American Jobs Plan: Remaking America pt.2

This article from Fitch Solutions titled “The Biden Infrastructure Plan: Key Implications For The US Infrastructure And Building Sectors” details the gargantuan scope of this initiative. When you follow the link, you will find a registration wall but do not be deterred, Fitch’s just wants you to be registered to read it. There is no subscription fee.

The article contains at least half-dozen pie charts and another half-dozen bar graphs illustrating the massive changes to American industrial sectors under the $2.3T American Jobs Plan (AJP). The extent of this is illustrated in such as the plan to electrify 20% of American school buses. It will replace 50,000 diesel-powered Federal vehicles. It incentivizes with $213B to “to ‘produce, preserve and retrofit’ over 2.0mn affordable homes”. Public housing infrastructure improvements would benefit from $40B of investment. Commercial building would also see investment. $100B is dedicated to upgrade and build new public schools; $10B would upgrade Federal buildings; Veterans Administration hospitals and clinics would benefit from $18B investment. “Additionally, a portion of USD300bn in funding allocated to programs supporting domestic manufacturing as well as part of USD180bn in funding to go to research and development would likely involve facility improvements, further boosting the non-residential segment,” Fitch reports.

This stimulates my thoughts about indirect economic impact. All this building and the funds for it mean sales for domestic producers of such as structural steel. Currently the American Steel and Iron Institute reports that capacity utilization was more than 82% when it supplied 1,839,000 metric tons the week of June 19. Year-to-date (YTD), they produced 43,219,000 metric tons, utilizing 79% of capacity; up 14% Year-over-year (YOY) when capacity utilization was just 67.8%. These numbers speak to the increasing economic activity of our “grand reopening” of the USA. The high capacity utilization is supplying current demand that probably includes back logged projects due to the COVID-19 suppressed economy of 2020.

Continuing our focus on steel; only one component of construction materials; imagine the greatly-expanded demand created by the Biden plans. It is likely that the demand will push capacity utilization over 100%. This means that the US steel industry would need to increase capacity to meet demand. Steel is also going to be demanded for increased passenger rail service both inter and intra-city-wise. $80B is dedicated to this part of the massive transportation infrastructure plan. Arizonans may finally get the passenger rail service between Tucson and Phoenix we have been dreaming of for decades. Ten thousand bridges are slated for rebuilding. These are chiefly if not entirely composed of structural steel.

Tucson Mayor Regina Romero recently spoke about the resources available from the AJP to the City of Tucson for addressing the water contamination that forced the closure of southside wells due to PFAS contamination. Romero spoke more generally about the benefits to the city in this opinion piece from the Arizona Daily Star:

“The AJP would be transformative for Tucson and communities across the country, rebuilding our nation’s transportation networks, creating millions of good-paying, union and green jobs, prioritizing historically under-invested communities, and re-defining “infrastructure” to encompass basic necessities such as high-speed internet and affordable housing.” -excerpt “Tucson Mayor Romero: American Jobs Plan would be game-changer for us

It is also noteworthy that the AJP will seek materials for the projects from domestic manufacturers and suppliers before foreign ones are tapped. This will entail the use of our huge surplus labor force. According to the US Bureau of Labor statistics, the US workforce participation rate (LFP) is about 61.7%. This metric is a broader, longer term one than the unemployment rate we usually consider. This is due to the fact that the unemployment statistic measures only those workers who are registered with state bureaus. If they become discouraged and stop reporting, they fall off the rolls and become non-statistical. The LFP indicates that tens of millions of American workers are not utilized or grossly under-utilized. Many of these do not work due to support by a partner and may be providing uncompensated social value through care of children or elderly parents. The American Family Plan will address this by compensating millions of these people. Many of these who are providing childcare out of necessity due to the unaffordability of commercial childcare will be unburdened of this when tens of thousands of new childcare facilities are constructed under the AJP’s dedication of $25B for this need.

That brings me to my conclusion and a focus upon another indirect economic benefit of the AJP. Adding tens of millions of workers to our workforce and retraining and educating tens of millions more through the free community colleges and workforce development funding of $100B will greatly expand production. The US Gross Domestic Product will swell from the former meager 2.5% we have been accepting. The Federal Reserve estimates GDP growth this year to be 7% only to slide back to less than 3% in 2022. The Fed, it seems does not anticipate passage of the American Jobs Plan. The Jobs Plan creates wealth on a massive and very broad scale. It keeps on giving through efficiencies realized with enhanced transportation of good and people; enhanced communication and information access; and a larger and more productive workforce. The tens of millions of new and well-paid American workers will bring hundreds of billions of dollars of consumer demand into the economy growing it in all corners. It is truly transformational and should be carried out.

Fed Vice Chairman sees “hailing range”

Dean Baker correctly alerts us to the ominous statements made by the Federal Reserve Board Vice-Chairman, Stanley

Stanley Fisher VP FRB
FRB Vice Chairman Stanley Fischer

Fischer. Baker points out that 2% is a inflation target average; not a ceiling. It would be economically counterproductive to raise the Fed Funds Rate when the US economy is in the 8th year of recovery from the worst recession in US history since the Great Depression. Wall St. banks have resisted easing credit since they were unable to establish values for themselves and their cohorts in October of 2008. Yes, students of the economy remember the meeting Treasury Secretary Paulson had with 9 of the biggest banks in the USA. At that meeting the values of each of the banks was assigned to them via a dollar amount he had written on a slip of paper. Each received a portion of $125B of Treasury funds in the form of purchase of preferred stock.


The Federal Reserve’s control of the money big banks can access is used to encourage economic expansion or cool off an economy that is expanding too rapidly. If it hikes the rates, banks can charge higher loan interest rates such as mortgages and they can pay depositors higher rates.

The Fed’s monetary actions have not had much effect on the lending of big banks. Several years of 0% to .25% failed to produce the loans necessary to cause business expansion. Failing this, the Fed resorted to “quantitative easing”…twice also with little effect. The QE, (link for sight impaired) as it is called forces banks to sell government bonds to the Federal Reserve thereby reducing the securities on their books and increasing their cash. The theory of QE is that without interest producing securities, banks are forced to find a market for this cash; hopefully retail borrowers.

A big part of the problem of bank lending is the domination of Wall St. banks in the banking industry. Wall St. banks have centralized credit policies that limit the lending of local bank managers. Businesses without hard collateral cannot meet the risk avoidance criteria of their local Wall St. bank branches. With slack lending through their thousands of retail branches, the Wall St. banks must look to businesses with a national presence. Here, they may be finding slack demand for credit. This slack demand is due to the fact that these businesses have excess productive capacity. That is, they are capable of producing more product but have no market for it. Currently, producers in the aggregate have almost 25% excess capacity; a full 5% below the average capacity utilization between 1972 and 2015. If you can produce more with what you already have, you have no need to expand, nor to borrow to finance that expansion.

This dilemma; having too much capital concentrated within centralized lending institutions while too little capital is in the hands of consumers is driving bizarre proposals such as Vice Chairman Fischer’s. The Federal Reserve cannot force the banks to lend and the banks can’t force these national corporations to borrow. If he has his way, this tepid economic recovery will slip into another recession a concern expressed by Baker and his colleagues at the Center for Economic and Policy Research.