A Stitch in Haste

Investment banking hobbyist, full-time speech giver and relentless France apologist Felix Rohatyn wants to explode the national debt by $100 billion just for the fun of it: (WSJ - $)

Under today's budget rules, the Louisiana Purchase would have been regarded as a budget-buster and the Congress might well have turned it down. As a result, Jefferson might have had to go to war with France to accomplish the same purpose, an alternative that was under consideration at the time. This may be an extreme example, but it illustrates a much-overlooked reality — borrowing for investments is different from borrowing for recurring expenditure and should be treated as such. This fundamental reality is sadly missing in the current debate about deficits and economic policy.
...
To help deal with our shortage of public capital investment, the Congress should authorize a trust fund of up to $100 billion, to be financed over a five-year period by special 50-year Treasury bonds created for that specific purpose. The fund should be used to co-finance high priority state and local investment programs, including physical infrastructure and projects to create intellectual property. Tight outside controls will be applied to the operations of the fund, and it should also be subject to the federal debt limit.

First of all, Rohatyn makes an inexplicably bizarre choice of historical example — the debate over the Louisiana Purchase was not so much about the cost but rather the constitutionality of Jefferson's plan. (Jefferson could be quite the flip-flopping hypocrite when necessary — he relentlessly pestered Alexander Hamilton during the earliest days of the Republic, citing enumerated powers objections to many of Hamilton's programs, but conveniently read "the power to buy land" into the Constitution when it suited him. Go figure.)

Of course the far better example of an American public infrastructure triumph (and from roughly the same period as the Louisiana Purchase) was the Erie Canal, the brainchild of New York ueber-politician DeWitt Clinton.

Why would Rohatyn overlook the Erie Canal? Here are some possible explanations:

--The Erie Canal charged tolls with which to repay the bonds that built it. The Louisiana Purchase, qua purchase, may have provided prestige and stability to the fledgling United States, but it did not provide a direct, tangible return on investment. Nor of course would the projects to be underwritten by Rohatyn's proposed slush fund. Go figure.

--The bonds that built the Erie Canal were of course also eventually redeemed. Rohatyn's infrastructure bonds would merely be a perpetually revolving add-on to the ever-increasing national debt. A debt, by the way, that is about to explode as the fraud of the Social Security "trust fund" becomes inescapable in 2017. Incidentally, thanks to a veto by President James Madison, not one penny of federal money went to help build the canal. Go figure.

--The Erie Canal was, by definition, a clearly-defined project with specifically targeted bonds (what today we call "revenue bonds"). The monies raised for the canal were not subject to the Politics of Pull, with some monies going to this or that congressional district as part of the give-and-take of national politics based on the strength or weakness of this or that politician or bureaucrat or lobbyist. Would Rohatyn dare suggest that his proposed slush fund would be similarly insulated from misallocation and abuse in today's political climate? No? Go figure.

--Jefferson vehemently opposed the Erie Canal, calling it "little short of madness." Oops. Can't praise your favorite Francophile president over something he was humiliatingly wrong about. Go figure.

The Louisiana Purchase changed the map. The Erie Canal changed the world. Which is the better model for American infrastructure policy?

UPDATE: Rohatyn repeats his call in the Washington Post. His arguments are unchanged.

Suggested Reading: