A Bridge over Troubled Blather

By Hugh Griffin-Banerjee and Miranda Park

The national discord o’er the last several weeks was sparked by the Biden administration’s $2 trillion infrastructure plan. The rub, thus the source of endless pundit commentary, is that we can’t afford it, as if we’re going to write a bloody check!

No competent government does that. None. Zero. Competent governments use bonds to fund construction of high-cost assets with long useful lives. 

Did someone write a check for your airport?

The Biden infrastructure plan can be easily funded by a $2-trillion bond issue with a 2.5% interest rate. In that the world currently owns circa $18 trillion of negative-coupon bonds issued by less credit-worthy nations, we have no doubt that ours would be snapped up like free donuts at your local police station.

Once issued, our government will be obligated to pay its bondholders a total of $50 billion per year, which—wait for it—is barely more than 1% of the current federal budget! To recap: the cost of rebuilding the nation’s roads, bridges, ports, and airports would increase annual government expenditures by about 1%.

Hmmm. What should we do?

Codicil (from Miranda): The infrastructure bonds would come due in 50 years, but interest rates are at near-record lows, so tranches could likely be bought back for a fraction of their face value at various times in the future. If not, then the $2 trillion will have been devalued by inflation over the years, but the bulk of assets they built will still be in use and can be funded by debt yet again.

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