Why Santa Fe needs a public bank. Is Santa Fe an Amtrak Crash waiting to happen? Santa Fe’s infrastructure needs are only funded at 10%.
Derailing Amtrak: The Latest Disaster in the Infrastructure Crisis by Ellen Brown, May 17, 2015 http://WebofDebt.wordpress.com
The dangerous underfunding of US infrastructure was underscored by a fatal train derailment on May 12th. The House Appropriations Committee, undeterred, voted the very next day to slash Amtrak funding. There are ways Congress could fund its massive infrastructure bill without raising taxes. But the conservative-controlled Congress seems to have other plans for the nation’s more profitable public assets.
The May 12th train derailment near Philadelphia, which killed eight people and hospitalized 200, was the deadliest Amtrak accident in recent history. The train barreled around a dangerous bend at 106 mph, more than double the 50 mph speed limit for the curve.
Whether this was due to operator error or mechanical issues is not yet known. But experts say the derailment might have been averted by a safety system called positive train control, which can automatically reduce the speed of a train that is going too fast. The system must be installed on both the train and the route. The Amtrak train had it, but that stretch of track did not.
Why not? The stretch was known to be dangerous. Nearly 80 passengers died near the spot in an earlier derailment in 1943. Absence of positive train control was also cited as a factor in the fatal 2013 crash of a Metro-North train in the Bronx.
The problem, as with infrastructure generally, is a woeful lack of funds. Railroads are under a congressional mandate to install the positive train control system on passenger routes and major freight lines by the end of the year, but they are seeking an extension because of the cost and complexity of the work.
In an article titled “Why You Can’t Talk About the Amtrak Derailment Without Talking About Our Infrastructure Crisis,” Aviva Shen observes that the Northeast Corridor is the busiest and most profitable rail route in the US. The line runs from Boston through New York City, Philadelphia, and Baltimore to Washington D.C. It is dealing with more riders than ever. But Amtrak has been starved of the funds required to keep up with this increased demand. It faces a backlog of repairs on bridges and tunnels that date back to the beginning of the 20th century, obsolete rail interlockings, and trains that rely on 1930s-era components. Repairs for the Northeast Corridor are expected to require $4.3 billion in fiscal years 2015-2019, while federal funding is expected to dwindle to $872 million.
Besides the danger to life and limb, recent train derailments have caused major setbacks for businesses. The Northeast Corridor, which carries a workforce that contributes $50 billion per year to the gross domestic product, will now be shut down for an indeterminate period.
But neither these exigencies nor the fatal May 12th crash was enough to stop the Republican-led House Appropriations Committee from voting on May 13th, only one day after the derailment, to reduce grants to Amtrak by $252 million, or about 15% from last year’s level. The measure still needs to clear the full House and Senate before going into effect in October.
Putting the Squeeze on Amtrak
While transportation infrastructure is short of funds across the board, Amtrak has been pinched more than most. Congress holds the agency to a unique standard by demanding that it turn a profit per passenger. This is not true for highways and airports, which receive about 45 times the subsidies that Amtrak does.
Why the difference in treatment? Perhaps because of Amtrak’s large and growing profit potential. Trains charge by the rider; roads do not. Republicans have long called for the privatization of the Northeast Corridor – this despite the abject failure of the privatization of the British Rail System.
Congress’s unique treatment of Amtrak parallels that of the U.S. Postal Service (USPS), for which privatization has also long been sought. The USPS was successfully self-funded throughout its long history, until it was pushed into insolvency by an onerous 2006 congressional mandate that it prefund healthcare for its workers 75 years into the future. No other entity, public or private, has the burden of funding generations of employees not yet born. The mandate appears so unreasonable as to raise suspicions that the nation’s largest publicly-owned industry has been intentionally targeted for takedown, either because private competitors want the business or because private developers want the valuable postal properties.
Privatization would similarly gut Amtrak’s primary source of revenue and drive it into insolvency. The privatization proposal has never gained much traction outside conservative circles, but lawmakers have proposed massive cuts to Amtrak’s budget virtually every chance they get.
Driven by Debt into the Arms of Investors
The push for cuts is part of the austerity meme of a Congress bent on “balancing the budget” at all costs. Conservatives are determined not to breach the artificially-imposed debt ceiling, which was hit once again in March. Congress again fix the books by borrowing from federal pension funds and other creative accounting techniques. But the lid has largely been shut on new spending, even for such essential services as infrastructure.
