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Plan Text

Plan: The United States federal government should substantially increase itstransportation infrastructure investment in the Unites States through a National

Investment Bank.


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Contention 1 is Growth


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Advantage 1 is stimulus

First is declining infrastructureits undermining the foundation of the U.S. economy

and is only going to get worse

Thomas J. Donohue, president and chief executive officer of the US Chamber of Commerce, 09-08-2011, The highway to jobs - via better infrastructure,http://www.csmonitor.com/Commentary/Opinion/2011/0908/The-highway-to-jobs-via-better-

infrastructure

As Obama and Congress talk jobs, here's an appeal from the US Chamber of Commerce: Invest heavily in

roads, air transport, and other infrastructure. The economy and jobs depend on it. Adopt innovative

financing, including an infrastructure bank to leverage private investment. Throughout America's

history, feats in infrastructure, like the Interstate Highway System, have not onlybeen symbols of

national achievement but also conduits for commerce and keys to prosperity. Today, however,

much of this foundation of the US economy is costly, cracked, and crumbling. Roads, rail,

airports, and harbors need continual investment to keep pace with demand. Recent research by

the US Chamber of Commerce discovered that underperforming transport infrastructure cost theUS economy nearly $2 trillion in lost gross domestic product in 2008and 2009. The chamber'sTransportation Performance Index showed that America's transit system is not keeping up with growing

demands and is failing to meet the needs of the business community and consumers. Most important,

the research proved for the first time that there is a direct relationship between transportation

infrastructure performance and GDP . The index findings also showed that if America invests wisely in

infrastructure, it can become more reliable, predictable, and safe. By improving underperforming

transport infrastructure, the U nited S tates could unlock nearly $1 trillion in economic potential.

Making investments that tackle immediate challenges, like congestion, and that account forgrowing demand into the future, America would boost productivity and economic growth in the

long run and support millions of jobs in the near term . Investment in infrastructure would also

improve quality of life by reducing highway fatalities and accidents and easing traffic congestion that

costs the public $115 billion a year in lost time and wasted fuel - $808 out of the pocket of every

motorist. Such an investment would also allow the country to better protect the environment while

increasing mobility. If America fails to adequately invest in transportation infrastructure ,by 2020

it will lose $897 billion in economic growth. Businesses will see their transportation costs rise by

$430 billion, and the average American household income will drop by more than $7,000. US exports

will decline by $28 billion. Meanwhile, global competitors will surge past us with superior

infrastructure that will attract jobs, businesses, and capital. So how can the US get its infrastructureto go from insufficient and declining to safe, competitive, and productive? An obvious place to start is

for Congress to pass core bills for surface transportation, aviation, and water programs - at currentfunding levels. Congress must move forward with multiyear reauthorizations to restore the nation's

highways; modernize air traffic control and improve airports; and maintain American ports, harbors,

dams, and levees.Doing so would enable communities to plan projects, hire employees, and prevent

devastating layoffs of existing workers. Reauthorizing the Federal Aviation Administration alone would

help keep 70,000 workers on the job. Next, America should expand energy infrastructure to support

growing needs. A great example is the Keystone XL pipeline to connect Canadian oil sands with Texas

refineries. The sooner the project is approved and construction begins, the sooner the US can rake in the


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benefits of added investment and government revenues, job creation, and more resources to fuel

energy needs and keep costs down for businesses and consumers. Likewise, the US can't let a needlessly

cumbersome permitting process stand in the way of infrastructure development. The administration

should limit environmental reviews to six months and forgo reviews when no significant environmental

impact is expected. Duplicative reviews by state and federal governments should be prevented and,

when multiple agencies are involved, a lead agency should be appointed to coordinate actions and move

things along. Accelerating the permitting process would quickly mobilize construction and hiring from

one end of the country to the other. In this era of tight government budgets, America must adoptinnovative financing approaches and spur on public-private partnerships. A national

infrastructure bank must be a part of a long-term investment strategy. An initial governmentinvestment of $10 billion could leverage up to $600 billion in private funds.But regulatory impediments

must also be removed. They take an estimated $250 billion in global capital out of play. If that private

capital were invested in infrastructure projects, it could create 1.9 million jobs over 10 years and spur

untold economic growth. As for public investments, sooner or later we'll have to face the fact that the

federal fuel tax has not been raised 1 cent in 17 years. The country needs modest, phased-in increase.

Comprehensively restoring America's infrastructure and revitalizing the economy are monumental tasks.

Fortunately, we are the same nation that built our world-class system in the first place. If anyone is up to

the challenge, we are.

This negatively influences the entire economy - prevents a resilient supply chain

Richard Little, director at the Keston institute for public finance and infrastructure policy, 04-05-2011,Infrastructure investment and U.S. Competitiveness, http://www.cfr.org/united-states/infrastructure-

investment-us-competitiveness/p24585

The massive network of seaports, waterways, railroads, and highways we built in the nineteenth and

twentieth centuries were designed to unlock the nation's natural resources, agriculture, and

manufacturing strength and bring these products to market. Today, despite a dynamically changing

economy, these sectors along with trade and transportation still account for more than a quarter of

U.S. GDP or $3.5 trillion, but many transport linkages have become bottlenecks due to long-delayedrepair and replacement. The entire U.S. economy, as well as consumers, would benefit from a more

efficient and resilient supply chain. Unfortunately, for far too long, Americans have been lulled by their

political leadership into a false sense of entitlement. Faced with the prospect of raising taxes or charging

fees to cover the cost of maintaining these systems, they have chosen to do neither. As a result, our

highways and bridges decline at alarming rates. Most of the other systems vital to our interests suffer

the same fate. Fixing this is well within our control, the challenge will be to muster the will to do so. The

first step in addressing this problem will be to ensure that adequate revenue streams are in place.

Whether this revenue comes from the fuel tax, tolls, or other mechanisms is less important than having

the funds to work with. Without a move to revenue-based models, necessary renewal of critical

infrastructure will be long delayed, if provided at all. We can show that we value these systems by

agreeing to pay for their upkeep or own both the responsibility for economic decline and itsconsequences.


