A Confluence of Catastrophes

You couldn’t be blamed for turning away from this title. After all, you probably read, listen to, or watch the news every day. In the last couple of days we’ve been reminded of more flooding in the Midwest, wildfires in California, the stock market’s continued decline, record prices for crude, the mortgage crisis with Congress tied in knots, and all of that is without mentioning Iraq or Afghanistan. If all of that is not enough to depress you, then maybe you need to see a psychiatrist, or else chuckle at Lord Acton’s words below.

If the title and recitation of recent headlines doesn’t turn you off, my lack of qualifications to write about them might. My training is in history and theology, not economics and engineering. But because of friend who is an engineer and financial observers like Joseph Lazzaro (a.k.a. “Hunter” on Kos), I decided that it was time more of us non-specialists need to try to grasp this larger economic picture. It seems to me that we are experiencing the first waves of several mini-catastrophes, the confluence of which would constitute a major one. These mini-catastrophes are all inextricably linked: war, a sick national and global economy, global warming, and a collapsing infrastructure.

Read on at your own risk.

“History is a race between education and catastrophe.” H.G. Wells

“If some great catastrophe is not announced every morning, we feel a certain void. Nothing in the paper today, we sigh.” Lord Acton

“The unleashed power of the atom has changed everything save our modes of thinking and we thus drift toward unparalleled catastrophe.” Albert Einstein

On the off chance that H.G. Wells might be right, education seems to be running a distant second to catastrophe.

First, there is the war. While a significant majority of citizens want the U.S. to get out of Iraq, not to mention wanting an improvement in the economy, Congress is unable or unwilling to use its power to end involvement there. Many in Congress seem out of sync with the country, but maybe they sense that the drive to get out of Iraq is soft. Neither the population at large nor Congress seems to have gotten the message about the impact of the war on the economy.

Second, the war is connected to our current economic crisis. Iraq is the second most expensive war in history, surpassed only by World War II. In their book, The Three Trillion Dollar War: The True Cost of the Iraq Conflict (March 3, 2008), Joseph Stiglitz and Linda Blimes link war costs to the current economic crisis:

The spending on Iraq was a hidden cause of the current credit crunch because the US central bank responded to the massive financial drain of the war by flooding the American economy with cheap credit… That led to a housing bubble and a consumption boom, and the fallout was plunging the US economy into recession and saddling the next US president with the biggest budget deficit in history.

Third, add global warming to this already toxic economic mix. If the California Air Resources Board is right in the report it issued on Thursday, global warming is adding additional strain to already an over-burdened economy. In 2006 the California legislature passed a law aiming to cut the state’s greenhouse gas emissions 25% by 2020 in order to combat global warming. On Thursday a few details have emerged on how that is going to happen.

Over the next 10 years, it will probably change the kind of car you drive, the kind of fuel you put in it, the amount you pay for electricity, where that electricity comes from, the way you heat or cool your home and how you do business. Among other things, it calls for an ambitious cap-and-trade program involving seven Western states and three Canadian provinces. It calls for more fuel-efficient vehicles, a big hike in wind and solar power, more energy-efficient appliances and stricter building standards, and even sets up a voluntary program to build methane digesters over manure pits at the state's dairies and ranches.

If those measures sound expensive, they are. But if Mary Nichols, chair of the Air Resources Board, is right many of the added costs will be made up by savings they encourage and the economic activity they generate.

Conservatives have largely given up arguing that global warming isn't happening or that it isn't caused by humans, but they persist in claiming that the costs of fighting it aren't worth the benefits. If it makes economic as well as environmental sense to cut carbon, they're left without a plank to stand on.

Nichols’ may be an over-optimistic view about measures that—while the most ambitious in the nation—may be too little too late.

And, last but in no way least, there is our disintegrating infrastructure. The wake up call came in a 2005 report by American Society of Civil Engineers (ASCE) that graded America’s infrastructure. What constitutes “America’s infrastructure”? Aviation, Bridges, Dams, Drinking Water, Energy, Hazardous Waste, Navigable Waterways, Public Parks and Recreation, Rail, Roads, Schools, Security, Solid Waste, Transit, Waste Water. Quite a list, huh? The average grade was D with no grade above C.