Although the major federal transportation fund will run out of money by the end of May, a $478 billion transportation funding bill is facing an uphill battle among Republican lawmakers. And even if passes, it will be grossly inadequate to service the massive infrastructure needs of the country. According to the American Society of Civil Engineers, restoring US infrastructure will require an investment of $3.6 trillion by 2020. If the current level of spending continues, funds will fall short of that by $1.6 trillion.
If Congress won’t provide the money, who will? Infrastructure is the latest investment boom for funds in search of safe, lucrative returns. Investors are particularly interested in the “plum” projects with significant profit potential. That would include Amtrak’s Northeast Corridor and the US Postal Service.
Infrastructure projects can yield decades of steady, cash-flow-heavy returns of up to 10 to 14 percent –“a return like a stock’s with security like a bond’s” – and they are effectively guaranteed by the government. They are good for investors but not so good for governments. A rule of thumb is that borrowing to fund infrastructure doubles the cost.
Besides loans, infrastructure opportunities attractive to investors include outright privatization – the sale of public assets at fire sale prices to meet government budget constraints – and Public Private Partnerships, which privatize gains while socializing losses, imposing long-term costs and risks on the public.
If the Trans-Pacific Partnership passes, investors will be guaranteed their “expected profits” no matter what. The interests of capital will have, finally and unconditionally, trumped those of government and the people.
The Convenient Myth of the Debt Crisis
The reasoning behind congressional austerity measures is that “we don’t have the money.” But we do, or at least we could. We could have it just by issuing it. This could be done (a) through the Federal Reserve with another round of quantitative easing; (b) through the Treasury through the printing of US Notes (government-issued money); or (c) through the Treasury by the minting of special coins.
Under current market conditions, direct money issuance can be done without causing price inflation. Prices go up when demand (money) exceeds supply (goods and services). With mechanization and the availability of cheap labor in vast global markets today, supply (productivity) can keep up with demand for decades to come. So says financial author Richard Duncan, who writes:
Quantitative Easing has only been possible because it has occurred at a time when Globalization is driving down the price of labor and industrial goods. The combination of fiat money and Globalization creates a unique moment in history where the governments of the developed economies can print money on an aggressive scale without causing inflation.
They should take advantage of this once-in-history opportunity to borrow more in order to invest in new industries and technologies, to restructure their economies and to retrain and educate their workforce at the post-graduate level.
The direct route to reflating the money supply would be to re-issue US Notes through the US Treasury, as the early American colonists did, and as Abraham Lincoln did with an issue of “greenbacks” during the Civil War. This has also been done quite successfully in other countries, including Japan, Argentina, Germany, Australia, New Zealand, and China (which is probably still doing it today).
US Notes have been declared constitutional and have a long and respected history; but re-issuing them would require legislation, and in today’s political climate, that could be difficult to achieve. An alternative that could be effected quickly by Congress or the President without changing any laws would be to issue some very large denomination coins. The Constitution gives Congress the power to “coin money [and] regulate the value thereof.” The trillion dollar coin was proposed in 2013 in response to the budget crisis created by the debt ceiling that year. News commentators considered it a joke; but the proposal was taken seriously by Paul Krugman and some other economists, as a way to circumvent a limitation on spending that had been artificially imposed.
Another alternative for averting the infrastructure crisis might save the U.S. Postal Service at the same time. In a July 2013 article titled “Delivering a National Infrastructure Bank . . . through the Post Office,” Frederic V. Rolando, president of the National Association of Letter Carriers, noted that the idea of forming a national infrastructure bank (NIB) has long had bipartisan congressional support. What has blocked these bills is opposition to using tax money for the purpose. But Rolando asked:
What if we allowed Americans to open savings accounts in the nation’s post offices and directed those funds into national infrastructure bonds that would earn interest for depositors and fund job-creating projects to replace and modernize our crumbling infrastructure?
A highly successful precedent is Japan Post Bank, the largest depository bank in the world, which has funded much of the Japanese federal debt with domestic savings. The Bank of Japan (the nation’s central bank) owns another 22% of the federal debt, purchased through quantitative easing. That helps explain Japan’s continuing economic health despite a debt to GDP ratio of 250%. The government owes the debt to its own state-owned banks.
The US could follow suit. But Congress seems bent instead on forcing the privatization of its choicest public assets, opening them to exploitation by wealthy investors.
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