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Confidence is collapsing now and destroying investment a national infrastructure

bank is the best short term stimulus that doesnt drive up the deficit

Robert Skidelsky and Felix Martin, Emeritus Professor of Political Economy at the University of

Warwick and macroeconomist and bond investor, 03-30-2011, For a National Investment Bank,http://www.skidelskyr.com/site/article/for-a-national-investment-bank/

But could a National Investment Bank also help with the urgent problem of the weak recovery and theexhaustion of the current policy options? We believe that it could. Keynes was skeptical that economies

can stage spontaneous recoveries from major slumps because he recognized the central importance of

confidence in a market system. The destruction of confidence caused by a severe recession leads to a

collapse in investment, which leads to further deterioration in confidence, and hence to further

reduction in investment.In a slump, there is no shortage of savings and liquidity in the economy (and

this is why further increasing liquidity, for example by quantitative easing, does little good). The

problem is that private businesses do not want to borrow and investregardless of how low interest

rates on borrowing arebecause the future is particularly uncertain and they see no clear prospects

for future demand. The current situation in the US conforms closely to Keyness analysis. There is no

shortage of savingsthe proportion of disposable income that American households save has jumped

from below 2 percent immediately before the crisis to over 5 percent today, and US banks are sitting onrecord levels of cash. But there is a chronic shortage of confidence in future demandso these savings

are sitting in the most riskless of placesin short-term Treasury bills, and in banks accounts at the

Federal Reserve. Keyness summary of the situation in 1932 still makes sense today, though in less

extreme degree: It may still be the case that the lender, with his confidence shattered by his experience,

will continue to ask for new enterprise rates of interest which the borrower cannot expect to earn. If

this proves to be so, there will be no means of escape from prolonged and perhaps interminable

depression except by state intervention to promote and subsidise new investment. The central

challenge is to restore confidence on the one hand and on the other to find a way of deploying idle

cash to finance the resulting investments. Keynes argued for the direct solution: let the government do

both. By increasing fiscal expenditure, it will support demand now and bolster confidence for the

future; and by issuing bonds to finance the resulting deficit, it will put the savings currently hiding in

cash and Treasury bills to work. In effect, expenditures sponsored by government would substitute for

the lost confidence of the private sector until business regains the confidence needed for future

investment. For the time being such a policy is politically impossible, as President Obama has made

clear. But the creation of a National Investment Bank provides an alternative solutionand one that

has the cardinal virtue, in the current political situation, ofnot requiring the government to increase its

borrowing significantly. As in the classical Keynesian solution, the federal government can revive

confidence by making clear its support for large-scale, long-term investment programsprograms

that will involve tens of billions of dollars of investment and generate hundreds of thousands of jobs.

But unlike in the classical solution, the investments will be made by the private sector or by local

governments, and the idle cash to fund these investments will be borrowed and deployed not by the

federal government but by the National Investment Bank. Of course, the creation of a National

Investment Bank cannot be a fiscal free lunch. Congress would need to appropriate sufficient funds toinject the initial capital of the bank. But the essence of banking is the ability to make loans up to a

multiple of several times initial capital. For every dollar of initial capital from Congress, the National

Investment Bank would be able to finance investment up to a sizable multiple of this initial capital by

borrowing the extra dollars now languishing in the private capital markets. It would operate in two main

ways. In some cases, the bank would offer a partial or full guarantee of repayment on bonds issued

directly by investment projects themselves, thereby assuming some or all of the risk of the projects, and

so reducing their cost of funding. But for the most part, the bank itself would lend to finance


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investment projects, and raise funds for lending from the capital markets by issuing long-term bonds

carrying a modest premium over the interest rate on government securities. Such National Investment

Bank bonds would likely be attractive assets for pension funds and other long-term investors.

Stimulus self-finances and directs investment into the economy - long-term output

growth rate

Lawrence H. Summers, is an American economist. He served as the 71st United States Secretary of theTreasury from 1999 to 2001 under President Bill Clinton. He was Director of the White House United

States National Economic Council for President Barack Obama until November 2010.[2] Summers is the

Charles W. Eliot University Professor at Harvard University's Kennedy School of Government. He is the

1993 recipient of the John Bates Clark Medal for his work in several fields of economics, and J. Bradford

DeLong, is a professor of Economics and chair of the Political Economy major at the University ofCalifornia, Berkeley. He served as Deputy Assistant Secretary of the United States Department of the

Treasury in the Clinton Administration under Lawrence Summers. He is also a research associate of the

National Bureau of Economic Research, and is a visiting scholar at the Federal Reserve Bank of San

Francisco, 03-20-2012, Fiscal Policy in a Depressed Economy,http://www.brookings.edu/~/media/Files/Programs/ES/BPEA/2012_spring_bpea_papers/2012_spring_

BPEA_delongsummers.pdf

This paper focuses on policy choices in a deeply depressed demand constrained economy in which

present output and spending are well below their potential level. We presume for the moment that

monetary policy is constrained by the zero lower bound, and that the central bank is unable or

unwilling to provide additional stimulus through quantitative easing or other meansan assumption we

discuss further in Section V. The fact that most estimates of Federal Reserve reaction functions

suggest that, if it were possible to have negative short-term safe nominal interest rates, they would

have been chosen in recent years suggests the relevance of our analysis. 7 We focus on the impact of

temporary fiscal stimulus on the governments long run budget constraint. A very simple calculation

conveys the major message of this paper: A combination oflow real U.S. Treasury borrowing rates,

positive fiscal multiplier effects, and modest hysteresis effects is sufficient to render fiscal expansion

self-financing. Imagine a demand-constrained economy where the fiscal multiplier is 1.5, and the real

interest rate on long-term government debt is 1 percent. Finally assume that a $1 increase in GDP

increases tax revenues and reduces spending by $.33. Assume that the government is able to

undertake a transitory increase in government spending, and then service the resulting debt in

perpetuity, without any impact on risk premia. Then the impact effect of an incremental $1.00 of

