Category: Uncategorized

Innovation may seem like some capricious god that visits only if you are on Santa’s nice list, but it can be coaxed into visiting more often with the milk and cookies of research and development. It needs just the right kind of structure, though (Santa doesn’t like oatmeal raisin cookies, after all). Our current system rewards researchers for their grant-writing ability instead of their results. Proportionally to GDP, our spending on research has declined as well. This leaves us with less money less efficiently put to work. There are some bright spots. We have some extremely high-productivity firms showing us the way. The problem is a growing number of firms that have extremely low or even negative productivity growth. To change this, we need to fix some broken markets and create some new incentive structures.

You need not look very far to find firms with rapid growth in productivity. There are obvious names such as Amazon and Google, but there are others such as JP Morgan Chase that continue to plow profits into the business year after year. They are able to innovate because they create opportunities for innovation to flourish. Commercial spending money on research and development is sometimes more efficient because businesses have more information about their customers’ wants and needs. More of that requires more companies that are willing to look at a longer time horizon. Part of that can be corrected with the structure of executive pay, but it could be further aided with better federal investment practices.

Before we get into that, it’s worth noting that essentially all levels of government are running antiquated systems that are outdated from the moment they are up and running – and that’s if they are digitized at all. Data storage and organization practices for the government and, perhaps unsurprisingly, the entire healthcare industry, are abhorrent. We have information all over the place that we don’t know about and that causes errors. It can result in misinformed decisions. Simply digitizing information and organizing the vast arrays of data we have in a more coherent way would give the state and healthcare portions of our economies massive jumps in productivity. There are some companies working on this, but progress is slow. More focus needs to be placed on it. We are losing countless human hours on it that could be spent in better ways.

By the same token, the growth of ‘zombie’ firms has throttled our growth by keeping more people in jobs that don’t allow them to accomplish what they would be able to at a more productive firm. Long-term interest rates near zero and frequent government bailouts of low-productivity firms are a little bit like eating candy instead of a balanced meal. It may give us a short burst of energy, but the long-term health of our economy suffers.

How do we fix it, then? Simply throwing money at the problem does not solve it. It would be convenient if that was the case, but how that money is distributed is just as important, if not more so, than how much money is spent. One way current policies work is to funnel money through various institutions, such as the National Science Foundation, that are subsequently distributed via grants. Those grants have application processes, so scientists must write grant proposals detailing why they need the money and how they will use it. This takes them away from their research and grant proposal quality is not necessarily very correlated to the quality of their research. They are researchers, after all, not writers. The people that are rewarded, then, are the people that happen to be the best at writing or the ones researching something popular. Other problems can also arise. Science is a messy process and sometimes paradigms must be challenged to make way for new ones. The bureaucrats distributing funding are people, too, though, and people are prone to dismissing out-of-hand things that challenge their core worldview, even if it is their job to be impartial.

The fastest way to spark innovation is to pose well-defined problems and then create rewards for solving those problems. We just saw this in action with COVID vaccine research. An unprecedented sum of money was there for the taking, so unprecedented resources were thrown into the problem. Entire new systems were created. DARPA, the defense department’s advanced research arm, uses prizes for the best solutions to various problems to fantastic results. 

We do not have to limit these mechanisms to research spending, either. Infrastructure costs have exploded and show no signs of slowing down. If, instead of paying a firm to build, say, high-speed rail, we laid out well-defined parameters for how many passengers should be able to travel on a long-range transit system with a minimum speed and whatever else we wanted to be included, we could guarantee a certain sum of money to be paid annually to the owner of said transit system (note: this has to be a hard sum, not a guaranteed profit, or bad incentives creep in). This is just one example. We could do this for countless other services and drive higher productivity with more connectedness.

The ‘free market’ is not some god to be worshipped, but a living, breathing system. It needs everything defined from who owns what to who can sue who if something goes wrong. With the right set of rules, it can be a powerful force for good. There is no reason that the government cannot create new markets for accomplishing goals such as greener energy, better education, or better healthcare. The key is defining the problem you want to solve. Anything else leaves up to chance what the markets will maximize.

