Analysing Biden’s Shot in the Arm
After months of stalling, Congress finally passed the Infrastructure Bill last Friday marking a decisive win for the Biden-led Democrats, who are still reeling from their shocking loss at the elections the past months in Virginia and other states. But more than the political win it is a win for the American economy, people and potentially the greater world at large. The approximately $1 trillion package outlines $550 billion in new spending, which includes the following:
Roads, bridges, and major projects: $110 billion
Passenger and freight rail: $66 billion
Broadband infrastructure: $65 billion
Water infrastructure, such as eliminating lead pipes: $55 billion
Public transit: $39.2 billion
Resiliency, including flood and wildfire mitigation, ecosystem restoration, weatherization, and cybersecurity: $47.2 billion
Electric vehicle infrastructure, including chargers: $7.5 billion
Addressing legacy pollution including cleaning up brownfield and Superfund sites, reclaiming abandoned mine lands, plugging orphan oil and gas wells: $21 billion
The proposed spending will not immediately reflect in the US GDP as it is a generational bill, which broadens the investment horizon across the better part of this decade. Whilst short-term gains may be incremental at best it’s the long-term gains that really excite me at this point, especially when I consider the current supply-chain crisis. Let’s understand why.
The current supply chain crisis, whilst a product of unprecedented consumer demand in the States, has been exacerbated by constrained port capacities, limited truck drivers, warehouses and basically a shortage across the supply chain. The abysmal state of American highways and tunnels, some of which haven’t been repaired for centuries, is adding to the whole menace as the travel time drastically increases when faced with poor travel conditions. This crisis needs investment across the whole supply chain to increase quantity and quality alike, which should help decongest the logjams presently. An investment such as the Infrastructure Bill is of urgent importance as it would initiate the process of reimagining our global infrastructure keeping in mind the 21st consumer who has access to one-day deliveries, the “not-so-rich” but “government-support-rich” consumer who has the newfound means to purchase, and the globe-trotting consumer. The rapid advent of technology, convenience, and, most importantly, accessibility all at the same time the past decade or two has made it harder for countries to replace or renovate ageing infrastructure built back in the 1900s at the same pace. Whilst unprecedented consumer demand is definitely responsible for the current supply-chain crisis we mustn’t discount the role being played by ageing infrastructure in this whole malady.
The Infrastructure Bill is an effort in the right direction as it will help direct much needed but not enough investment into the American infrastructure sector through a mixture of public and private investments, partnerships, and corporations. Many allocations such as the Electric Vehicle Charger outlay are the start of bigger and better things to come, and ones that should help make consumer adaption of cutting edge but environment-friendly consumables an easier decision. The bill would help reduce the risks of another such crisis occurring again as it would revamp American infrastructure especially in congestion hot spots, which should help reduce global inflation of prices in the supply chain. Any mismatch of demand and supply in not only the supply-chains but also the larger economy leads to unwanted inflation, a commodity the developed countries tend to run away from in the long run. US inflation rates are at a decade high of 5.4%, when we compare the pricing last October and this October, because of the languishing Covid-19 related labour and materials shortage in the economy. Furthermore, the 3 million deficit in post-Covid American employment numbers when compared to the pre-Covid figures makes this an interesting opportunity for many out of a job to get a new one. Whilst there are no shortages of jobs in the States, with 10 million outstanding jobs, the infrastructure bill will create options for the less-skilled workers of the economy.
The global economy too is set for a healthy pay-off as the projects undertaken by the bill will firstly help unclog the supply jam and secondly help stimulate global trade. Since I have already covered the former let me explain the latter. As you may already know whenever any large-scale project happens materials, machinery and other such capital inputs have to be sourced from either domestic manufacturers or international manufactures. Since America doesn’t have any consequential raw material production domestically it has to outsource many of its requirements from countries such as China and Germany. With the US’ reliance on the international markets pretty much a given global trade stimulation for the better is to be expected. This stimulation may very well boost the fortunes of the international markets or may cause further disruptions, due to the bulk order sizes, in the supply chain if the current snarl is not resolved beforehand.
Germany has lost its footing as the top dog in the EU with Markel’s departure, Xi Jinping is playing blackjack with the Chinese economy and America is, well, facing the usual American problems. Yes, these are truly exciting times for the markets across the globe as we are seeing a change of scenery in geopolitics, trade, stock markets and essentially every major function of the economy. The bill is an effort in the right direction and a correctional measure that could help taper the economy from its current unhealthy concoction- high unemployment, high inflation, high household savings- of factors. This bill, whilst not enough, is a substantial something that we had all been waiting for.