The U.S. political system is dysfunctional; the U.S. economy remains sluggish. Treasury interest rates remain at historic lows. But global demand for U.S.-backed paper is extraordinarily high; we remain the safe harbor of choice everywhere. Bloomberg columnist Barry Ritholtz has a suggestion: Do as Canada has recently done, and introduce a 50-year Treasury bond. As Ritholtz notes, we are currently pursuing the ultra-foolish strategy of financing long-term debt with short-term paper; far, far better to finance it with bonds that lock in lower rates for a long time. And that is especially true when it comes to investments in our economic and energy futures.
Interestingly, there are bills in both the House and Senate to deal with the problem—and unlike most issues, these have robust bipartisan support. They all rely on the concept of borrowing cheaply now to invest in the future.
Let me start with the bills introduced in the House by Democrat John Delaney of Maryland (with more than 30 cosponsors from each party), and its counterpart in the Senate, introduced by Democrat Michael Bennet of Colorado and Republican Roy Blunt of Missouri (Bennet’s brother, James Bennet, is editor in chief of The Atlantic). These bills create a fund that would be capitalized with $50 billion in infrastructure bonds with 50-year terms paying a fixed interest rate of 1 percent. Corporations could repatriate a substantial amount of the profits they have accumulated overseas tax-free if they buy the bonds. The amounts repatriated would be set by what is called a “reverse Dutch auction,” which I will not even attempt to describe. Suffice to say that the process would be a win-win—companies would likely end up paying low tax rates on the repatriated profits and have a substantial amount of the money to reinvest, while also providing a bundle of capital for infrastructure investments, which in turn would be leveraged by the fund into as much as $750 billion in loans or guarantees for infrastructure projects. A substantial share of those projects would be public-private partnerships, with most of the decisions made not by the federal government, but by state and local governments with their own skin in the game.
The Green Bank would use a model that would incentivize companies to repatriate some of their profits abroad in return for investing in the bank as well. It would also focus on the burgeoning number of clean-energy and energy-efficiency projects—including retrofitting buildings, which provide great high-value construction jobs, among others—and would not require in any way that consumers pay higher energy prices now for a clean-energy future. The bill creates an independent governance model for the bank to prevent its corruption or use as a cash cow for pols and their benefactors. Right now, we tend to use expensive ways to subsidize clean energy; this bank uses the marketplace via low-cost capital to accomplish positive ends.
Polarization does not explain the failure to act on bills that transcend typical ideology. In a “normal” polarized environment, the fact is that Congress could and would pass bills that require no appropriations, no increases in government spending, the active participation of labor and business, and a way to prepare for the economy of the rest of the 21st century by borrowing low to create higher economic growth and improve the environment. Instead, we have an abnormal, tribal environment, where any bill that would accomplish a signing ceremony in the Oval Office or the Rose Garden is actively shunned. Low interest rates will not last forever; not to take advantage of them now to provide a better future for our children is simply pathetic… Read more from The Atlantic.