The single best measure of a developing nation’s prosperity is not GDP. GDP is difficult to measure in a cash-based economy with large informal sectors. It is energy consumption. We need energy for everything. In advanced economies, energy intensity (the amount of energy needed for a given amount of economic output) has declined over the last few decades. Innovation, though, has followed the path of least resistance when it comes to energy requirements. The likelihood of a technology’s realization from a futurist’s prediction from yesteryear is highly correlated to the energy intensity of that prediction (see chart below). Even some of the most promising computing technologies are limited by our ability to create energy cheaply. After the advent of nuclear power, some thought it would be too cheap to meter. Instead, there would be some low-cost subscription.

Unfortunately, the dream of effectively costless energy never materialized. Part of the issue is portability. There is not currently a fuel that is sufficiently energy-dense to put in an airplane and make the cost of travel cheap enough to make supersonic flight affordable. There are some promising things on the horizon for our grid, though. States with deregulated electricity supply have seen prices drop as private companies can compete over how to best deliver energy cheapest over the existing power grid. Solar and wind, once a distant dream, are dropping in price and gaining efficiency so quickly that some investors are reluctant to put their money to work because their investment will become obsolete so quickly.

The single cheapest and most reliable power source in existence emits no CO2 and also happens to be the safest. That power source currently makes up 72% of the power supply in France, giving them more than 40% cheaper energy than next-door Germany at a fraction of Germany’s carbon intensity (despite Germany’s enormous investments into wind and solar). France’s secret is nuclear power.

Nuclear has a bad name because of Chernobyl, Fukushima, and Three Mile Island. Two of those events were much less significant than is widely believed and the third happened at a Soviet powerplant that doubled as a uranium enrichment facility. Three Mile Island, despite gross mismanagement, released enough radiation to give people in the immediate vicinity a chest x-ray. It was, despite the widespread panic, a non-event. Fukushima released even less radiation than that with an entirely preventable problem. If the operators had used protocols in place at modern French or American plants, there would have been no radiation leakage at all. Chernobyl, the biggest nuclear disaster to date, caused an exclusion zone that will not be lived in by humans for generations. The cause of that disaster involved some of the mechanics of the core, which was only designed that way in the interest of creating enriched uranium for usage in the manufacture of bombs. It would not have been replicable in any powerplants ever used in the US. For context, we have 6,000 combined nuclear reactor years in the US Navy with precisely zero incidents of failure. 

If it is the cheapest form of energy and it’s the safest form of energy, why are nuclear powerplants becoming uncompetitive in the US? Obtaining a permit and building the powerplant might be prohibitively expensive, but surely if running the powerplant was cheap, they would continue to maintain existing plants. Unfortunately, annual regulatory costs PER PLANT range from $7.4 to $15.5 million. Most of this is spent on paperwork compliance. Essentially, we are regulating our best form of power out of business because of an imagined danger while thousands die every year from the health effects of other power sources such as coal. Bill Gates has invested in a company that may have found a way around it by creating prefabricated nuclear reactors that can then be installed in a distributed fashion, but the company has not shipped a single reactor since its establishment 14 years ago and there is not currently an ETA on the first.

Solar and wind may present a way out for the bulk of our energy needs should the costs continue to plummet, but they are both intermittent sources and they are both highly dependent on favorable weather for their particular form of energy gathering. Part of that could be solved with the installation of a better power grid. Some of our power grid still dates from close to 100 years ago. China has established high-powered direct current lines that now criss-cross their nation and allow them to send power from one region to another nearly instantaneously. We will need a better power grid to suit modern needs.

The future could be bright – both literally and figuratively – if we allow it to be. The inflation of energy costs over time is one of the great tragedies of our time and can be laid almost exclusively at the feet of regulation without thought to the burden placed on producers. Deregulated markets will help create healthy competition among producers, but leaving existing regulatory burdens in place would prevent nuclear from competing on even grounds. France provides us with a way forward on nuclear. We can make it distinctly American with some healthy competition.