spending is to raise the debt stock by $0.50. The annual debt service needed on this $0.50 to keep the

real debt constant is $0.005. If reducing the size of the current downturn in production by $1.50

avoids a 1% as large fall in future potential outputavoids a fall in future potential output of $0.015

then the incremental $1.00 of spending now augments future-period tax revenues by $0.005. And

the fiscal expansion is self-financing. The point would be reinforced by allowing for underlying growth

in the economy, positive impacts of spending on future output, and increases in the price level as aresult of expansion. It is dependent on multiplier and hysteresis effects, the assumption about

government borrowing costs, and the assumption that government spending once increased can again

be reduced. These issues and assumptions are explored in subsequent sections. Below we develop a

framework for assessing under what conditions fiscal expansion is self-financing, and whether fiscal

expansion will pass a benefit-cost test. Throughout, we assume a transitory increase in government

spending and assume that it does not affect government borrowing costs. We address these issues in

subsequent sections. A temporary boost to government purchases to increase aggregate demand
http://www.brookings.edu/~/media/Files/Programs/ES/BPEA/2012_spring_bpea_papers/2012_spring_BPEA_delongsummers.pdfhttp://www.brookings.edu/~/media/Files/Programs/ES/BPEA/2012_spring_bpea_papers/2012_spring_BPEA_delongsummers.pdfhttp://www.brookings.edu/~/media/Files/Programs/ES/BPEA/2012_spring_bpea_papers/2012_spring_BPEA_delongsummers.pdfhttp://www.brookings.edu/~/media/Files/Programs/ES/BPEA/2012_spring_bpea_papers/2012_spring_BPEA_delongsummers.pdf


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in a depressed economy has four principal effects: First, there is the standard short-term aggregate

demand multiplier. In the present period, prices are predetermined or slow to adjust and in which the

level of production is demand-determined. A boost to government spending for the present period

-years is amplified or damped by the economys shortterm multiplier

of percentage point-

normal times

normal-time value, in Section III. Second, there are hysteresis effects: a depressed economy is one

in which investment is low; in which the capital stock is growing slowly; and in which workers without

employmentare seeing their skills, their weak-tie networks they use to match themselves with

vacancies in the labor market, and their morale decays. All of these reduce potential output. In future

periods production is supply determined, and equal to potential output. Thus in future periods

reductions in the flow of future potential output per percentage point-year of the present-period output

Section IV. In an economy with a long-term output growth rate g and a social rate of time discount r

and where r>g so that present-value calculations are possible, the net effect of these first two on thesocially-discounted present value 8 of the economys production is: (

is the present value of future output. Third, financing the expansio

economy with a mul -and-

-to-GDP

ratio in the future periods thereafter, a fraction of this debt must be amortized. Assume for now that

the real interest rate on government debt is equal to the social rate of time discount r. The taxes

needed to finance these debt-

constant debt-to-GDP ratio of the present-period fiscal expansion requires the government to commit

recurring future-there is a budget constraint: that the appropriate long-run real r is greater than the growth rate of the

tax base g, The fourth effect is a knock-on consequence of the second. Higher future-period output

from the smaller hysteresis shadow cast on the economy because expanded government purchases

reduce the size of the present-period depression means that the taxes

government programs and to amortize the preexisting national debt bring in more revenue. The effect

Growth eliminates the only rational incentives for countries to go to war

Erik Gartzke, associate Professor of political science at the University of California, San Diego PhD from

Iowa and B.A. from UCSF Erik, 2011, "SECURITY IN AN INSECURE WORLD", www.cato-unbound.org/2011/02/09/erik-gartzke/security-in-an-insecure-world/Almost as informative as the decline in warfare has been where this decline is occurring. Traditionally,

nations were constrained by opportunity. Most nations did not fight most others because they could not

physically do so. Powerful nations, in contrast, tended to fight more often, and particularly to fight with

other powerful states. Modern zonesof peace are dominated by powerful, militarily capable

countries. These countries could fight each other, but are not inclined to do so. At the same

time, weaker developing nations that continue to exercise force in traditional ways are incapable of
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projecting power against the developed world, with the exception of unconventional methods, such as

terrorism. The world is thus divided between those who could use force but prefer not to (at least not

against each other) and those who would be willing to fight but lack the material means to fight far from

home. Warfare in the modern world has thus become an activity involving weak (usually

neighboring) nations, with intervention by powerful (geographically distant) states in a policing

capacity. So, the riddle of peace boils down to why capable nations are not fighting each other. There

are several explanations, as Mack has pointed out. The easiest, and I think the best, explanation has to

do with an absence of motive. Modern states find little incentive to bicker over tangible property,

since armies are expensive and the goods that can be looted are no longer of considerable

value. Ironically, this is exactly the explanation that Norman Angell famously supplied before the World

Wars. Yet, today the evidence is abundant that the most prosperous, capable nations prefer to buy

rather than take. Decolonization, for example, divested European powers of territories that were

increasingly expensive to administer and which contained tangible assets of limited value. Of

comparable importance is the move to substantial consensus among powerful nations about how

international affairs should be conducted. The great rivalries of the twentieth century were ideological

rather than territorial. These have been substantially resolved, as Francis Fukuyama has pointed

out. The fact that remaining differences are moderate, while the benefits of acting in concert are large

(due to economic interdependence in particular) means that nations prefer to deliberate rather than

fight . Differences remain, but for the most part the capable countries of the world have been in

consensus, while the disgruntled developing world is incapable of acting on respective nations

dissatisfaction. While this version of events explains the partial peace bestowed on the developed

world, it also poses challenges in terms of the future. The rising nations of Asia in particular have not

been equalbeneficiaries in the world political system. These nations have benefited from economic

integration, and this has proved sufficient in the past to pacify them. The question for the future is

whether the benefits of tangible resources through markets are sufficient to compensate the rising

powers for their lack of influence in the policy sphere. The danger is that established powers may be

slow to accommodate or give way to the demands of rising powers from Asia and elsewhere, leading to

divisions over the intangible domain of policy and politics. Optimists argue that at the same time thatthese nations are rising in power, their domestic situations are evolving in a way that makes their

interests more similar to the West. Consumerism, democracy, and a market orientation all help to draw

the rising powers in as fellow travelers in an expanding zone of peace among the developed nations.

