 33.7 hours today. After eight years of economic recovery, it is only up by 42 minutes.

So, take-home pay has stagnated (or worse) for the average American since the Nixon administration. People have coped by having both spouses work, by borrowing under a Bank of America heloc, and by refinancing mortgages when interest rates declined.

But, by 1995, spousal participation in the job market had peaked, at about 60%. Borrowing under home equity lines of credit peaked in 2005 at $364 billion. These loans that were used to pay for remodeling, education costs, or new Ford F-150s were less than half of that amount in 2015, at $150 billion.

After the Great Recession, The only remaining way to boost household cash was mortgage refinance. There were windows to refinance a mortgage in 2009, and again in 2013. The reason was that mortgage interest rates stayed very low. In fact, US 10 year treasuries were at a 60 year low in 2013 at 1.50%, and mortgage rates are tied to the treasury rate. Refinancing mortgages can happen to many people, this is where companies like Polar Mortgage come in to help homeowners out. Homeowners also have the ability to get financial help from the government through the use of federal credit union home loans in order to refinance their homes.

As an example, a 1.5% decline in a mortgage payment on a $250,000 house would save $3750 a year, or a little over $300 a month added to the pockets of the average hourly worker. Taking income tax into consideration, it would take an additional 17.5 hours of work at the $21.45 rate to equal that amount. But that’s not practical. It would require a 52% increase in hours, if you are working the national average number of hours, which isn’t going to happen.

So, if the Federal Reserve raises interest rates, as they seem set to do this month or next, mortgage refinance will no longer be helpful to the vast number of working people. CoreLogic tracks the interest rates on outstanding mortgages, collecting data from mortgage servicers. Their data track the volume of outstanding mortgages by interest rate level for both the number of mortgages, and the unpaid principal balance on those mortgages (UPB).

Their analysis says that few mortgages will be refinanced if rates go up: Most borrowers have mortgages with rates below 4.50%, with 62% of mortgages and 72% of UPB in this range. There are an additional 14% of borrowers and 13% of UPB with mortgage rates between 4.5 and 5.0%.

Since refinancing has costs (legal, title search and insurance, and points), a simple rule of thumb is to add 1% to the current mortgage rate to get a rate at which borrowers would have a financial incentive to refinance. The current Freddie Mac mortgage rate is 3.57%, so the point of indifference for a borrower would be ~4.5%. CoreLogic estimates that only about 28% of the UPB of America’s outstanding mortgage loans are worth refinancing today. And should the Fed live up to their plan, and increase rates by ½% in 2016, an additional 5.5 million borrowers will lose their incentive to refinance.

So, if mortgage rates rise in 2016 as predicted, refinancing won’t improve the financial situation for very many of us.

New Deal Democrat sees all of this and says:

So the bottom line is, we are already in a period…where real gains by average Americans won’t be available from financing gimmicks, but must come from real, actual wage growth. At the moment I see little economic or political impetus to make that happen, even though average Americans understand via their wallets the issue all too well.

We’ve killed our economy.

You’d think after 8 years where most US job growth was in part-time jobs, where hourly income is at the same level as in the Ford administration, where we have the most people ever in poverty, where student debt exceeds credit card debt and automobile debt, people would catch on.

Maybe, but not unless we demand real answers of Hillary Clinton and Donald Trump, and not let the candidates say the plan is to rearrange the deck chairs on the Titanic.

The Pandering Pant Load

Trump is a thin-skinned Pandering Pant Load© with rabbit ears: He hears everything that is said about him and responds to it all. Say something, and @realDonaldTrump will tweet back something nasty.

We saw two examples of his pandering in the past few days. First, Trump attended “Rolling Thunder” an annual event which brings hundreds of thousands of motorcyclists to DC to raise money for POW-MIA’s of the Vietnam War. On Sunday, He told about 5,000 that illegal migrants in the US are often better cared for than the nation’s military veterans:

Thousands of people are dying waiting in line to see a doctor. That is not going to happen anymore

Although Trump has used this comparison of the treatment of immigrants and veterans before, it isn’t true. Congress and many states have written an assortment of laws and policies designed to restrict government services to people living in the country illegally.

Could Congress do more for vets? Absolutely. Do we do less for them than we do for illegals? NO.