Gamestop, AMC, and, to a lesser extent, silver rocketed spectacularly last week, driven by a group of speculators on an online forum hosted by Reddit called Wall Street Bets. The run up shocked the financial world not for its violence (this particular flavor is something called a short squeeze and it is nothing new), but for the fact that the squeeze was triggered by retail investors. The snowballing effect of thousands of ‘little guys’ taking the opposite side of an oversized bet on the part of a couple of hedge funds was also exacerbated by the way the bet was made. At the highs, Gamestop, in particular, reached a price nearly 200 times its 52-week lows and more than 20 times its price immediately preceding the rally. The case is nearly certain to have serious repercussions, regulatory or otherwise.

Before we get into all that, though, let’s dive into Gamestop. The stock was the most heavily shorted in the market by a pretty wide margin and had some minor good news in the form of a board shake-up. ‘Shorting’ a stock is done by borrowing the shares and selling them. You can make money by buying the stock back lower and pocketing the excess cash. Shorts perform a valuable service to the market by helping prevent bubbles or calling attention to fraudulent activity. In Gamestop’s case, the short interest, or percentage of publicly traded shares sold short, was 150%. Short interest is publicly available information, so both Reddit netizens and hedge fund shorts would have known about it. Since there is no limit to how high a stock can go, a short seller can lose an unlimited amount of money. When losses start piling up, shorts are forced to close their positions, leading to an upward explosion of prices when the weakest players start to puke and a domino effect up the food chain takes out more of them. Normally, retail lacks the buying power to force a short squeeze (in the past, it has almost always been a pissing contest of financial powerhouses). However, because of the monolithic action of a forum of thousands and the leverage provided by options, retail buyers briefly pushed around large asset managers.

The entire ordeal would have been nothing more than an oddity if it were not for the events that followed. Several brokerages suspended the trading of shares of those stocks. Robinhood, a popular brokerage firm among the retail buyers of Gamestop, was widely panned for the move. Robinhood does not charge any fees to its ‘customers’ for trading; instead, it sells order flow and data to the very same hedge funds that were taking heavy losses from the short squeeze. They are not the only brokerage to do this, but they were the first. This is clearly a conflict of interest and raises questions about the reasons for the suspension. A benign explanation would be that they ran out of liquidity when executing those orders (exchanges require money for margin). However, it is also entirely possible that they did so out of deference to their real customers: the hedge funds and market makers paying them money for the privilege of trading with their customers.

Companies selling the data of people using their (free or discounted) service is not limited to Robinhood. Social media giants do it. Google does it. Many news outlets do it. The question we are left with is: how comfortable should we be with this business model? In financial markets, the potential for abuse is particularly pernicious. In theory, Facebook selling data to advertisers could lead to better targeting and a better product for consumers. A market maker or hedge fund paying Robinhood for order flow is paying because they know they can give Robinhood’s customers a worse price on their trades. Financial regulators should consider limiting the practice or at least requiring more disclosures.

Zooming out, there are some broader takeaways. Fundamental business value and stock prices have become increasingly separated from each other, something that has historically preceded market crashes. The combination of the Federal Reserve’s monetary stimulus and fiscal stimulus putting money in pockets that have no way of spending it is one explanation. This could be just a flash in the pan while the market continues to rise. However, money managers have less cash ready for deployment than they have in decades and bullish sentiment is sky-high. If stocks start selling off, there won’t be many buyers left to break the fall.

In a press conference last week, President Joe Biden showed us his plan to get the economy back on track after a year of ravaging by COVID-19. It will be his first priority after Wednesday’s inauguration. Despite all that has been done so far, further action is an absolute necessity. Some of the plan will likely come with some bipartisan support while others may just be a beginning salvo in a negotiation with Republican leadership. With that in mind, let’s dig into some of the details.

The Good

The stimulus is mostly focused on helping people directly, which also happens to be the most efficient method of delivering stimulus. Let’s go piece by piece.

