Transportation Secretary Pete Buttigieg says America’s roads and bridges are “crumbling.” The administration’s infrastructure plan says, “After decades of disinvestment, our roads, bridges, and water systems are crumbling,” and it notes that 45,000 bridges are in “poor condition.”

The Washington Post says, “President Biden aims to tackle some of the nation’s most pressing problems—from climate change to decaying water systems to the nation’s crumbling infrastructure,” and it claims that “the nation’s infrastructure woes … have been growing for decades.”

Rolling Stone says Biden’s plan “promises to revitalize 20,000 miles of roads and fix 10,000 crumbling bridges.” A 2018 NBC report was titled, “More than 50,000 American bridges are falling apart,” and pointed to 54,259 bridges that are “structurally deficient.”

What the politicians and news stories don’t tell you is that America’s bridges have been steadily improving for three decades. The Federal Highway Administration produces annual data on the condition of the nation’s more than 600,000 highway bridges. From 1992 to 2017, the agency has data on the number of bridges that are “structurally deficient.” Then the agency switched to new definitions and has data from 2009 to 2020 on the number in “poor” condition.

The chart shows both types of bridges as a percent of total U.S. bridges. The structurally deficient share fell from 21.7 percent in 1992 to 8.9 percent in 2017, while the poor share fell from 10.1 percent in 2009 to 7.3 percent in 2020. Biden’s 45,000 bridges and NBC’s 54,259 bridges are correct figures, but they miss the crucial context of these dramatic improvements.

Not every news story sounds like a press release from a construction lobby group. A 2018 Reuters investigation found that an “analysis of nationwide bridge data reveals the fretting over the safety of bridges and other road infrastructure is overblown.” The article noted that “structurally deficient” bridges need repairs but would be closed if they were actually dangerous. It also noted that America’s roads and bridges compare quite favorably to those in other advanced economies.

For more on infrastructure, see here and here. Cato intern Jeremiah Nguyen helped with this blog.

The Washington Post recently reported on an analysis by Oren Cass of corporate profits and their division between dividends, stock repurchases, and reinvestment. The report argues that profits are being dispersed to shareholders through dividends and stock repurchases rather than reinvested. The result is reduced economic growth and fewer opportunities for American workers.

Two papers I review in Regulation examine the issue. The first paper confirms that payouts to shareholders (rather than retention of earnings within the firm) are larger now than in the past. In the 2000s, annual aggregate inflation‐​adjusted payouts were three times their pre‐​2000 level and increased as a percentage of assets (2.7% for 1971–1999 versus 4.1% for 2000–2017) and as a percentage of operating income (18.9% for 1971–1999 versus 32.4% for 2000–2017).

The payouts are higher because firms now earn more and pay out more of what they earn. About 38% of the increase in payouts is from higher earnings and 62% from a higher payout rate, which is exclusively from stock repurchase instead of dividends. Dividends average 14.4% of operating income from 1971 to 1999 and 14% from 2000 to 2017. Net stock repurchases averaged 4.8% of operating income before 2000 and 18.3% from 2000 to 2017.

Higher payouts are the result of changes in the values of variables that historically have explained corporate payouts: increases in firm age, size, and cash holdings, and decreases in leverage. A traditional econometric model of payouts is estimated with data on these four variables with data from 1971–1999. The results are then used to predict current payouts. The model predicts that real aggregate payouts in 2017 should have been $784 billion; actual payouts were $734 billion, actually slightly less than predictions. But firm age, size, cash holdings and leverage continue to predict current corporate payouts.

The lifecycle model of payouts predicts that younger firms should invest heavily and have no payouts. Profitable older firms have fewer growth opportunities, and thus should pay out the funds they cannot invest profitably. We therefore expect the payout rate to increase with firm age and size. Thus, the changing composition of U.S. firms toward older firms explains the increase in payouts.

The implication of the Oren Cass analysis is that firms are investing less in order to pay out more to shareholders: firms are destroying the economy in order to reward the rich. The authors confirm that capital expenditures as a percentage of assets have decreased over time but the decrease has occurred similarly among firms that payout the most versus those that pay less and similarly among those firms that payout something versus those that payout nothing. There is no relationship between firm payouts and capital expenditures. Nonpayers use the cash released by lower capital expenditures to increase R&D. In contrast, payers (and especially the top payers) increase R&D spending, but by less than the decrease in capital expenditures; thus they have an increase in free cash flow that enables them to make larger payouts.