We know that the Pandering Pant Load© claimed to have raised $6 million for veteran’s groups, including $1 million of his own money when he held a fundraiser for veterans’ causes in place of an Iowa debate that he skipped.

But so far, he hasn’t distributed it, or said where it is going. He is expected to hold a news conference today to announce the names of the charities selected to receive the money. We’ll see.

Still, when you tell an interest group that you will do more for them than we do for illegals, you are setting the bar very low.

Second, the Pandering Pant Load© supposedly told House Speaker Paul Ryan (R-Wis.) he supports cutting Social Security but cannot admit it publicly because it would hurt his election chances, according to Bloomberg BusinessWeek. Trump said of cutting Social Security:

From a moral standpoint, I believe in it…But you also have to get elected. And there’s no way a Republican is going to beat a Democrat when the Republican is saying, ‘We’re going to cut your Social Security’ and the Democrat is saying, ‘We’re going to keep it and give you more.’

Bloomberg reported that The Pandering Pant Load© made the above comments during the May 12 meeting with Mr. Ryan aimed at improving ties between them, citing an unnamed source who was in the room.

So the deal was made, and what we have been watching is theater. And from a “moral standpoint”, Trump just lies about what he plans to do, because his audience is against it?

HuffPo reported that Trump’s opposition to cutting Social Security (SS) has been both a hallmark of his campaign and one of his greatest departures from traditional conservative ideology. Now it seems, he is simply pandering. Consider this:

Many conservative House Republicans told The Huffington Post shortly after the May 12 meeting with Ryan that that they were unconcerned about Trump’s public posture on Social Security.
Why? Because Trump policy advisor Sam Clovis had already appeared to reverse course on May 11, indicating that Trump would be willing to consider cuts as president.

The media have their nice, shiny Trump, and they have signed on for the whole ride, so don’t expect to hear much more about his pandering.

The Pant Load will try to dupe people (this week, Vietnam Vets and the middle class) into voting against their interests, because he is sure that they can’t be bothered to pay enough attention to understand that he’s lying.

The truth is that SS faces a funding gap beginning in 2034. Without Congressional action to either raise the program’s revenues or scale back benefits, there will be an across-the-board benefit cut of approximately 20%.

We all know this.

Why is the Pandering Pant Load© being dishonest about it? Maybe the real shock shouldn’t be that Trump is devoid of integrity; if he’s breathing, he’s lying.

It’s that his base doesn’t seem to care that he’ll throw them under the bus without a second thought.

Memorial Day 2016

Thank You Armed Forces

Every year, the Wrongologist reminds blog readers that Memorial Day was called Decoration Day for more than 100 years, ending in 1971. It was established by an order issued by Gen. John Logan, the national commander of the Grand Army of the Republic. This is from Gen. Logan’s order:

The 30th of May, 1868, is designated for the purpose of strewing with flowers, or otherwise decorating the graves of comrades who died in defense of their country during the late rebellion, and whose bodies now lie in almost every city, village and hamlet churchyard in the land…

Back then, it was our most solemn holiday. It was first observed on May 30, 1868, when flowers were placed on the graves of Union and Confederate soldiers at Arlington National Cemetery, a tradition we still follow today.

The Civil War claimed more lives than any conflict in US history, requiring the establishment of the country’s first national cemeteries. Drew Gilpin Faust’s book, The Republic of Suffering-Death and the American Civil War (2008) reminds us just how deadly the Civil War was: 620,000 dead soldiers, (2% of the US population at the time), at least 50,000 dead civilians, and an estimated 6 million pounds of human and animal carcasses to deal with on battlefields.

When the Civil War began, neither army had burial details, graves registration units, means to notify next of kin, or provisions for decent burial. They had no systematic way to identify or count the dead, and until 1867, no national cemeteries in which to bury them. In an ironic twist, in 1866, after the assassination of Abraham Lincoln, the Union Army opened an office in Ford’s Theater to record deaths, house the war records and assist families to find lost loved ones. In 1893, the building collapsed, killing 22.

The mortality rate in the South exceeded that of any country in WWI. In addition, the South lost nearly 2/3rds of its wealth in the War.

Decoration Day became Memorial Day when Congress passed the National Holiday Act of 1971, which made us observe national holidays on Mondays, creating three-day weekends for We, the People. So, along with parades, picnics and mega-sales on the web and in the malls, many think that the holiday celebrates the start of summer.