Last January California Governor Arnold Schwarzenegger, a Republican; Pennsylvania Governor Edward Rendell, a Democrat; and New York Mayor Michael Bloomberg, an Independent came together to form a coalition that will lobby for federal investment in America’s decaying infrastructure. New York Mayor Michael Bloomberg spoke for the group:

"We have an infrastructure crisis. Nonstop television showed us in New Orleans when the levees broke, and Minneapolis when the bridge collapsed. But the governors and the mayors of this country every day see at an operational level bridges that are rusting away, and tracks that can't carry high speed trains, and power transmission lines that can't keep up with demand, and airports that need new runways, and water lines that need backup systems, and sewage plants that leak into the rivers and the oceans."

"If we continue to ignore these problems we are going to suffer more collapses, more human tragedies, and more economic pain, and that's just in the short term," Bloomberg said. "Over the long run we really are going to risk losing our place as the world's leading super power."

The pictures of the collapsing levees in the Midwest over the past weeks have made a lot of people aware of the infrastructure crisis. Of course, they were made aware in 1993 when the last floods of this magnitude overwhelmed the levees. Commissions were appointed and studies were done all citing the need to restore the levees. But nothing was done.

The two governors and mayor pointed out that other countries are investing in modern infrastructure.

"China, Japan, India, Dubai, Malaysia, Europe, all of them are investing in modern infrastructure at higher rates that we are here in the United States," the mayor said. "But Congress is setting back and resting on its accomplishments of past generations, our parents' generation. And they can only go on this way for so long before the rest of the world starts to pass us by. And we are here to say we cannot let that happen. We cannot hand our children a country that is crumbling from neglect."

Confirming the lead that other countries are taking, last week, Merrill Lynch raised its annual infrastructure spending estimate for emerging markets by 80% in light of increased government expenditures.

Merrill Lynch has raised its emerging markets infrastructure forecast to $2.25 trillion annually, or 5% of GDP, from $1.25 trillion over the next three years, due to more aggressive government spending programmes and higher analyst estimates.

Infrastructure spending—which Merrill Lynch calls a long-term solution to inflation—is expected to be fuelled by decades of under-investment in power, transportation, and water. Merrill Lynch expects 70% of infrastructure spending to be concentrated in China, the Middle East and Russia{bold mine}.

Joseph Lazzaro looked a the global need to invest in infrastructure. Citing a report, titled, "Infrastructure: A Global Opportunity for Investors" Lazzaro notes

that $41 trillion will be needed to modernize urban water, electricity, and transportation systems globally, during the 2005-2030 period… In the United States, the figure is $1.6 trillion, according to research by the American Society of Civil Engineers. There are two distinct but massive infrastructure tasks: in emerging markets, a massive build-out to support growth; in the United States and the developed world, a focus on repair and replacement, according to U.S. Global Investors.

Where is the money coming from to pay for this? According to Harry Moroz, in his article, “The Age of Infrastructure,”

Senator McCain's infrastructure solution comes as no surprise: eliminate earmarks for pet projects and prioritize spending to identify projects with the greatest infrastructure needs. Senator McCain even blamed the Minnesota bridge collapse on earmarks. Additionally, Senator McCain has not been friendly to Amtrak.

The Senator has been silent about proactive engagement of infrastructure problems during his presidential campaign: his approach utilizes the negative, government waste principles that are aligned with, if more noble than, the current administration's starve-the-beast philosophy.

Senator Obama’s position was set out in a speech at a General Motors assembly plant in Janesville, WI calling

for the creation of a "National Infrastructure Reinvestment Bank" that would invest $60 billion over 10 years in highways, technology and other projects. It would be an effort, Obama will say, to "rebuild America" and create 2 million jobs in the process.

Obama will say he would pay for the bank by "ending this war in Iraq. It's time to stop spending billions of dollars a week trying to put Iraq back together and start spending the money on putting America back together instead."

Common sense says that we will not be able to undertake the herculean infrastructure tasks without ending the war in Iraq.

The good news about this recovering our infrastructure, said economist David Wang to Lazzaro in April

…the work would create good, largely high-paying jobs, Wang said, another incentive for infrastructure spending. Even better, he says, almost all of the dollars would be based in the United States, not in foreign countries, and recirculate through U.S. towns and counties.

Don't expect to see any start on the infrastructure problems before a new administration takes office. The way I see it, the first step is to see that Obama is elected. The second step is to start the process of getting us out of Iraq. The third step will be to establish the National Infrastructure Reinvestment Bank and get to work. In the meantime, we need to get serious about education so we don’t run second to catastrophe.

- Milo