The second paper examines the transformation of the relationship between Tobin’s q (equity market value divided by book value) and capital flows. Capital flowed into industries with higher Tobin’s q over the period 1971–1996. But from 1997 to 2014, capital flowed out of high‐​q industries. The change is from the repurchase of stock after 1997.

These results make little sense if high‐​q industries are the ones with the best investment opportunities and competition leads them to expand through additional investment up to the point at which those opportunities for expansion no longer exist. However, these results do make sense if the dominant firms in high‐​q industries draw rents from scarce assets, so that their high q reflects their ability to collect rents rather than an investment opportunity.

Reinvestment in mature industries with those characteristics would actually reduce returns and productivity and ultimately hurt workers. Instead, such firms should fund payouts that can be used by investors to invest in new firms in which the funds assist long‐​term economic growth and worker incomes.

Advocates of new U.S. restrictions on international trade often cite relatively low U.S. tariff rates while ignoring all the other ways that the federal government can – and does – discourage voluntary cross‐​border commerce. Perhaps the most common of these non‐​tariff barriers are U.S. “trade remedies” – antidumping, countervailing duty, and safeguard measures – that apply special duties to covered imports found to harm domestic companies and workers. These measures are not only common – there are more than 500 in place today – but are also subject to abuse by the agencies implementing them, resulting in prohibitive duties at ridiculously high rates (100 percent, 200 percent, or even higher). The abuse can also come directly from laws that Congress has repeatedly revised to further tilt the field toward U.S. producers/​unions.

Cato scholars have been tracking abuse of anti‐​dumping laws for a long time. Our latest salvo is here and focuses on an issue known as “particular market situation,” where “the cost of materials and fabrication or other processing of any kind does not accurately reflect the cost of production in the ordinary course of trade.” In these circumstances, the Department of Commerce “may use another calculation methodology under this subtitle or any other calculation methodology.” That “other calculation methodology” is almost certainly going to lead to higher anti‐​dumping duties than would otherwise be found to exist. Indeed, that’s the whole point of the provision, which Congress added to U.S. Antidumping Law in 2015.

Another abusive approach employed by Commerce is known as “adverse facts available” — in which, loosely speaking, the Department decides that foreign respondents haven’t been “cooperative” and thus rejects their data and calculates duty rates using proxy information that’s intentionally adverse to them (often provided by the domestic companies seeking import protection). Just like PMS, AFA inflates duty rates – indeed, most of those absurdly‐​high rates stem from Commerce’s use of AFA. It is no doubt true that foreign companies and governments occasionally are actually non‐​cooperative, but their lawyers report (quietly, of course) that Commerce’s AFA decisions are increasingly abusive – for example, by invoking AFA after establishing unreasonably short and rigid deadlines for providing mountains of information (that often must be translated); by applying AFA (instead of the more benign “facts available”) for minor and unintentional technical errors; or by throwing out all evidence submitted by foreign respondents (“total AFA”) where only a small amount of data is in question.

Even without these practices, U.S. trade remedy laws would raise significant problems, but these two are probably the most egregious and harmful. And new data show that the number of AFA and PMS determinations has been on the rise (AFA cases are remaining steady as a percentage of total cases, but there are more total cases these days; PMS is being used more often in percentage terms):

Such practices not only harm U.S. consumers — the same study shows that the average duty rate applied to imports in AFA (full or partial) cases was 141.03 percent over the period examined – but also have a way of boomeranging back to American exporters too. As noted here, for example, these and other questionable trade remedies practices are spreading to other countries. Trade remedy abuse is a loss when we do it to others; the loss is compounded when others do it back to us.

Commerce’s behavior – and the laws authorizing it — also serves as a warning about the perils of U.S. protectionism and industrial policy: even in systems administered by a “neutral” bureaucratic arbiter and designed to be insulated from the political process, the administering agency can become “captured” by powerful domestic interests and the rules can be corrupted by politicians eager to reward attentive constituents with highly technical changes hidden from the vast majority of the American public.

Unfortunately, it’s that majority paying the bill.