Instead, please stop and remember the people who died in our wars. Do that irrespective of whether you “believe” in a particular war.

Memorial Day is a time to meditate on the difference between right and wrong wars. Mr. Obama spoke in Japan last Friday, walking a fine line, remembering the atomic weapons dropped on Hiroshima and Nagasaki, but not calling WWII and our actions against Japan “wrong”.

Another thing to remember is that our government owes our all-volunteer military policies and policy decisions that are worthy of their sacrifice. But, our government rarely makes decisions that are completely worthy of such sacrifice.

Let’s also give some thought to this quote from Andrew Bacevich:

With its military active in more than 150 countries, the United States today finds itself, if anything, overextended. Our principal security challenges — the risks to the planet posed by climate change, the turmoil enveloping much of the Islamic world and now spilling into the West, China’s emergence as a potential rival to which Americans have mortgaged their prosperity — will not yield to any solution found in the standard Pentagon repertoire. Yet when it comes to conjuring up alternatives, the militarized history to which Americans look for instruction has little to offer.

Ask Trump and Clinton what will be different if they become Commander-In-Chief. Which one will address climate change, the rise of China, or the near-civil war in the Greater Middle East?

Finally, when you think about policies worthy of sacrifice, here is a Memorial Day tune from Warren Zevon: “The Envoy”, from the album of the same name. The song was written in 1981, back when we thought our issues in the Middle East were rare. It was inspired by Philip C. Habib, who was President Reagan’s special envoy in the Lebanon crisis.

That was the start of something that hasn’t achieved much. The US currently has 48 Special Envoys, but you can’t see any peace from where we sit.

OK, the song isn’t “Roland the Headless Thompson Gunner” or, “Werewolves of London,” but Zevon was one of the best and brightest. Here is “The Envoy”:

These 34 year-old lyrics about the Middle East could be tomorrow’s headlines. Is there a threat to world peace? Oh yeah, us.

Those who read the Wrongologist in email can view the video here.

Sunday Cartoon Blogging – May 29, 2016

Californians will be pleased to know that when Donald Trump becomes president, he can stop their drought overnight. California just went through the driest four-year period on record.

But Trump isn’t sold. He told supporters in Fresno, CA that the dry spell is bogus. Trump said the state was denying water to Central Valley farmers to prioritize the Delta smelt, a native California fish nearing extinction — or as Trump called it: “a certain kind of three-inch fish.” He told the crowd:

We’re going to solve your water problem. You have a water problem that is so insane. It is so ridiculous where they’re taking the water and shoving it out to sea…

At least we know where Trump stands on the issue:

If I win, believe me, we’re going to start opening up the water so that you can have your farmers survive.

Never mind that this is a state, not a federal issue, because Trump will win on the environment too.

In other news, Hill’s email problem gives her a few hurdles:

COW Hillarys Hurdles

So far, we’ve heard what we already knew, she broke a rule that others had broken before her. Of course, to Republicans, breaking an agency rule is proof she’s broken the law. Maybe, but rules ain’t the same as the law. She needs to put this behind her, or face death by a thousand cuts.

We got our first look at Hill’s emails:

Bill & Hill feel the Bern in CA:

COW kids in car

Trump and Bernie wanted to debate. You know who the target was:

COW Trump Bernie

Apparently, we have no antibiotic for the Superbug:

COW Superbug

The GOP plans to make the transgender toilet rule a centerpiece in the campaign:

COW Toilet

Will We See a Recession Soon?

With Trump vs. Clinton vs. Sanders sucking all of the oxygen out of the news cycle, it is probable that you missed the release by the Federal Reserve on May 18^th of its delinquency and charge-off data for all commercial banks in the first quarter. It isn’t a pretty picture.

Heres a few nuggets:

Delinquencies of commercial and industrial (C&I) loans at all banks, after hitting a low point in Q4 2014 of $11.7 billion, have ballooned. C&I loans are classified delinquent when they are 30 or more days past due.
Between Q4 2014 and Q1 2016, delinquencies have increased by 137% to $27.8 billion. Currently, they are halfway to the all-time peak during the Financial Crisis in Q3 2009 of $53.7 billion. And theyre higher than they were in Q3 2008, when Lehman Brothers melted down.

