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Friday, May 14, 2021, 14:11
The cost of ambition
By Richard Cullen
Friday, May 14, 2021, 14:11 By Richard Cullen

When Joe Biden came to office as US president, he pledged that his government would build back better. This, presented as a “once-in-a-generation investment in America”, aims to rebuild infrastructure, develop the green energy industry, create vital fixes for the education system and apply major repairs to the social welfare system.

In late March, The Economist magazine published an article that estimated the first part of the plan (infrastructure-focused) would cost US$2.3 trillion, while the second part (welfare-focused) was expected to cost an additional US$2 trillion. 

This spending is in addition to the COVID-relief funding of US$1.9 trillion authorized in January, which was built on the March 2020 Trump administration COVID-relief package of US$2 trillion. That represents US$8.2 trillion of fresh spending which exceeds 25 percent of the annual GDP of the United States.

Moreover, Biden apparently told British Prime Minister Boris Johnson in late March that democratic nations must draw up an infrastructure plan to rival the China-proposed Belt and Road Initiative. 

Morgan Stanley has estimated that total spending of the Belt and Road could exceed US$1.2 trillion within six years. Funding this initiative does not appear to be included in the Build-Back figures above.

One aspect which has not been discussed much is how well equipped — or not — the US is to spend these huge amounts effectively. I have provided an actual case study which suggests this may be a singularly important question. 

First, however, it is useful to consider several insistent headwinds which have to be mastered.

The national (federal government) public debt was just under US$21 trillion by mid-2020, which is more than 90 percent of the US annual GDP. Almost 40 percent of this amount has been borrowed from foreign countries, especially from East Asia including, notably, China. 

This debt total does not include further huge, unfunded federal liabilities related to welfare programs, estimated at an additional US$45.8 trillion. When this is added to the national debt and other unfunded obligations, the total is well north of US$60 trillion. This is around three times the current annual US GDP.

Although there is talk of financing Build-Back by means of taxation increases, it is inconceivable that such increases could fund these programs using any sort of pay-as-we-go system. It is only by relying on further massive borrowing (at today’s low interest rates) that Build-Back can develop serious traction. Tax increases, it is hoped, can repay this vast tranche of fresh debt over the very long term. 

But will those past willing lenders — not least China — keep lending at the same rate, bearing in mind this further huge increase in borrowing? The Biden administration has been ramping up the Trump-initiated, comprehensive, candidly hostile China-containment campaign: hardly the best way to stay onside with a primary foreign lender.

Next, we need to ask, will those tax increases (needed to repay all this extra debt) ever be passed by Congress? It is plain that in a polarized America — and Congress — this promises to be a grueling encounter. 

Moreover, Secretary of the Treasury Janet Yellen has made it clear that increased corporate taxation works in the US will be ensured. The US wants to see a G20 agreement to introduce a worldwide, minimum corporate tax: an even more reality-challenged objective.

Finally, remember that the US now maintains annual defense spending of around US$800 billion. The Build-Back project thus faces the Pentagon’s peerless lobby that is astoundingly adept at increasing its own public funding. 

Now let us consider what the US might do with all that new Build-Back money if it is able to gather it and apply it. This is just one case study but it is relevant in that it involves an example of the sort of large-scale, advanced civil engineering which is badly needed in the US.

In 2008, California, once a constant leader in American achievement and still a pivotally important state, decided it would build the first US High Speed Railway from Los Angeles to San Francisco, a distance of about 820 kilometers. Thirteen years later, around 100 km has been completed as a test track. 

In six years’ time, in 2027, it is hoped that HSR trains will begin providing a passenger service running over a comparatively remote, central section (part of which will now be a single track — to save money) that is less than 300 km long. It is also hoped that the final version, linking the two major cities, may be operational by 2033.

Initial total funding estimates were around US$33 billion. Recent estimates are that the fully completed line will cost some US$100 billion. 

This works out at about US$121 million per km. If all of the US$2.3 trillion Build-Back infrastructure fund were devoted to HSR in the US, it would, at this rate, fund less than 20,000 HSR km — possibly completed by 2040, or later.

China began planning its HSR network in the 1990s. Its first HSR line commenced operating between Beijing and Tianjin, a distance of about 120 km, in 2008. Today, 13 years later, China’s HSR network is almost 40,000 km long, with substantial further lines planned. 

The World Bank estimated the average cost of HSR in China at about US$20 million per km in 2014. The US was once the epitome of a “can-do” country. It is now a vigorously wishful, polarized nation, indignantly anxious and suspicious about a world it once dominated, which is changing without seeking its permission. 

The author is a visiting professor in the Faculty of Law at Hong Kong University. The author contributed this article to China Watch, a think tank powered by China Daily. 

The views do not necessarily reflect those of China Daily.


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