Last week’s job market numbers were strong. The unemployment rate fell to 6.0 percent – the lowest since the start of the COVID-19 pandemic – and total nonfarm payroll employment rose by 916,000 in March. But signs already suggest that the employment bounce-back is being restrained from its full potential by Congress’s decision to entrench a $300 weekly unemployment benefit supplement through September.

Combined with state unemployment benefits, around 37 percent of workers can currently make more unemployed than in work. A low-income worker in Massachusetts previously earning $535 per week faced a pre-pandemic replacement rate of unemployment insurance benefits to earnings of 48 percent ($257). Now, the same worker would obtain benefits worth 104 percent of their pre-recession earnings ($557).

In New Mexico, someone previously earning $342 per week would see a replacement rate of 141 percent from the expanded benefits ($483). The disincentive to work this creates reduces the labor supply, raising market wages but by squeezing employment levels as fewer workers make themselves available for job opportunities that are economic to offer for businesses.

Using evidence from last year when supplementary benefits were a massive $600 per week, many argue there is little to no work disincentive. True, plenty of workers will think longer-term and re-enter the labor market if they think a job now provides more security after the pandemic. But last year conditions were very different. After the outbreak of the crisis, few firms were hiring, meaning that a fall in applications from those earning more out-of-work didn’t much change overall employment numbers. At that time, most returnees to work were also recalls to their old employers, who risked losing benefits if they refused.

Now, matters are very different. The prospects for a meaningful reopening are real and imminent, with a potentially large flood of demand in previously shuttered sectors. Longer-term, permanent unemployment is much more of a problem, with recalls much less of an issue. And far from uncertainty about benefit continuation, a Democratic Congress and Presidency probably reassures those unemployed that the checks will keep coming. Even though we should still expect a robust employment recovery—ending the pandemic will be the biggest “stimulus” of all—there are therefore reasons to expect high UI benefits are holding back the jobs recovery.

A few recent pieces of data heighten these concerns.

In case you haven't noticed, U.S. industrial policy is having (yet another) moment. Armed with the latest data and cross-country comparisons, a large and bipartisan cadre of industrial policy advocates in Washington are eager to shovel billions of taxpayer dollars into the open arms of American manufacturers of "essential goods" and "critical technologies." The risks (China, pandemics, whatever), so the theory goes, greatly outweigh any harms that a few, scattered industrial policy failures might cause along the way, so why not just throw money at the (perceived) problems? These advocates, however, rarely acknowledge the frequency of such failures - caused by a host of well-known obstacles to effective American industrial policy (e.g., the "knowledge problem," public choice, unintended consequences, budgetary overruns, opportunity costs, and plain ol' inefficacy) - or fully account for the harms that industrial policies can impose on the U.S. economy and the very objectives that the policies seek to achieve. I documented some of these industrial policy failures in a recent Cato paper, but yesterday's New York Times provides the best example that I've seen in a long, long time:

WASHINGTON — More than eight years ago, the federal government invested in an insurance policy against vaccine shortages during a pandemic. It paid Emergent BioSolutions, a Maryland biotech firm known for producing anthrax vaccines, to have a factory in Baltimore always at the ready.

When the coronavirus pandemic arrived, the factory became the main U.S. location for manufacturing Covid-19 vaccines developed by Johnson & Johnson and AstraZeneca, churning out about 150 million doses as of last week.

But so far not a single dose has been usable because regulators have not yet certified the factory to allow the vaccines to be distributed to the public. Last week, Emergent said it would destroy up to 15 million doses’ worth of the Johnson & Johnson vaccine after contamination with the AstraZeneca vaccine was discovered.

Emergent and government health officials have long touted their partnership as a success, but an examination by The New York Times of manufacturing practices at the Baltimore facility found serious problems, including a corporate culture that often ignored or deflected missteps and a government sponsor, the Biomedical Advanced Research and Development Authority, that acted more as a partner than a policeman.

But wait, there's more:

In his first speech as a member of the Federal Reserve’s Board of Governors, Christopher Waller defended Fed independence and reassured his audience that “deficit financing and debt servicing issues play no role in our policy decisions and never will.” His goal was to dispel the “narrative” that, with massive federal debt and fiscal deficits, the Fed may become subservient to the Treasury. Large‐​scale debt monetization could then lead to inflation and a loss of Fed independence.