Pessimists argue instead that capabilities among the rising powers are growing faster than their affinity

for western values, or even that fundamental differences exist among the interests of first- and second-

wave powers that cannot be bridged by the presence of market mechanisms or McDonalds

restaurants. If the peace observed among western, developed nations is to prove durable, it must be

because warfare proves futile as nations transition to prosperity. Whether this will happen depends on

the rate of change in interests and capabilities, a difficult thing to judge. We must hope that the

optimistic view is correct, that what ended war in Europe can be exported globally. Prosperity has

made war expensive, while the fruits of conflict, both in terms of tangible and

intangible spoils have declined in value. These forces are not guaranteed to prevail indefinitely. Already,

research on robotic warfare promises to lower the cost of conquest. If in addition, fundamental

differences among capable communities arise, then warfare over ideology or policy can also be

resurrected. We must all hope that the consolidating forces of prosperity prevail, that war becomes a

durable anachronism.


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Even if we dont win increased growth slow growth causes U.S. lashout

Avery Goldstein, Professor of Global Politics and International Relations @ University of Pennsylvania,

Avery Goldstein, August 2007, Power transitions, institutions, and China's rise in East Asia: Theoreticalexpectations and evidence, Journal of Strategic Studies, Volume30, Issue 4 & 5 pages 639 682

Two closely related, though distinct, theoretical arguments focus explicitly on the consequences for

international politics of a shift in power between a dominant state and a rising power. In War andChange in World Politics, Robert Gilpin suggested thatpeace prevails when a dominant states

capabilities enable it to govern an international order that it has shaped. Over time, however, as

economic and technological diffusion proceeds during eras of peace and development, other states

are empowered. Moreover, the burdens of international governance drain and distract the reigning

hegemon, and challengers eventually emerge who seek to rewrite the rules of governance. As the

power advantage of the erstwhile hegemon ebbs, it may become desperate enough to resort to

theultima ratio of international politics, force, to forestall the increasingly urgent demands of a

rising challenger. Or as the power of the challenger rises, it may be tempted to press its case with

threats to use force. It is the rise and fall of the great powers that creates the circumstances under

which major wars, what Gilpin labels hegemonic wars, break out.13 Gilpins argument logically

encourages pessimism about the implications of a rising China. It leads to the expectation thatinternational trade, investment, and technology transfer will result in a steady diffusion of American

economic power, benefiting the rapidly developing states of the world, including China. As the US

simultaneously scurries to put out the many brushfires that threaten its far-flung global interests

(i.e., the classic problem of overextension), it will be unable to devote sufficient resources to

maintain or restore its former advantage over emerging competitors like China. While the erosion of

the once clear American advantage plays itself out, the US will find it ever more difficult to

preserve the order in Asia that it created during its era of preponderance. The expectation is an

increase in the likelihood for the use of force either by a Chinese challenger able to field a

stronger military in support of its demands for greater influence over international arrangements in

Asia, or by a besieged American hegemon desperate to head off further decline. Among the trends

that alarmthose who would look at Asia through the lens of Gilpins theory are Chinas expanding

share of world trade and wealth(much of it resulting from the gains made possible by theinternational economic order a dominant US established); its acquisition of technology in key

sectors that have both civilian and military applications (e.g., information, communications, and

electronics linked with to forestall, and the challenger becomes increasingly determined to realize

the transition to a new international orderwhose contours it will define. the revolution in military

affairs); and an expanding military burden for the US (as it copes with the challenges of its global war

on terrorism and especially its struggle in Iraq) that limits the resources it can devote to preserving its

interests in East Asia.14 Although similar to Gilpins work insofar as it emphasizes the importance of

shifts in the capabilities of a dominant state and a rising challenger, the power-transition theory A. F.

K. Organski and Jacek Kugler present in The War Ledger focuses more closely on the allegedly

dangerous phenomenon of crossover the point at which a dissatisfied challenger is about to

overtake the established leading state.15 In such cases, when the power gap narrows, the dominantstate becomes increasingly desperate. Though suggesting why a rising China may ultimately present

grave dangers for international peace when its capabilities make it a peer competitor of America,

Organski and Kuglers power-transition theory is less clear about the dangers while a potential

challenger still lags far behind and faces a difficult struggle to catch up. This clarification is important

in thinking about the theorys relevance to interpreting Chinas rise because a broad consensus

prevails among analysts that Chinese military capabilities are at a minimum two decades from

putting it in a league with the US in Asia.16 Their theory, then, points with alarm to trends in Chinas
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growing wealth and power relative to the United States, but especially looks ahead to what it sees

as the period of maximum danger that time when a dissatisfied China could be in a position to

overtake the US on dimensions believed crucial for assessing power. Reports beginning in the mid-

1990s that offered extrapolations suggesting Chinas growth would give it the worlds largest gross

domestic product (GDP aggregate, not per capita) sometime in the first few decades of the

twentieth century fed these sorts of concerns about a potentially dangerous challenge to American

leadership in Asia.17 The huge gap between Chinese and American military capabilities (especially in

terms of technological sophistication) has so far discouraged prediction of comparably disquieting

trends on this dimension, but inklings of similar concerns may be reflected in occasionally alarmist

reports about purchases of advanced Russian air and naval equipment, as well as concern that

Chinese espionage may have undermined the American advantage in nuclear and missile technology,

and speculation about the potential military purposes of Chinas manned space program.18

Moreover, because a dominant state may react to the prospect of a crossover and believe that it is

wiser to embrace the logic of preventive war and act early to delay a transition while the task is

more manageable, Organski and Kuglers power-transition theory also provides grounds for

concern about the period prior to the possible crossover.19 pg. 647-650


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Advantage 2 is the double dip

