The Crumbling American Superpower

by F. William Engdahl, New Eastern Outlook:

The catastrophic events around the California Oroville Dam in recent weeks underscores a far more urgent problem. The American Society of Civil Engineers has just released their quadrennial assessment of United States essential infrastructure–roads, clean water supplies, levees, ports, dams, bridges, electric grid. The report gives the nation a near-failing D+ grade. America is coming to resemble the economic infrastructure in the Soviet Union domestically at the collapse of communism during the late 1980’s. The recently-announced Donald Trump proposal to invest $1 trillion over ten years to address the problem, mainly building high-speed trains (to date the USA has not one) doesn’t even come close to the scope of the problem.

A Wall Street-driven agenda of globalization of US manufacturing and out-sourcing of production has left America a hollowed-out, crumbling Superpower. Since the 1980’s the United States has significantly under-invested in both new infrastructure and in renewing old. As US multinational corporations moved their factories overseas to cheap labor production in Mexico, then in Asia, especially China, and elsewhere, they found tax loopholes that allowed them to walk away from supporting the country that as recently as the 1960’s was the world industrial economic leading nation. Today US corporations hold $2.4 trillion in overseas profits that they keep abroad to avoid US taxes.

The result of all this neglect is that over the past three decades since the end of the 1980s, federal funding of major infrastructure projects such as dams has dropped by half, from 1 percent to 0.5 percent of GDP.

Infrastructure Report Card

On March 9, the American Society of Civil Engineers (ASCE) released its 2017 “Infrastructure Report Card.” They review the state of national infrastructure every four years. Since their 2013 report, despite four years of an alleged Obama economic recovery, the state of affairs is unchanged at a near-failing D+ with F being fail.

The US President just met with leading industry representatives to discuss his proposal for spending $1 trillion in a combination of public-private funds over 10 years, most apparently on roads and high-speed rail. The ASCE estimates that almost five times that, or $4.59 trillion, is urgently needed over the next 8 years only to bring the situation to a level of “adequate” or B grade by 2025. The economic cost to the national economy of the crumbling infrastructure is calculated annually in the hundreds of billions of dollars in wasted economic inefficiency.

Yet even that modest Trump proposal to spend $1 trillion in infrastructure is likely to be “dead on arrival” according to Wall Street analyst Randall Forsyth in a report in Barrons. One effect of more than eight years of abnormally low Federal Reserve interest rates have left the various state pension funds seriously underfunded, requiring them to draw more from state general budget funds. States will not have the money to join with the Trump national plan even were that to be passed by Congress, which itself is not at all clear. Forsyth notes, “In the United States, state and local governments count infrastructure projects as current spending—as opposed to investments, capitalized over the life of the projects, as with private corporations—budget constraints hampered their ability to fund projects.”

In addition, Trump has promised another Federal tax cut at the same time. In short, The Donald’s economic team don’t even have their infrastructure ducks in the pond, let alone in a row with reality.

Third World-Style Blackouts

Some of the report highlights are instructive and alarming. The nation’s basic electric grid is in dire straits. Most USA electric transmission and distribution lines were constructed in the 1950s and 1960s, with a 50-year life expectancy. Lines built in 1967 are today at their life end, yet still being used.

The increasing demand for electricity also means that the 640,000 miles of high-voltage transmission lines in the power grids of the nation are at full capacity. Given the lack of investment in the power grid, aging equipment, capacity bottlenecks, and increased demand, as well as increasing storm and climate impacts, third world-style blackouts or power failures are in store for the nation unless urgently-needed investment is made.

Highway Arteries in Dire Condition

The nation’s highways are in dire condition. Sixty years ago the US Congress passed the Federal Aid Highway Act of 1956 during the Eisenhower Administration, the National Defense Highway Act as it was also called. The Act authorized the then-huge sum of $25 billion for the construction of 41,000 miles (66,000 km) of the Interstate Highway System over a 10-year period. It was the largest public works infrastructure project in American history until then, comparable to spending $218 billion today. The US freight economy was deliberately being moved from rails as it had been before World War II, to large tractor-trailer truck transport and the Interstate Highway Act created a huge economic gain in time and efficiency for that transformation. The flexibility of truck freight over rail was significant and the financing was paid 90% by the Federal Government through a Highway Trust Fund paid for by federal fuel taxes to be used exclusively for highway construction and maintenance. The states paid 10%.

Since about 2007-2008 and the financial and economic crisis, the Federal Highway Trust Fund has been seriously underfunded, requiring emergency injections from the General Budget to maintain solvency. Because of the repeated refusal of the US Congress to raise national gasoline or fuel taxes to insure adequate repair of the Interstate Highway System, present condition of the nation’s roads is abysmal to put it politely. The current Federal fuel tax for the Highway Trust Fund has been set at $0.184 per US gallon, a level where it has remained since 1993. In Germany the Federal fuel tax is $6.14 per US gallon.

In addition, states that finance the maintenance of their roads with a state fuel tax have severely underfunded taxes there as well. As of July 2016, twenty one states out of fifty had gone ten years or more without an increase in their state per-gallon gasoline tax rate.

The result of this severe and chronic underfunding of Federal and state highway funds, according to the ASCE infrastructure report, is that more than 40% of America’s urban Interstate highways are congested and traffic delays cost the country $160 billion in wasted time and fuel in 2014. One out of every five miles of highway pavement is in poor condition.

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