Waller was adamant that the Fed would not “succumb to pressures (1) to keep interest rates low to help service the debt and (2) to maintain asset purchases to help finance the federal government.” Despite his statement, there may be reason to fear fiscal dominance. As Harvard economist Greg Mankiw warns, “It would be a mistake to put too much faith in the prescience and skill of central bankers.”

Fiscal dominance occurs when central banks use their monetary powers to support the prices of government securities and to peg interest rates at low levels to reduce the costs of servicing sovereign debt. Although the Fed may not call its unconventional monetary policies “fiscal dominance,” there is no doubt that the distance between fiscal and monetary policy has narrowed since the 2007–2008 financial crisis, and especially since the pandemic.

Downplaying the risk of the Fed financing the fisc by monetary accommodation—and complacency about the consequent risk of inflation—is itself risky. As former Treasury Secretary Lawrence H. Summers declared,

As I look at $3 trillion of stimulus, $2 trillion of savings overhang, a major acceleration coming from COVID in the rear‐​view mirror, rates expected by the Federal Reserve to be at zero for three years even in a booming economy, record growth this year, major expansion of the Fed balance sheet, and much new fiscal stimulus to come—I’m worried.

In the remainder of this article, I will delve into the question of whether there is after all good reason to fear a future episode of fiscal dominance.

Monopolies in business usually lead to bloated costs and high prices. As such, economists generally favor opening industries to competition in order to promote efficiency and product quality. Governments are monopolies that also tend to be bloated and inefficient, and so we should favor ways to subject them to competition also.

Cross‐​border competition for people, businesses, and investment dollars is one way to do it. Within the United States, people and businesses can weigh the costs and benefits of different states and cities, and freely move when they find a better deal. That creates pressure on state and local policymakers to restrain taxes and provide quality services.

National policymakers now face similar pressures as globalization has intensified over the years. To attract investment, many countries have reformed the most damaging parts of their tax codes, including cutting high marginal tax rates on corporate income. Cutting corporate tax rates would be beneficial even without globalization, but cross‐​border competition has nudged policymakers in the right direction.

U.S. Treasury Secretary Janet Yellen has a different view. She recently complained about a “30‐​year race to the bottom” in corporate tax rates. The average corporate tax rate across OECD nations has fallen from 41 percent in 1990 to 25 percent today. But this has been a race to reduce the economic damage of corporate taxation, which in turn has promoted broad‐​based economic growth. As I discuss here, if workers were a lobby group defending their self‐​interest, they should favor slashing corporate tax rates. Workers and capital are complements in production, and more capital generally leads to higher wages.

Yellen seems to make the mistake of assuming that international tax competition is a zero‐​sum game. In fact, it is a positive‐​sum game. Reductions in corporate tax rates generate growth and expand the global economy to the benefit of all.

The race‐​to‐​the‐​bottom claim is off‐​base in another way. Yellen said, “It is important to work with other countries to end the pressures of tax competition and corporate tax base erosion,” and she wants governments to raise “sufficient revenue.” But reducing corporate tax rates tends to expand corporate tax bases, with the result that corporate tax revenues across major countries have not fallen. Average corporate income tax revenues in the OECD have risen from 2.4 percent of GDP in 1990 to 3.1 percent in 2018.

Yellen said she would work “with our allies on a global tax regime that protects American competitiveness while ensuring corporations pay their fair share.” But the corporate tax revenue share of GDP has risen, as noted. Besides, the corporate tax burden ultimately lands on individuals, so it is meaningless to talk about corporate “fair” shares.

If Yellen is concerned about fairness, she should rethink her idea of imposing a global minimum corporate tax rate. That would be an arrogant move by a big and powerful country such as the United States. The corporate income tax is an inefficient tax, and so poor countries that want to attract investment and grow should cut them. Just a few decades ago, Ireland was much poorer than Britain, but its implementation of a low corporate tax rate has helped the Emerald Isle grow strongly and surpass Britain in living standards. Yellen’s approach would unfairly deny small and poor nations the ability to adopt Ireland’s powerful reform approach.

Smaller countries tend to have lower corporate tax rates because they know that they need to be welcoming to investment to compete with giants such as the United States. The chart shows average corporate tax rates for the 24 largest and 24 smallest economies in Europe, based on KPMG data. Yellen’s global minimum tax rate would undermine small‐​country growth prospects, and that would not be fair at all.

For background on international tax competition, see Global Tax Revolution. For the chart, 48 European countries were sorted by GDP.