Below is a chart of delinquencies released by the Board of Governors of the Fed. The shaded areas are times of economic recession. Wolf Richter of Wolf Street added the emphasis in red to point out where we stand in relationship to the 2008 Lehman moment:

C&I Deliq Q1 16

As you can see from the chart, business loan delinquencies are usually a leading indicator of economic trouble. They begin rising at the end of the credit cycle since loans made in the good times start to go bad when the economic situation changes. Then, the obligations of interest payments and loan repayments begin to pose a problem for weaker borrowers whose sales, instead of rising as expected when times were good, may be flat or shrinking while expenses can be rising. Suddenly, there is not enough money to service the loan.

It is however important to also consider Economic Injury Disaster Loans (EIDLs). Although no one can accurately predict what might happen in the future to an absolute degree of certainty, economists should always consider the possibility that we might see an increase in businesses seeking SBA eidl status in the event of a recession.

That being said, this all started with the oil and gas sector reacting to lower crude oil prices in 2015, but it has moved beyond the oil patch. Total US commercial bankruptcy filings in April, 2016 rose 3% from March, and are up 32% from a year ago, to 3,482, according to the American Bankruptcy Institute.

This is happening at an interesting time.

First, the health of the economy will be a huge deal in the General Election. Both Trump and Clinton have a stake in saying it isn’t as good as it could be. Yet, it is highly unlikely that we will be in a recession in November 2016, because our current economic momentum will carry us for at least another 6 months.

Second, the Fed is now indicating that it believes the economy is strong enough to raise rates for a second time this year, perhaps as soon as June, according to the Feds recent Open Market Committee minutes. That supports the idea that no recession is imminent.

But we still have this pesky loan delinquency data.

Loan delinquencies must be cured within a specified time. If not, they’re taken from the delinquency bucket and dropped into the default bucket. If defaults are not cured within a specified time, the bank deems a portion (or all) of the loan balance uncollectible and writes it off, therefore moving it out of default and into the write-off bucket. This is a factor in many different loan types, such as the usda business loans on the market.

That’s why the delinquency statistics usually do not get very large loans and don’t stay delinquent for a very long period.

Of course, there are other loans that might be impacted by these trends too. For example, it would be interesting to analyze the trajectory for merchant funding options such as a business cash advance loan for businesses in need of a financial boost. Ultimately, only time will tell what the future holds for loans and the financial sector in general.

Regardless, the Fed has painted itself into a corner. They have to raise rates because low rates are destroying many pension funds and they hurt retirees who rely heavily on interest-bearing investments. Pension funds have been modeled on interest rates of between 6%-8%, which have not been seen for at least 10 years.

But, a Fed rate hike would add more risk of more loans becoming delinquent.

And the largest American corporations are awash with the debt that they used to fund buy-backs of their shares. That debt has to be renewed periodically. If rates rose high enough to help pension funds, it could wound quite a few large companies.

If that wasn’t bad enough, South America, Europe, and the Chinese are looking increasingly fragile. Even if the Fed engineers a domestic miracle of sorts, it may not be enough. The financial world can be a minefield when we are trying to hang on to our hard-earned money.

So, prepare to hear both Trump and Hillary tell you they have the answers.

Since their global corporate benefactors now rule the world, they should be able to figure out what to do with it.

Monday Wake-up Call – May 23, 2016

The subject of the day is the continued saber-rattling by our military. Recently, two retiring US Generals made goodbye speeches indicating that Russia is the biggest threat facing America. As Crooked Timber said:

Russia? Really? I guess there ain’t no money in ISIS and Al Qaeda. You don’t need strategic bombers, huge mechanized armies and aircraft carriers to fight them.

Equally disturbing are the concurrent mind games being played in the military strategy establishment. Take the RAND Corporation. RAND has run numerous war games which pit Russia against NATO in the Balkans. Their conclusion is always the same: If Russian tanks and troops rolled into the Balkans tomorrow, outgunned and outnumbered NATO forces would be overrun in under three days. Scary!