The U.S. is on the brink backsliding collapses the global economy

Ashfaqur Rahman, former Ambassador and Chairman of the Centre for Foreign Affairs Studies, 08-21-

2011, Another global recession?, http://www.thedailystar.net/newDesign/news-details.php?nid=199461

Several developments, especially in Europe and the US, fan this fear. First, the US recovery from the

last recession has been fragile. Its economy is much more susceptible to geopolitical shocks. Secondthere is a rise in fuel prices. The political instability in the Middle East is far from over. This is causing

risks for the country and the international economy. Third, the global food prices in July this year is

markedly higher than a year ago, almost 35% more. Commodities such as maize (up 84%), sugar (up

62%), wheat (up 55%), soybean oil (up 47%) have seen spike in their prices. Crude oil prices have also

risen by 45%, affecting production costs. In the US, even though its debt ceiling has been raised andthe country can now continue to borrow, credit agencies have downgraded its credit rating andtherefore its stock markets have started to flounder. World Bank President Zoellick recently said:

"There was a convergence of some events in Europe and the US that has led many market participantsto lose confidence in economic leadership of the key countries." He added: "Those events, combined

with other fragilities in the nature of recovery, have pushed US into a new danger zone."

Employment in the US has, therefore, come near to a grinding halt. Prices of homes there continue

to slide. Consumer and business spending is slowing remarkably. So, when the giant consumer

economy slows down, there would be less demand for goods she buys from abroad, even from

countries like Bangladesh. This would lead to decline in exports from such countries to the US.Then these economies would start to slide too, leading to factory closures and unemployment ona large scale. There would be less money available for economic development activities. Addingto the woes of the US economy are the travails of European economies. There, countries like Greece and

Portugal, which are heavily indebted, have already received a first round of bailout. But this is not

working. A second bailout has been given to Greece. But these countries remain in deep economic

trouble. Bigger economies like Spain and Italy are also on the verge of bankruptcy. More sound

economies like France and Germany are unwilling to provide money through the European Central Bank

to bail them out. A proposal to issue Euro bonds to be funded by all the countries of the Euro Zone has

also not met with approval. A creeping fear of the leaders of such big economies is that their electorate

is not likely to agree to fund bankruptcies in other countries through the taxes they pay. Inevitably, they

are saying that these weaker economies must restrain expenditures and thereby check indebtedness

and live within their means. Thus, with fresh international bailouts not in the horizon and with

possibilities of a debt default by countries like Greece, there is a likelihood of a ripple going through the

world's financial system. Now what is recession and especially one with a global dimension ? There is no

commonly accepted definition of a recession or for that matter of a global recession. The International

Monetary Fund (IMF) regards periods when global growth is less than 3% to be a global recession.During this period, global per capita output growth is zero or negative and unemployment and

bankruptcies are on the rise. Recession within a country implies that there is a business cycle

contraction. It occurs when "there is a widespread drop in spending following an adverse supply shock

or the bursting of an economic bubble." The most common indicator is "two down quarters of GDP."

That is, when GDP of a country does not increase for six months. When recession occurs there is a

slowdown in economic activity. Overall consumption, investment, government spending and net exports

fall. Economic drivers such as employment, household savings, corporate investments, interest rates are


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on the wane. Interestingly, recession can be of several types. Each type may be literally of distinctive

shapes. Thus V-shaped, or a short and sharp contraction, is common. It is usually followed by a rapid and

sustained recovery. A U-shaped slump is a prolonged recession. The W-shaped slowdown of the

economy is a double dip recession. There is also an L-shaped recession when, in 8 out of 9 three-

monthly quarters, the economy is spiraling downward. So what type of recession can the world

expect in the next quarter? Experts say that it could be a W-shaped one, known as a double diptype. But let us try to understand why the world is likely to face another recession, when it has justemerged from the last one, the Great Recession in 2010. Do not forget that this recession had begun in

2007 with the "mortgage and the derivative" scandal when the real estate and property bubble burst.

Today, many say that the last recession had never ended. Despite official data that shows

recovery, it was only a modest recovery. So, when the recession hit the US in 2007 it was theGreat Recession I. The US government fought it by stimulating their economy with large

bailouts. But this time, for the Great Recession II, which we may be entering, there is a completely

different response. Politicians are squabbling over how much to cut spending . Therefore,

we may be in a new double dip or W-shaped recession.

It independently kills resiliency

Catherine Rampell, economics reporter for The New York Times; wrote for the Washington Post

editorial pages and financial section, 08-07-2011, Second Recession in U.S. Could Be Worse Than First,http://www.nytimes.com/2011/08/08/business/a-second-recession-could-be-much-worse-than-the-

first.html?pagewanted=all

If the economy falls back into recession, as many economists are now warning, the bloodletting

could be a lot more painful than the last time around. Given the tumult of the Great Recession, this

may be hard to believe. But the economy is much weaker than it was at the outset of the lastrecession in December 2007, with most major measures of economic healthincluding jobs,incomes, output and industrial productionworse today than they were back then. And growth

has been so weak that almost no ground has been recouped, even though a recovery technically

started in June 2009. It would be disastrous if we entered into a recession at this stage, given thatwe havent yet made up for the last recession, said Conrad DeQuadros, senior economist at RDQ

Economics. When the last downturn hit, the credit bubble left Americans with lots of fat to cut, but a

new one would force families to cut from the bone. Making things worse, policy makers used most of

the economic tools at their disposal to combat the last recession, and have few options available.

