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.

Walmart is testing a new robot called “Flippy.” Flippy is the un-personification of truth in labeling: It flips hamburgers.  There are about 25,000 fast-food hamburger restaurants in the US.  If Flippy can replace an average of two employees at each restaurant, then 50,000 American jobs will eventually disappear.

I doubt that MacDonald’s and Burger King are worried about that.

It seems to us that a magnificent new product made in Silicon Valley is announced every day in the press, on television, and via social media outlets around the world. From an historical perspective, there’s no doubt that many of these innovations have improved the productivity of governments and the profitability of corporations, and they’ve enhanced the lives of everyday, garden-variety folks like you and us. But we wonder if we aren’t approaching a point in time when advances in AI (artificial intelligence) and robotics will destroy jobs faster than the economy can replace them.

Note: We’ve made no attempt here to estimate the COVID-19 pandemic’s impact on the labor market. The job loss is already devastating, and some of the jobs lost will never come back. This article examines one reason why they’ll disappear, and why they’ll keep on disappearing long after COVID-19 been consigned to dark pages of history.

In the near future, self-driving cars, SUV’s, trucks, and buses will be cheap and reliable enough to be sold in volume. Driving will be safer, and commuters will be more entertained and less stressed, but operators of commercial vehicles will be made obsolete because their vehicles won’t need them anymore.

According to the Bureau of Labor Statistics (BLS), there are 2.4 million commercial truck drivers in the United States who on average make about $50,000 per year. In the near future, those jobs will be lost to automation, and that’s the tip of the iceberg.

A recent report by the McKinsey Global Institute forecasts that as many as 73,000,000 American jobs may be lost to automation by 2030. If their forecast is in the ballpark, then the US economy will lose a number of jobs that’s approximately equal to 45% of the nation’s current workforce. (See Note 1.) But the McKinsey report isn’t as foreboding as it would seem at first glance, because it also suggests that an overhaul of the economy could more than offset the 73,000,000 job losses.

Here’s the rub: The labor-force overhaul would have to rival our transformation from an agriculture-based economy to the Information Age, which took 165 years. We have only twelve this time, which means we have to move 14 times faster than last time. (See Note 2.)

We have a few questions:

1) Is the overhaul a simple training/retraining problem (as McKinsey suggests), a social problem, a political problem, a financing problem, or all of the preceding? (Hint: It’s a rhetorical question.)

2) If politicians are even remotely involved, what are our chances? Dodd-Frank wasn’t passed until after the Great Recession. Our bridges, ports, railways, and highways are crumbling, but as of this writing Congress has yet to bring an infrastructure renovation bill to the floor of the House or Senate. When was smoking in public places outlawed? Was it before or after millions of Americans died from lung cancer?

3) Who’s going to pay for the retraining of the existing labor force: the public sector, the private sector, or the displaced workers themselves? We expect it’ll be all three, but will government move quickly enough (see the above), will corporations be more disposed to retrain their employees than hire trained ones, and how much money will the unemployed have to invest in retraining themselves? (Hint: They’re unemployed.)

4) What’s the real-world scale of the problem? How many bus drivers, bank tellers, and baristas will have to be taught to write software, mine data, and repair robots, how long will it take, and what percentage of them will make the grade?

We could go on, but you get the point.

At South by Southwest this year, Elon Musk said, “Mark my words: AI is far more dangerous than nukes, by far, so why do we have no regulatory oversight? This is insane!” (See Note 3.)

Notes:

1) According to Wikipedia, 161,000,000 Americans held part or full time jobs in the US at the beginning of 2018. Seventy-three million divided by 161 million is 45.3%.

2) One-hundred and sixty-five divided by twelve is 13.75. We rounded up.

3) The quote from Elon Musk was from ZDNet, a high-tech website. We didn’t change a word, but we did edit the punctuation.

At one time or another, most of us have heard the phrase “trickle-down economics.” It is, in the conservative mind, the best way to stimulate the economy, thus it was the basis for the 2018 tax reform bill authored by Congress and signed into law by the president. But, before accept that “trickle-down” works admirably well, let’s examine how it works.

In an economic context, “trickle down” means that tax incentives aimed at the wealthiest of the economy will work their way down to the middle and lower classes. However, a tax break for a wealthy man, or more rarely a woman, is discretionary. He can spend it on an American-made business jet or a Norwegian yacht. She can invest the money in an asphalt plant in Pittsburgh or Vietnam. He can buy 1,000 acres of farmland in Nebraska or in Suriname. She can invest in an American hedge fund, or Eurobonds, or bitcoin.

Moreover, the wealthy need never be in a hurry because, well, they’re wealthy. Hence the phrase “trickle down,” which, to review, means that a lot of money is given to the wealthy in the form of tax breaks, and then it trickles down to the middle and lower classes, except for the parts that are invested overseas or put aside for a rainy day, possibly in the Caymans.

It would seem from a cursory examination of trickle-down economics that there’s room for improvement. Let’s imagine for a moment that instead of giving another tax break to the wealthy, Congress voted to cut taxes for the middle class and to increase subsidies like food stamps and Medicaid for the economically disadvantaged. Unlike the rich, the lower classes don’t have any money to save, and the middle classes don’t bother (with few exceptions). Instead, they spend it on essentials like heat, healthcare, video games, and pop tarts, and they can’t afford to wait.

In other words, the money enters the economy quickly, and then it gushes up the economic food chain: from the retail stores to the companies that own the retail stores, to the hedge funds that own most of the stock in retail store companies, and on to the men and women who invest in hedge funds. In the end the wealthy get it anyway, but at least the middle and lower classes had it for a while––and pop-tart sales skyrocketed.

Sadly, the phrase “gush up” sounds too much like vomit. It never caught on, which must explain why the rich get all the tax breaks.