• Extension of federal unemployment through September with a $400 weekly supplement
  • This is ideal because it is direct aid to those who need it most. The pandemic economy has been widely divergent with some people struggling while others have done fine or better due to lower costs.
• Earned Income Tax Credits are approximately tripled and eligibility for the program is expanded.
  • This helps people whose hours have been cut, but it also expands the single most effective program we have for lifting people out of poverty. It is efficient in that it minimizes bad incentives and it is a precise instrument for putting money into the right hands. This should be a bipartisan slam dunk.
• Renews requirement for paid leave to workers and expands paid sick leave for federal employees.
  • We do not want to force sick people to come to work to spread their ailments. This is particularly important in a pandemic.
• Funds vaccination and prevention efforts with $20 billion for vaccination, $50 billion for expanded testing, $10 billion for pandemic supply manufacturing, and $30 billion for the Disaster Relief Fund
  • We can’t recover until the pandemic is over. This one is obvious.
• Puts $130 billion towards safely reopening schools
  • The World Bank estimates a 5% loss of lifetime income from six months of missed schooling. Testing is already showing much worse learning outcomes for children learning remotely (especially low-income children). Kids need to get back to school, but protective measures are not cheap. This helps.
• Sends $350 billion in aid to state and local governments
  • Most economists (and me) have been big proponents of this measure. People rely on services from their local governments far more than they do on the federal government. 
  • This decentralizes spending and allows people who are much closer to their constituents to determine how to help those constituents.
  • For context, this is a bit more than 10% of total state and local government spending per annum
• Dedicates $5 billion to housing the homeless
  • Data show that the best way to help homeless people re-enter society or prevent people from becoming homeless is to help them find housing. Outcomes for those who have housing are, unsurprisingly, much better. It also SAVES money by reducing the resources that need to be spent caring for people roughing it on the streets.
• Student debt forgiveness is NOT on this plan
  • College graduates have done better in general, making nearly twice as much as those without a college degree. The pandemic has only exacerbated this disparity by putting more pressure on blue-collar workers. Student debt forgiveness is, in effect, a wealth transfer from low-income workers to higher-income workers.
  • It may be a little weird to mention something not even in the plan, but Biden has been under pressure from many on the left side of the Democratic Party to make this a priority.

The Bad

Some parts of the plan misinterpret the problems we face, though. The economy is gushing with liquid cash; it just isn’t in the right places.

• The $1,400 stimulus check
  • It is simultaneously the most expensive and least targeted measure. Referring to the above chart, you can probably gather that most Americans are doing OK. Why are we giving big checks to people who don’t need it? We need to be focusing on those who lost their jobs or exited the workforce because of the pandemic. This piles up debt without giving us the results we need. Unfortunately, this is also the most covered item, perhaps because it’s simple and everyone gets it.
  • I do think we need to redesign our welfare system to make it simpler and focus on cash, but that is a discussion for another day. This is not the way to revive an economy, it’s the way to add to inflation and debt.
• The $15 minimum wage
  • This is probably the worst item in the bill. I’m skeptical that it will pass, but it is bad even as a negotiating tactic. Median wage in Mississippi is $15 per hour. That means that half of all workers in that state make less than $15 per hour. There are many states in the union where the new federal minimum wage would be very close to the median. Costs are different in different places and making a blanket federal minimum wage this high would be disastrous for those places.
  • Referring to the chart above, you can see that small business owner income (under proprietor’s income) didn’t do as well as other parts of the economy. Bringing wages that much higher would be disastrous for them. This is better left to the states.
• Extension of an eviction ban through September with $30 billion earmarked for renters and small landlords
  • In theory, we do want to keep people in their homes. However, this policy has given disruptive renters a free pass and some are taking advantage of the situation to just not pay their rent. Other measures being taken should be enough to support people who have lost their incomes due to the pandemic.
  • Additionally, landlords with portfolios of all different sizes are essentially being forced to pay for public housing. I’m quite sure they’d rather have the freedom to do with their property what they wished rather than a small supplement for dealing with bad tenants. There have been plenty of stories about landlords offering checks to tenants to just move out even after forgiving unpaid rent.

