The Unfinished Work of Congress
What year is this?
Pardon my confusion, but a glimmer of intelligent life in Washington has me questioning whether it's 2015. The source of this bewilderment is that the U.S. Congress has managed to accomplish a few things:
• A budget deal was reached, and a damaging government shutdown was averted. The deal entails a modest increase in spending of $80 billion over two years.
• Washington seems to have resolved its debt ceiling issues through the spring of 2017.
• A “voluntary” government default has been avoided.
• The House voted to reopen the Export-Import Bank, 313 to 118; the Senate will likely approve it as well.
• Spending caps on Medicare increases were negotiated and approved.
• Partisan gridlock has been broken -- at least for now.
Of course, there are always political reasons for anything that gets done in our nation's capital. The U.S. presidential elections are one year away. Jockeying for advantage meant doing the people’s work, even if by accident.
Some are going so far as to say that the age of austerity is now over. At best, that seems like a premature conclusion. And it’s probably too early to declare the death of partisan gridlock.
Regardless, we all have a wish list of things we want and hope our elected representatives will get accomplished.
Regular readers of this column know there are a handful of government activities that we discuss regularly: One is infrastructure, in particular the U.S.’s decaying roads and bridges, and how regular maintenance should be paid for via the gas tax, which isn't a tax so much as a user fee. The second is how we finance our national debt.
Both of these issues start with the exact same premise: There is no free lunch. Like any country, the U.S. has basic needs, and these needs cost money.
Let’s take road maintenance as an example. We build roads to move people and goods around the country. This social utility has huge benefits for the economy. All of this infrastructure requires regular maintenance: roads, bridges and tunnels are all exposed to wear and tear and the vagaries of weather. Without maintenance these structures last a fraction of the time they would with regular paint and repairs. Over time, they crumble and become a drag on economic efficiency. Decrepit roads also pose a health risk in terms of injuries and loss of life, which imposes untold billions in costs on the economy -- not to mention heartache.
That all of the above needs to be spelled out says something pretty awful about those in charge of seeing that our infrastructure performs as intended.
We pay for road maintenance through the Highway Trust Fund, (discussed previously here, here and here). At 18.4 cents a gallon, the fuel tax has been unchanged since 1993. With gasoline near six-year lows, drivers can easily afford an increase. They can either spare an extra dime at the pump, with regular increases to account for inflation, or they can spend much more in repairs that crumbling roads will eventually cause to their vehicles.
A less visible but much bigger issue is the $18 trillion federal debt. It's carried with a relative short duration, meaning the cost of that debt could rise a lot if interest rates shoot up. One solution, used by other nations with elevated but manageable debt levels, would be to embrace a 50-year Treasury bond.
It's really something the U.S. should consider now. A 50-year bond would allow a refinancing of America’s long-term debts at today's low rates. This would keep the costs of carrying existing debt as low as possible. It shouldn't cause additional deficit spending; if anything, it would reduce total interest expenses, now almost a quarter of federal spending. The demand for such paper likely would be overwhelming -- meaning that interest costs would remain low.
For the first time in almost a decade, Congress has started to do its job. Let’s hope it can take care of the work that still needs to be done.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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Barry L Ritholtz at firstname.lastname@example.org
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