RAND argues that NATO has been caught napping by a resurgent and unpredictable Russia, which has begun to boost defense spending after having seized the Crimean peninsula in Ukraine and intervened in support of pro-Moscow separatists in eastern Ukraine. In their report RAND said:

The games’ findings are unambiguous: As currently postured, NATO cannot successfully defend the territory of its most exposed members…

Underlying this, is the insanity of the geopolitical outlook that dominates the national security lobby in Washington. The same day as the RAND report was released, Defense Secretary Ash Carter unveiled plans to add more weapons and armored vehicles to pre-positioned stocks in Eastern Europe. The new $3.4 billion plan (that’s the annual cost folks) adds another brigade to the mix, but the soldiers would be based in the US, rotating in to Europe for a few months at a time. So, that’s politically acceptable, assuming the next president can find the money.

But, Carter’s commander in Europe, Gen. Philip Breedlove, commander of US European Command, released on his blog that there is no:

Substitute for an enduring forward deployed presence that is tangible and real. Virtual presence means actual absence.

Lots of agreement between these boys.

And, in an article in Politico Mark Perry discussed the testimony to the Senate Armed Services Committee of a panel of senior Army officers, in which they claimed that the Army is now in danger of being “out-ranged and outgunned” in the next war that the Army is in danger of becoming “too small to secure the nation”. Yikes!

While their testimony made headlines in the major media, Politico reported that a large number of former senior Army officers, rolled their eyes:

That’s news to me…Swarms of unmanned aerial vehicles? Surprisingly lethal tanks? How come this is the first we’ve heard of it?

The unnamed General went on: (emphasis by the Wrongologist)

These guys want us to believe the Russians are 10 feet tall. There’s a simpler explanation: The Army is looking for a purpose, and a bigger chunk of the budget. And the best way to get that is to paint the Russians as being able to land in our rear and on both of our flanks at the same time…What a crock.

All of this is political fodder for Obama’s critics in Congress who complain that the President isn’t taking us into the next war fast enough.

So it’s time we all wake up to this maneuvering behind our backs. Maneuvering that is designed to have us spend waaay more money on defense, because, Putin.

To help you wake up, give a listen to a rarely-heard tune by Bob Dylan and Pete Seeger, “Ye Playboys & Ye Playgirls Ain’t a Gonna Change My World”, recorded live in 1963 at the Newport Folk Festival, when Dlyan was still a folk singer, two years before he would be booed off the main stage at the 1965 Newport Folk Festival:

Put in context of the times: Dylan was being called the “Voice of a Generation”. Seeger adds an endorsement of the fed-up young artist who was already one of the key singers of topical songs in the sixties. For those who read the Wrongologist in email, you can listen to the tune here.

Sample Lyrics:

You insane tongues of war talk
Ain’t a-gonna guide my road,
Ain’t a-gonna guide my road,
Ain’t a-gonna guide my road.
You insane tongues of war talk
Ain’t a-gonna guide my road,
Not now or no other time.

Please remember what Voltaire said:

Those who can make you believe absurdities can make you commit atrocities.

THAT has always been the strategy of the military-industrial complex. Arguing over defense budgets, equipment procurement, force strength, is pointless.

Today, the money is just not there to do much more for the military.

The critical debate must be how to fix the economy, which drives the size and strength of our military.

And ultimately, our national security.

Sunday Cartoon Blogging – May 22, 2016

The 60 Minutes team that‘s working upstairs is pretty good, but it’s doubtful they are all angels. RIP Morley:

COW 60 Mins

Trump had a do-over interview with Megyn Kelly. Nothing happened:

COW Megyn

Trump refuses to show his tax returns, it’s none of our business:

COW None of yer Biz

The debate about which bathrooms to use continued:

COW Uterus Control

Congress shows it isn’t up to dueling with mosquitoes:

COW Zika Funding

TSA is the curse that never ends:

COW TSA 1

The Pant Load Party

Happy Friday! You are busy, and don’t need a long-form note from Wrongo. But, here are a few items you may have missed that accurately describe the Republican Party today:

First, The GOP didn’t follow its own rules during a vote on Thursday. The subject was a measure to ensure protections for the LGBT community in federal contracts, and it failed to pass after “initially passing” during the time allotted for members to vote. Then, the Republican leadership urged their members to change their votes. The leadership kept the vote open as they pressured members to change sides, allowing lawmakers switch their votes without following the “Regular Order” process of walking to the well at the front of the chamber.