The OK

Some parts of the bill are better than doing nothing, but should be better executed.

• Tax credit for 50% of spending on childcare up to $8,000 per year on one child or $16,000 per family and an expansion of the child tax credit of 50%+
  • Parents of young children have encountered some very real problems as schools have gone remote. It’s also important that we encourage people to have children; population growth is key to economic growth.
  • Subsidizing childcare is, unfortunately, not the best way to help. This will lead to inflation in childcare costs, making it that much more difficult for those who pay less than $8-16k in taxes to afford that care.
  • Instead, giving parents cash allows them to spend it on things they know will help their children. Is grandma taking care of the kids? Spend it on helping her pay for gas, food, and activities. Need to hire a babysitter? Do that instead! A famous lyric from an Eminem song says that food stamps don’t pay for diapers. Cash is good for anything.
• SNAP (food stamps) gets a 15% boost
  • Again, helping people who are struggling is good and SNAP is pretty targeted, but cash is better because of its versatility (see above).
• Small businesses get $15 billion in grants and $35 billion in federal funds will be leveraged into $175 billion in loans to small businesses
  • As you can see from the chart above, small businesses have not done very well over the past year. This is particularly true for restaurants, bars, and businesses relying on tourism or travel. Sending help their way helps bridge the gap until we get the virus under control.
  • It is not targeted, though, and may be propping up businesses that would be dying even in the absence of COVID. Instead, giving businesses that have been forced to suspend offering their services or restricted in how they can do so due to lockdowns or stay-at-home orders grants of some percentage of their 2019 reported income could help them pay overhead while avoiding keeping zombie firms on life support.

For the final installment of this short series, I will be talking about how we go about building our future. The amazing technologies that have enabled us to bring the entirety of human knowledge with us or create revolutionary treatments for rare diseases did not simply spring from a void and the technologies of tomorrow will not either. Foundational research in basic science (basic meaning theoretical, not simple) paves the way to the next steps to our society. Historically, great leaps in technology have been sparked by war or competition between countries. Many of those inventions are now essential to our everyday lives. 

As an example, let’s look at some of the things that were discovered during World War II. Alan Turing invented the computer (with some help) to break German cryptography that protected their communications. Jet engines were a nut both Germans and Allied powers cracked by the end of the war. Radar and nuclear fission began their lives in World War II. Government resources were poured into researching technologies that were deemed potentially useful for the war, and commercial applications sprang forth immediately following its conclusion. 

During the Cold War, the US and the Soviet Union were locked into an arms race that was wasteful in that we spent gobs of money on weapons that could have instead been spent on improving the lot of our citizens, but it also encouraged money to be poured into information technology. GPS and the internet came about because we were looking for ways to track the Soviets or quickly share information. DARPA, or the Defense Advanced Research Projects Agency, has been an essential investor in basic research that propelled us forward.

We don’t even have to go into the past to find adversity that helped us decide to open the spigots. The race to find a vaccine for COVID-19 has pushed mRNA technology ahead by at least a decade. Faster research turnarounds were possible because of improved information technology, we placed more focus on efficiency in the approval process, and an accomplishment of barely 20 years ago – sequencing the human genome – was an integral part of the vaccine itself.

Federally funded research is used in approximately a third of all US patents, but that number is falling. Public knowledge allows firms to compete on its application, so a discovery’s value to society is multiplied many times over if the research is public. That’s why the fact that federally funded research falling below 50% in 2012 is problematic. There is plenty of room for the government to spend more on research. One in ten NIH (National Institute of Health) grants directly results in a patent, but its funding was just slashed. 

It isn’t just about the sum of money that is going to research, either. The method of distribution has put sand in the gears as well. We can be a guaranteed buyer, leveraging markets for more efficient public-private partnerships or we can invest in scientific discoveries with implications for health, energy, transportation, and, yes, weapons. Splashing money around via an archaic bureaucratic system, as we do now, is probably not the most efficient method of getting money in the hands of the best researchers. Instead, it’s the best way of getting money into the hands of the best navigators of bureaucracy. There is likely some overlap, but it’s also more like using a shotgun than a sniper rifle.

