Friday, September 9, 2011

Debt and infrastructure

It's conservative to avoid debt and to pay any debts you do have. It's liberal to finance one's goals with debt. And it's foolish to finance optional luxuries with debt. Maybe.

Of course if this is true, every family that purchased a home with a mortgage is liberal. If they were truly conservative they'd save until they had the cash for the price.

Precious few do, making them conservatives when it suits them, but not conservative as a hard and fast principle.

Likewise, the average corporate CEO is aggressively conservative. Yet what large, successful business hasn't financed growth with debt? What do you think stocks and bonds are? What do you think the Wall Street Stock Exchange is?

What I observed over 20 years of reporting on Silicon Valley companies is that the successful startups didn't use their venture capital borrowing to pay for fabulous offices, cars and perks for the management suite. They used that debt to buy company infrastructure, marketing, R&D.

But even when it comes to luxuries, suppose you discover your spouse has an incurable, mortal illness but is currently well enough to travel. Would you take out a second mortgage to take your spouse on his or her dream vacation? Or would you refuse, proudly citing conservative principles?

And how do you know your spouse doesn't have an undiagnosed cancer that, when you discover it, it will be too late for that vacation? This actually happened to our next door neighbors, such that their lifetime of scrimping and saving for world-traveling retirement years came to nothing. The husband spent the last year of his life in a hospital bed, waiting for a heart transplant that never came.

The fact is that reasonable people--and corporations--see debt as a tool that can be used or misused. Not as something that's automatically bad or good.

And one form of debt businesses and government incur that's not so obvious is infrastructure maintenance and repair.

In general this is a form of debt that can be hidden--yet failure to deal with it on a timely basis creates a balloon payment at the end.

Maintenance deferred is debt compounded.

For example, suppose a condo complex doesn['t meet current earthquake retrofit standards--it's built over garages and needs reinforcing that will cost $9,000 per unit. If this isn't done, after a significant earthquake doing the repairs at that point will cost six times as much--possible a lot more--perhaps accompanied by loss of life and irreplaceable possessions that can't be priced.

Our nation's infrastructure has maintenance needs that have been sacrificed for decades to the insistence on low taxes and the ballooning outlays for public employee pension plans that were implemented without being funded.

So that unmaintained bridge collapses in rush hour traffic, killing half a dozen people and maiming others, and must be rebuilt from scratch instead of being repaired. The dam fails. The potholed streets and freeways damage car and truck undercarriages and/or just wears them out prematurely, which individuals and companies have to pay for, thus passing the expense of those saved taxes to consumers and businesses on the downlow.

 It's called being penny wise and pount foolish.

So when the President calls on the legislature to fund infrastructure maintenance, he's not calling to increase our debt--he's calling on us to pay debts we incurred when we built that infrastructure--and he's calling on the legislature to pay that debt with borrowing and/or taxing instead of incurring vastly higher debt by waiting for damaging deterioration and collapse to take place.

It is conservative to pay what you owe. And unless we're willing to do without those roads and bridges and dams and more, we owe the nation the maintenance of its infrastructure.

1 comment:

Anonymous said...

Agree totally with your points on debt and infrastructure spending. Infrastructure is wealth that leads to more wealth and commerce. I would like to see these on a grand scale like Hoover or TVA. Take a look at a proposal for a North American Water and Power Alliance (NAWAPA) ref. 1.

I disagree with you in one point. You could pan a video cam on the entire congress and record but a handful of real conservatives. Just because they are called conservative does not mean that they are.

The faux conservatives in Washington guard against Federal spending such as entitlements while they willing pour other entitlements on criminal banks and insurance companies in the form of TARP. All this while simultaeously enriching (???) by funding our wars of empire under the Imperial puppet himself sitting at the presidents desk.

The Kibuki dance continues "Ordo ab chao"