Earlier this month, Lawrence Kudlow, director of the National Economic Council and top Trump administration adviser, floated a proposal for selling COVID-19 U.S. Treasury bonds to “spur investment in the economy.” He quickly was echoed by former Federal Reserve chair Janet Yellen.
Kudlow’s idea, likening coronavirus bonds to the war bonds issued to finance spending on munitions, military equipment and manpower during the 20th century’s two world wars, is bad on all counts.
While bond-financed expenditures in wartime or during a pandemic have many of the same fiscal effects—drawing resources away from the private sector and placing their disposition in the hands of politicians—there are significant differences, not the least of which is the fact that public debts incurred to fight aggressors, at least until Korea and Vietnam, were extinguished after the war emergencies.
Not this time. Congress already has authorized $2.2 trillion in additional spending (roughly 10 percent of U.S. GDP)—with another $500 billion on the way. Although much of it is in the form of loans, those loans likely will be forgiven and never repaid.
Kudlow characterized his plan for selling “long-term [Treasury] paper” as an “investment.” Does he intend the bond issue to replace or to help finance House Speaker Nancy Pelosi’s plan for spending $2 trillion on top of the $2.2 trillion contained in the already passed Coronavirus Aid, Relief, and Economic Security (CARES) Act to build and refurbish roads, bridges, and other public infrastructure projects like high-speed internet connections?
No government “invests” in any meaningful sense of that word. Private-sector companies maintain capital budgets and choose long-term projects only after ranking the alternatives on the basis of their expected rates of return or other sound financial criteria. Governments typically spend willy-nilly because their planning horizons do not extend beyond the next election.
Public infrastructure spending is the playground of pork-barrel politics. Such “investments” are plagued by waste and favoritism, run chronically over budget, and rarely are completed on schedule. Politics, not need, will determine where $2 trillion in infrastructure spending goes. The construction jobs “created” by such spending are temporary, lasting only until the projects are completed. Speaker Pelosi might just as well turn that $2 trillion into cash and set it afire on the Washington Mall.
Assuming that federal spending must balloon now, a much better alternative for financing it is available: liquidate many of the trillions of dollars in land, buildings and other assets now owned by the federal government.
As one might expect, Washington’s inventory of government-owned properties is incomplete. It counts 340,353 buildings and 49.7 million acres of land (615 million acres, according to the Congressional Research Service), but overlooks, for example, the resource-rich Outer Continental Shelf. Although oil, gas, and coal markets are volatile, the estimated value of the energy resources alone on continental federal lands not long ago was as much as $35 trillion.
While it is true, as Janet Yellen has said, that current interest rates are “low,” reducing the Treasury’s cost of borrowing nearly to zero, why not consider other options? Liquidating federal assets is not a perfect solution, but merits thoughtful consideration.
If politicians want to pay for the economic disaster they’ve had a hand in creating, disposal of federal properties would have the advantage of forcing them to face directly the costs of their emergency spending spree. For their spending to increase, federal ownership of what enables their spending must decrease.
This article was also published in RealClearMarkets.com