The US has been the global leader in innovation for a century, but China is hot on our heels right now. Their economic system is a handicap for them, but they also spend a much greater portion of their GDP on research. We spend less than three percent of our GDP on research and development, a number that could be far higher. By creating ambitious goals for ourselves, we can push ourselves into the future we deserve.

With the latest round of stimulus in the books after a bit of a head-fake from President Trump on a veto, we may not see another major package. That is somewhat dependent on the outcome of the run-off Senate elections in Georgia, but even if Democrats win both of those seats, another major package may be tough to get through the Senate. Still, let’s take a look at what has worked, what hasn’t, and what kinds of fiscal action are called for in a major economic downturn like this. The one-off check that Trump bluffed a veto over expanding, for example, is not a particularly effective method of stimulus. Expanding the unemployment program, however, keeps people afloat who suddenly find themselves in a much more difficult situation than they could have expected. The Paycheck Protection Program, despite its initial popularity, continues to be a deeply flawed program. Bailouts to large, publicly traded companies served only to delay the inevitable or prop up ineffectual management. State and local government, meanwhile, was left out to dry despite being the country’s largest employer.

Many of the mistakes that were made in the rush to get something out the door could have been corrected after we had more time to evaluate their effects, but they were repeated. Media coverage has centered on a small aspect of both the original stimulus bill and the new one while more important aspects are scarcely mentioned. The $1,200 check in the first one and the $600 check in the second will do very little to help someone who suddenly became unemployed and is superfluous for people who were able to just work from home. Frontline workers, meanwhile, probably could have gotten by with enhanced access to medical care and testing. I thought the first check was a good idea because I nearly always think people are the best judges of what they need and cash is the best way to let people make their own decisions. When the data trickled in, though, it showed that people socked that money into savings for the most part. Since the goal was stimulating economic activity, we can say with a high degree of certainty that that check did not have the intended effect. Given that data, the best idea would have been to change the approach to either split the checks into installments or put that money into expanding other things that we do know are accomplishing the goal of stimulating the economy rather than just sending out a splashy check.

The largest single part of the legislation is an expansion of the Paycheck Protection Program, which makes up roughly a third of the package. We already saw that a large portion of that money went to companies and people that were not using it for its intended purpose – to keep people employed. Many large corporations were able to successfully apply for those loans and others just used it to defray costs. If a company would have to lay off their employees but for a loan, there’s a good chance they don’t have enough work or revenue at the moment to justify keeping them around. This, again, would imply that we have repeated a mistake for which we have strong data showing us the error of our ways. Instead of giving out these loans, we would have been better served by simply providing more resources to the unemployed and making it as easy as possible for companies to re-hire their employees when things return to some semblance of normal. The market (which is to say everyone) will always be a more powerful force than any government entity. As Jeff Goldblum famously said in Jurassic Park, “Life, uh, finds a way.”

The biggest mistake, though, is not about the somewhat ineffectual policies that were repeated. They aren’t perfect, but they are better than not doing anything. No, the biggest mistake was leaving out state and local governments. Together, they employ over 15 million Americans. With reduced tourism, less patronage of bars and restaurants, and less revenue from retail, state and local governments have been just as hard-hit as airlines. The airlines have been given billions in aid, though, while our state and local governments have been given very little from the federal government. Between February and July of this year, more than 1.5 million jobs in state and local government were lost. Despite the fact that people need the services of their local governments now more than ever, those services had to be cut back or suspended altogether. Not many people need to be flying right now and unemployment insurance could have helped airline employees stay on their feet. Millions of people, though, were unable to utilize essential services from their local governments.

This is not to say that the latest iteration of stimulus is a bad bill; we needed to do something and there are some great aspects of it. Schools, for example, will have a much easier time reopening safely with the influx of cash they will be given. The unemployment program that kept millions of people above water over the past year was renewed (albeit at a lower level). The point, though, is that we can do better. We should always work to improve where we can and it is disappointing that we did not use widely available data to make our government serve everyone better.