Anxiety and uncertainty have increased in the last few days after the decision by Standard & Poors to

downgrade the countrys credit rating and as Europe continues its desperate attempt to stem its debt

crisis. President Obama acknowledged the challenge in his Saturday radio and Internet address, saying

the countrys urgent mission now was to expand the economy and create jobs. And Tr easury Secretary

Timothy F. Geithner said in an interview on CNBC on Sunday that the United States had a lot of work to

do because of its long-term and unsustainable fiscal position. But he added, I have enormousconfidence in the basic regenerative capacity of the American economy and the American people. Still,

the numbers are daunting. In the four years since the recession began, the civilian working-agepopulation has grown by about 3 percent. If the economy were healthy, the number of jobswould have grown at least the same amount. Instead, the number of jobs has shrunk. Today theeconomy has 5 percent fewer jobs or 6.8 million than it had before the last recession began. The

unemployment rate was 5 percent then, compared with 9.1 percent today. Even those Americans

who are working are generally working less; the typical private sector worker has a shorter


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workweek today than four years ago. Employers shed all the extra work shifts and weak or extraneous

employees that they could during the last recession. As shown by unusually strong productivitygains, companies are now squeezing as much work as they can from theirnewly lean andmean work forces. Should a recession return, it is not clear how many additional workers businesses

could lay off and still manage to function. With fewer jobs and fewer hours logged, there is less

income for households to spend, creating a huge obstacle for a consumer-driven economy.Adjusted for inflation, personal income is down 4 percent, not counting payments from the governmentfor things like unemployment benefits. Income levels are low, and moving in the wrong direction:

private wage and salary income actually fell in June, the last month for which data was available.

Consumer spending, along with housing, usually drives a recovery. But with incomes so weak,spending is only barely where it was when the recession began. If the economy were healthy, total

consumer spending would be higher because of population growth. And with construction nearly

nonexistent and home prices down 24 percent since December 2007, the country does not have a buffer

in housing to fall back on. Of all the major economic indicators, industrial production as tracked by

the Federal Reserve is by far the worst off. The Feds index of this activity is nearly 8 percent below its

level in December 2007. Likewise, and perhaps most worrisome, is the track record for the countrys

overall output. According to newly revised data from the Commerce Department, the economy is

smaller today than it was when the recession began, despite (or rather, because of) the feeble growth in

the last couple of years. If the economy were healthy, it would be much bigger than it was four years

ago. Economists refer to the difference between where the economy is and where it could be if itmet its full potential as the output gap.Menzie Chinn, an economics professor at theUniversity of Wisconsin, has estimated that the economy was about 7 percent smaller than itspotential at the beginning of this year. Unlike during the first downturn, there would be few

policy remedies available if the economy were to revert back into recession. Interest rates cannot

be pushed down furtherthey are already at zero. The Fed has already flooded the financialmarkets with money by buying billions in mortgage securities and Treasury bonds, and economists do

not even agree on whether those purchases substantially helped the economy. So the Fed may not see

much upside to going through another politically controversial round of buying. There are only somany times the Fed can pull this same rabbit out of its hat, said Torsten Slok, the chief

international economist at Deutsche Bank. Congress had some room financially and politically

to engage in fiscal stimulus during the last recession. But at the end of 2007, the federal debt was

64.4 percent of the economy. Today, it is estimated at around 100 percent of gross domestic

product, a share not seen since the aftermath of World War II, and there is little chance oflawmakers reaching consensus on additional stimulus that would increase the debt. There is no

approachable precedent, at least in the postwar era, for what happens when an economy with 9

percent unemployment falls back into recession, said Nigel Gault, chief United States economist at IHS

Global Insight. The one precedent you might consider is 1937 , when there was also a premature

withdrawal of fiscal stimulus, and the economy fell into another recession more painful than the

first.

Double-dip risks nuclear war

FORDHAM 10(Tina Fordham, Investors cant ignore the rise of geopolitical risk, Financial Times, 7-17-2010, http://www.ft.com/cms/s/0/dc71f272-7a14-11df-9871-00144feabdc0.html)
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Geopolitical risk is on the rise after years of relative quiet potentially creating further headwinds to the globalrecovery just as fears of a double-dip recession are growing , says Tina Fordham, senior political analyst at Citi PrivateBank. Recently, markets have been focused on problems within the eurozone and not much moved bydevelopments in North Korea, new Iran sanctions, tensions between Turkey and Israel or theunrest in strategically significant Kyrgyzstan, she says. But taken together, we dont think investors can afford to ignore

the return of geopolitical concerns to the fragile post-financial crisis environment. Ms Fordham argues the end of post-Cold WarUS pre-eminence is one of the most important by-products of the financial crisis. The post-crisis world order is shifting. More players than ever are at the table, and their interests oftendiverge. Emerging market countries have greater weight in the system, yet many lack experienceon the global stage. Addressing the worlds challenges in this more crowded environment will be

slower and more complex. This increases the potential for proliferating risks: most notably the

prospect of politically and/or economically weakened regimes obtaining nuclear weapons; and

military action to keep them from doing so. Left unresolved, these challenges could disrupt

global stability and trade. This would be a very unwelcome time to see the return of geopolitical

risk.

Global economic crisis causes war strong statistical support proves

Jedediah Royal, Director of Cooperative Threat Reduction at the U.S. Department of Defense, 2010,Economic Integration, Economic Signaling and the Problem of Economic Crises, Economics of War and

Peace: Economic, Legal and Political Perspectives, ed. Goldsmith and Brauer, p. 213-215

Less intuitive is how periods ofeconomic decline may increase the likelihood of external conflict.

Political science literature has contributed a moderate degree of attention to the impact of economic

decline and the security and defence behaviour of interdependent slates. Research in this vein has been

considered at systemic, dyadic and national levels. Several notable contributions follow. First, on the

systemic level. Pollins (2008) advances Modelski and Thompson's (19%) work on leadership cycle

theory, finding that rhythms in the global economy are associated with the rise and fall of a pre-

eminent power and the often bloody transition from one pre-eminent leader to the next. As such,

exogenous shocks such as economic crises could usher in a redistribution of relative power (sec also

Gilpin. 1981) that leads to uncertainty about power balances, increasing the risk ofmiscalculation

(Fearon, 1995). Alternatively, even a relatively certain redistribution of power could lead to a

permissive environment for conflict as a rising power may seek to challenge a declining power (Werner,