By changing their votes, the House GOP inserted a poison pill that overrides Obama’s executive order banning LGBTQ discrimination in federal defense contracts. From The Hill:

Initially, it appeared Rep. Sean Patrick Maloney’s (D-NY) amendment had passed, as 217 “yes” votes piled up over 206 “no” votes when the clock ran out. The measure needed 213 votes to pass. But it eventually failed, 212-213, after a number of Republican lawmakers changed their votes from “yes” to “no” after the clock had expired.

Here is an issue on which the presidential candidates of the two parties seem to agree: Funding infrastructure, or at least, funding roads.

Over the past 50 years, US investment in transportation infrastructure as a share of GDP has shrunk by half. China is outspending us four to one and Europe two to one on transportation infrastructure. We have over 100,000 bridges in this country old enough to qualify for Medicare.

The Economist reported that the American Society of Civil Engineers (ASCE) thinks that additional spending of $1.6 trillion is needed by 2020 to bring the quality of the country’s infrastructure up from “poor” to “good”. The Economist indicated that over the past decade, America’s roads have fallen from seventh to fourteenth in the World Economic Forum’s rankings of the quality of infrastructure.

Part of the problem is that the federal tax on gasoline, which provides most of the funding for federal spending on roads, has been 18.4 cents per gallon since 1993, yet over that period, the price of construction materials and the wages of construction workers have both risen by more than 75%.

And Congress hasn’t helped. They have passed 35 stop-gap funding bills to extend transportation funding. However, most transportation projects are not built in just one year, they are complex, multi-year projects.

Last December, Congress passed the “Fixing America’s Surface Transportation Act”, or the FAST Act – which authorized $305 billion over fiscal years 2016 through 2020 for roads, bridges, public transit, and rail. Of that amount only $70 billion represents a new cash infusion for road repairs. Since the total highway need is $740 billion, there is a big funding gap.

Bizarrely, most of the funding for FAST was paid for by raiding the capital of the Federal Reserve. The Congressional Budget Office recently projected that the money in the Highway Trust Fund will run out in six years, and the fund faces a shortfall of $100 billion by 2026.

The funding gap hasn’t escaped the attention of the two presidential candidates. In a rare show of agreement, they are both for infrastructure spending. So, what do they want to do? Unsurprisingly, Trump hasn’t proposed a specific funding level. In his book, “Crippled America: How to Make America Great Again“, Trump says he’s in favor of major public investment in infrastructure repair and expansion.

“If we do what we have to do correctly…we can create the biggest economic boom in this country since the New Deal when our vast infrastructure was first put into place. It’s a no-brainer.”

It’s a “no-brainer” but, with “no amount”.

Hillary Clinton wants to commit $275 billion in public funds over five years, including $25 billion in capital for a new national infrastructure bank to generate another $225 billion in direct loans, loan guarantees and other forms of credit.

Neither candidate is proposing anything that meets the total financing need.

Today, the federal government is responsible only for about 25% of spending on highways and the FAST alternative will be an unreliable future funding source. Federal net investment has been negative since 2011, meaning that Congress is not spending enough to maintain the roads and bridges we have.

By contrast, many states have raised local taxes on gasoline: 12 states have raised gas taxes in the last 18 months. Most states tax by the gallon, and have benefited from the falling oil price, which has boosted sales of gasoline by 3% nationally. In fact, states are beginning to spend more than the federal government as a percentage of GDP:

State Spending to GDP Growth

But, state gas taxes have the same problem as the federal gas tax: They are fixed per gallon, so inflation erodes their value over time. And state budgets can’t grow to the sky. In many cases, states are under pressure to balance their budgets.

As a result, state politicians are burning political capital just standing still. That means the presidential candidates and Congress must find a way to finance more federal infrastructure investment.

Perhaps the gas tax is the wrong way to go. Rising vehicle fuel economy means more miles driven on fewer gallons of gas. With the move to electric cars, Highway Trust Fund revenue will be even lower. And fewer people own cars, but everyone benefits from good roads. People buy food trucked on our roads. They buy clothes, furniture, etc. trucked on our roads. They are carried to hospitals in ambulances on those roads.

The solution is a general road tax that everyone pays.

So, be on the lookout for Trump or Clinton’s rhetoric on infrastructure solutions. This is a yuuge problem that is not going away.

The Wrongologist

Geopolitics, Power and Political Economy

Category: 2016 Election