It’s that time of year, so I’m doing a lightly themed version of what ideal areas of focus are for government spending. We’re using ‘A Christmas Carol’ and playing with the ghost of Christmas Past/Present/Future. Sorry. It’s low-hanging fruit.

Almost every aspect of our infrastructure, once world-class, is now outdated and crumbling. Our overall score on the American Society of Civil Engineers’ report card is a D. Estimates for the scale of the underinvestment range well over a trillion dollars. That’s not a total bill, that’s an estimate of the cost of bringing our existing infrastructure into good condition and modernizing it. There are some exceptions; our freight rail infrastructure is the best in the world and energy production is both diverse and robust. Bringing the rest of our infrastructure up to the standards set by those aspects would help boost GDP growth in the short run, increase the value of existing government assets, and add long-term growth.

Let’s start by talking about the movement of people. Public transit is where the US has the worst shortcomings. In a 2013 poll, only 51% of Americans responded that they would be able to get to a grocery store using public transit. The yawning gulf between effective public transportation and what we currently have is only expanding as our population becomes more urbanized. Even cities thought of as places with high-quality infrastructure are struggling to modernize. New York City’s subway system frequently encounters delays and overcrowding. Updating aging systems, refurbishing rusting and crumbling tracks, and expanding insufficient public transit infrastructure is particularly difficult in dense cities where real estate is valuable and utilities are run underneath our feet. On top of that, sometimes residents stand in the way as the noise can be something of a nuisance.

The answer to ballooning costs is not just throwing money after the problem; urban planners must first observe how people move and then figure out how existing systems can be supplemented or expanded. For example, many South American nations, too poor to afford expensive rail systems, rely on slightly modifying roads so buses can move rapidly through traffic. Adding tolls to roads reduces traffic and increases usage of public transit, which in turn makes it more sustainable. Tolls also help fund maintenance on those roads (if you’ve ever taken a toll road, you’ve probably noticed that the quality is noticeably better).

Our highways, after all, are not in great condition, either. They have a growing backlog of needed rehabilitation. The combination of deteriorating quality and increasing congestion has led to the end of the decline in traffic fatalities and an estimated annual cost of $160 billion in wasted fuel and time according to a study conducted by Texas A&M. We need to invest an enormous amount of money in our roads to bring them back up to par. We could easily connect this to public transit and only spend the money in municipalities that allow higher levels of density. 

If you don’t want to drive over the highways, you have to walk into one of our airports. It’s likely that, if you’ve traveled abroad, you’ve noticed the difference in quality between US airports and airports in Europe or Asia. User fees are federally capped in the US, limiting the ability of our airports to invest in themselves. The results are crowding, lines, more frequent delays, and longer delays when they do occur. The problem has gone on for too long, though, and needs to be kickstarted with a shot of stimulus for expanded terminals, updated air traffic control (especially important with the expansion of drones), and more runways.

Goods are also frequently spirited across the country and the globe via our roads and airports, but there is one thing we do better than anyone else: freight rail. This is one of a few things that President Jimmy Carter successfully deregulated. The Staggers Act (1980), freed carriers to set their own prices and allowed them to abandon lines that were no longer profitable. The combination of higher potential profit and lower risk unleashed a wave of competition and today we ship a higher percentage of goods by rail than any other developed nation despite an effective subsidy of trucks (not as many tolls and lower taxes) when compared to those other nations. It should be noted that this deregulation was limited to freight rail and did not impact passenger rail.

Another successful Carter Era policy was the deregulation of utilities. Energy was addressed by forcing the owners of the electric grid to accept electricity from any source, which made solar and wind farms possible today. Rates are lower with energy producers forced to compete and the network is more distributed. This means that it is also more robust; if one producer is somehow incapacitated, the entire grid does not collapse. Further investments in the basic research making more advanced methods of energy production possible could go a long way towards helping us grow; more energy makes all energy cheaper and that makes more things possible. We will talk about that in the ‘future’ section of this brief series.