1999). Separately. Pollins (1996) also shows that global economic cycles combined with parallel

leadership cycles impact the likelihood of conflict among major, medium and small powers, although he

suggests that the causes and connections between global economic conditions and security conditions

remain unknown. Second, on a dyadic level. Copeland's (1996. 2000) theory of trade expectations

suggests that 'future expectation of trade' is a significant variable in understanding economic conditions

and security behaviour of states. He argues that interdependent states are likely to gain pacific benefits

from trade so long as they have an optimistic view of future trade relations. However, if the

expectations of future trade decline, particularly for difficult lo replace items such as energy resources,[lie likelihood for conflict increases. as states will be inclined to use force to gain access to those

resources. Crises could potentially be the trigger for decreased trade expectations either on its own or

because il triggers protectionist moves by interdependent states.4 Third, others have considered the link

between economic decline and external armed conflict at a national level. Blomberg and Hess (2002)

find a strong correlation between internal conflict and external conflict, particularly during periods of

economic downturn. They write, The linkages between internal and external conflict and prosperity

are strong and mutually reinforcing. Economic conflict tends to spawn internal conflict, which in turn


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returns the favour. Moreover, the presence of a recession lends lo amplify the extent to which

international and external conflicts self-reinforce each other. (Blomberg & I less. 2002. p. 89) Economic

decline has also been linked with an increase in the likelihood of terrorism (Blomberg. Hess. &

Wccrapana. 2004). which has the capacity to spill across borders and lead to external tensions.

Furthermore, crises generally reduce the popularity of a silting government. "Diversionary theory'

suggests that, when facing unpopularity arising from economic decline, sitting governments have

increased incentives to fabricate external military conflicts to create a 'rally around the flag' effect.

Wang (1996), DcRoucn (1995), and Blomberg. Mess, and Thacker (2006) find supporting evidence

showing that economic decline and use of force are at least indirectly correlated. Gelpi (1997), Miller

(1999), and Kisangani and Pickering (2009) suggest that the tendency towards diversionary tactics are

greater for democratic states than autocratic states, due to the fact that democratic leaders are

generally more susceptible to being removed from office due to lack of domestic support. DcRoucn

(2000) has provided evidence showing that periods ofweak economic performance in the United

States, and thus weak Presidential popularity, are statistically linked to an increase in the use of force.

In summary, recent economic scholarship positively correlates economic integration with an increase in

the frequency of economic crises, whereas political science scholarship links economic decline with

external conflict at systemic, dyadic and national levels.5 This implied connection between integration,

crises and armed conflict has not featured prominently in the economic-security debate and deservesmore attention. This observation is not contradictory to other perspectives that link economic

interdependence with a decrease in the likelihood of external conflict, such as those mentioned in the

first paragraph of this chapter. Those studies tend to focus on dyadic interdependence instead of

global interdependence and do not specifically consider the occurrence of and conditions created by

economic crises. As such, the view presented here should be considered ancillary to those views.

NIB solves double dip

Will Marshall, president and founder of the Progressive Policy Institute (PPI); found the Democratic

Leadership Council, serving as its first policy director; and Scott Thomasson, director of economic anddomestic policy for the Progressive Policy Institute and manages PPI's Innovative Economy Project and

E3 Initiative10-07-2011, Sperling on Deferred Maintenance,http://progressivepolicy.org/sperling-on-%E2%80%9Cdeferred-maintenance%E2%80%9D

Its hard to imagine a more myopic example of the rights determination to impose premature

austerity on our frail economy. From Lincoln to Teddy Roosevelt to Eisenhower, the Republicans wereonce a party dedicated to internal nation building. Todays GOP is gripped by a raging anti-government

fever which fails to draw elementary distinctions between consumption and investment, viewing all

public spending as equally wasteful. But as the White Houses Gene Sperling said yesterday,

Republicans cant claim credit for fiscal discipline by blocking long overdue repairs of in thenations transport, energy and water systems. Theres nothing fiscally responsible about

deferring maintenance on the U.S. economy. Sperling, chairman of the presidents NationalEconomic Council, spoke at a PPI forum on Capitol Hill on Infrastructure and Jobs: A Productive

Foundation for Economic Growth. Other featured speakers included Sen. Mark Warner, Rep. Rosa

DeLauro, Dan DiMicco, CEO of Nucor Corporation, Daryl Dulaney, CEO of Siemens Industry and Ed Smith,

CEO of Ullico Inc., a consortium of union pension funds. Fiscal prudence means foregoing

consumption of things youd like but could do without if you cant afford them a cable TV

package, in Sperlings example. But if a water pipe breaks in your home, deferring maintenance can

only lead to greater damage and higher repair costs down the road. As speaker after speaker
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emphasized during yesterdays forum, thats precisely whats happening to the U.S. economy. Thanksto a generation of underinvestment in roads, bridges, waterways, power grids, ports and railways,the United States faces a $2 trillion repair bill. Our inadequate, worn-out infrastructure costs ustime and money, lowering the productivity of workers and firms, and discouraging capitalinvestment in the U.S. economy. Deficient infrastructure, Dulaney noted, has forced Siemens to build

its own rail spurs to get goods to market. Thats something smaller companiescant afford to do. Theywill go to countrieslike China, India and Brazilthat are investing heavily in building world-

class infrastructure. As Nucors DiMicco noted, a large-scale U.S. infrastructure initiative would createlots of jobs while also abetting the revival of manufacturing in America. He urged the Obama

administration to think bigger, noting that a $500 billion annual investment in infrastructure (much of

the new money would come from private sources rather than government) could generate 15 million

jobs. The enormous opportunities to deploy more private capital were echoed from financial leaders in

New York, including Jane Garvey, the North American chairman of Meridiam Infrastructure, a

private equity fund specializing in infrastructure investment. Garvey warned that what investors

need from government programs is more transparent and consistent decision making, based on

clear, merit-based criteria, and noted that an independent national infrastructure bank would be the

best way to achieve this. Bryan Grote, former head of the Department of Transportations TIFIAfinancing program, which many describe as a forerunner of the bank approach, added that having adedicated staff of experts in an independent bank is the key to achieving the more rational, predictable

project selection that investors need to see to view any government program as a credible partner. Tom