Electric transmission, though, is mostly unchanged since the 1950s and 60s. Competition is harder, especially over long distances. You don’t necessarily want multiple long-distance powerlines dotting the landscape or covering our cities. It would probably be more effective to use competition only in the bidding on the construction of new lines. NASA was able to spark a private revolution in rockets by guaranteeing a buyer of that propulsion. The Department of Energy could certainly do it by guaranteeing a buyer of massive amounts of modern electricity transmission infrastructure. SpaceX built reusable rockets. Perhaps the best kind of infrastructure has not yet been invented. 

Nothing will change without enormous investments and these only scratch the surface of what we need to work on, but sustainable investments must make every dollar count. Spending carefully and maximizing the impact of each dollar doesn’t just save us from a pile of debt, it means we can do more now. The $900 billion stimulus bill that made it through Congress does start to address some of these issues, but that’s all it is: a start.

As President-Elect Biden puts together his cabinet and begins sketching out his priorities, expectations for his administration are beginning to crystalize. Some, including Senator Elizabeth Warren and Senate Minority Leader Chuck Schumer, are still pushing for widespread forgiveness of student loans. Others are pushing for enormous spending packages complete with large stimulus checks. Resources, however, are not infinite. Even Biden’s choice for Treasury Secretary, Janet Yellen (previously of the Federal Reserve), has said that. Senate Majority Leader Mitch McConnell has signaled openness for a reduced spending package, but it will not be anywhere near the size that House Democrats have been seeking. Economic policy should also be constrained by the Federal government’s ability to bear the debt. Some flexibility is warranted given the situation, but the last four years have not prepared us for another spending spree; the deficit was already high.

With all that in mind, Biden should be focused on where Federal dollars can go that would have the greatest impact both in the short and long term. The tagline to his campaign was “Build Back Better.” We can do precisely that with targeted investments in energy, infrastructure, and scientific research while ensuring everyone can utilize the resources of a new and improved America by providing direct cash payments. Choosing to invest in things that make our entire economy work better is the only way we can recover without creating an undue burden on our future. Over the next several weeks, I will go into more detail about some of the different options covered here along with the reasons why we do need to avoid overspending.

Politically, the Biden Administration will be flanked by a Senate that will likely be majority Republican or, at the least, split with some Democrats occupying a far more moderate stance than the progressive wing of the party. If he wishes to get anything done, he will have to appeal to a coterie of moderate Democrats and Republicans who are probably not going to support profligate spending on some of the more aggressive programs being proposed. If the staff Biden is putting together is any indication of his intentions, and it almost certainly is, he plans on trying to occupy the middle and perhaps even making bipartisan overtures.

The first priority has to be reigniting the American economy. We have been sputtering along since March with fits and starts, but there has been no momentum. State and local governments have been struggling with those that rely on tourism or retail sales for tax revenue suffering particularly acutely. Working parents have been forced to do their jobs while their children stay home and take classes over Zoom. Many of the people who have lost work are the ones that can least afford to do so and unemployment benefits are set to expire this month. We need to put cash in the hands of consumers so they can turn the crank and get the massive engine that is the US consumer economy humming again.

With that taken care of, Biden can focus on refinement. We have fallen close to $2 trillion behind on maintaining our infrastructure. Our electrical grid is a system cobbled together over the course of more than a century with some parts from the early 1900s still in use. This is not about constructing massive new projects; we need to bring our old system back into working condition. Still, technology has advanced quite a bit since then. We can improve the infrastructure to better accommodate the more sporadic wind and solar power. Highways should be supplemented with a better charging infrastructure for electric vehicles and signage or electronics specifically geared towards autonomous vehicles. 

All those investments in communities across the country should not come without strings, though. We face a housing crisis that is only getting worse. Low- and middle-income families have been blocked from living in high opportunity zones with onerous zoning laws preventing the construction of more housing supply, driving up prices and exacerbating inequality. Infrastructure money should only come in return for loosened zoning laws, which would, in turn, create a new construction boom, bringing more good middle-class jobs. The only thing that will stand in the way is a hardline approach seeking too much.