Osborne, the head of Americas Infrastructure at UBS Investment Bank, agreed that anindependent infrastructure banklike the version proposed by Senators Kerry, Hutchison and Warner,

would empower private investors to fund more projects. And contrary to arguments that a national

bank would centralize more funding decisions in Washington, Osborne explained that states and localgovernments would also be more empowered by the bank to pursue new projects with flexible

financing options, knowing that the bank will evaluate projects based on its economics, not on thepolitics of the next election cycle. Adding urgency to the infrastructure push was Fed Chairman Ben

Bernankes warning this week that the recovery is close to faltering. Unlike short-term stimulusspending, money invested in modernizing infrastructure would create lasting jobs by expanding our

economys productive base. Warning that America stands on the precipice of a doubledip

recession , Sperling said it would be inexcusable for Congress to fail to act on the presidents

job plan. He citedestimates by independent economic experts that the plan would boost GDP

growth in 2012 from 2.4 to 4.2 percent , and generate over three million more jobs .


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Advantage 3 is unemployment

Its triggering a major economic crisis outweighs the deficit

Laura Tyson, professor at the Haas School of Business at Cal Berkeley and former chair of the Council of

Economic Advisers and the head of the National Economic Council under President Clinton, 08-18-2011,What it will take for President Obama and big business to bring back American jobs,

http://www.washingtonpost.com/national/on-leadership/for-president-obama-and-american-business-

fixing-the-us-jobs-deficit/2011/08/18/gIQAhW8ZNJ_story.html

The immediate crisis confronting the U.S. economy is the jobs deficit, not the budget deficit. Nearly 14

million Americans are unemployed, another 8.4 million are working part time because they cannot find

full-time jobs, and yet another 2.8 million want a job and are available to work but have given up an

active search. At 64 percent, the labor force participation rate is lower than it has been in nearly three

decades. The magnitude of this jobs crisis were in is best measured by the jobs gapthe number of

jobs the U.S. economy needs to add in order to return to its pre 2008-2009 employment level and

absorb new entrants to the work force since then. The jobs gap at the end of August was more than 12

million jobs. Even at double the rate of employment growth realized during the last year, it would takemore than 12 years for the U.S. economy to close this gap. The U.S. labor market, long admired for its

flexibility and strength, is badly broken. Most American jobs are in the private sector, and private

sector jobs have in fact been growing for 17 consecutive months; indeed, the private sector added about

1.8 million nonfarm payroll jobs during the last year. This pace of job creation is faster than during the

previous recovery in the early 2000s and in line with the recovery of the early 1990s. But theres one

major problem: Private-sector job losses were more than twice as large in the recent recession as in

the previous two, and job growth has fallen far short of what is necessary to offset these losses . In

addition, public-sector employment has been declining in this recoverythis in contrast to other

postwar recovery periods, in which such employment has increased. Weve lost 550,000 public-sector

positions in the last year alone, making the jobs crisis even more severe. Since the private sector creates

(and eliminates) most jobs in the United States, and since budget constraints will likely mean more

painful cuts in public-sector employment for the foreseeable future, Americans are understandablylooking to business for solutions to the jobs crisis. To uncover the business solutions that could work,

however, we first must acknowledge the fundamental cause of the problem: the dramatic collapse in

aggregate demand that began with the 2008 financial crisis and that triggered huge job losses. Even

with unprecedented amounts of monetary and fiscal stimulus, the recovery has been weak because

consumers have curbed their spending, increased their saving and started to reduce their personal debt.

And they still have a long way to go. Business surveys confirm that for both large and small companies,

the primary constraint on job growth is weak demand, not regulation or taxation. In the apt words of a

small business owner, If you dont have the demand, you dont hire the people. So what can the

business community do to boost demand and job creation? It can convince Congress to establish a

National Infrastructure Bank and pass a multi-year surface transportation bill to boost infrastructure

investment. And while its at it, business can work with the Obama administration to reduce multi -yeardelays in the approval ofinfrastructure projects that would otherwise create tens of thousands of

good-payingjobs in the next few years. It can partner with the Obama administration to achieve the

target of doubling exports, supporting 2 million additional jobs, within five years. Securing congressional

passage of the three pending trade agreements, combined with meaningful trade adjustment assistance

for workers displaced by trade, would be a major step toward this goal. It can work in partnership with

federal, state and local governments to encourage the retrofitting of commercial buildings to improve

their energy efficiencya 20-percent improvement would save business about $40 billion a year on
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utility bills, money that could be used to hire and train workers. It can finance partnerships with colleges

and universities to provide workers with the skills needed for the jobs that are currently available and

for the jobs that are most likely to become available as the economy continues to recover. These include

jobs that require high levels of science and technology skills, such as engineering jobs that are currently

unfilled because of a national shortage of engineers, as well as jobs that require community college

training in specialized areas like manufacturing, clean energy, tourism and health care. In his recent

column for the Washington Post, Professor Michael Useem challenged business leaders to focus not just

on what is required for the success of their own companies but on what is required for the success of

the national economy. Members of the Presidents Council on Jobs and Competitiveness, a private-

sector advisory group in which I participate, , are responding to this challenge. Yet even with innovative

ideas and commitment, the business community cannot boost aggregate demand by the amount

needed to close the jobs gap. That requires appropriate macroeconomic policies. What should the

federal government do? It should extend unemployment benefits and link them to training programs as

many European countries do. It should extend the payroll tax cut for employees enacted at the end of

2010 and it should add a payroll tax cut for employers on new hires. Payroll tax relief should be

maintained until the unemployment rate falls to 6 percent. The 10-year yield on U.S. Treasuries has

fallen below 2.5 percent, the lowest it has been since the 1950s. There are numerous economically

justifiable, demand-generating investments the U.S. government should make in infrastructure, researchand education that would pay a higher rate of return and would create jobs now, while also laying the

foundation for faster growth in the future. With nearly 25 percent of mortgages under water, a record

number of foreclosures and historically low mortgage rates, the government should also explore new

ways to make it possible for more households to refinance their mortgages. Refinancing could put tens

of billions of dollars of spending power into the economy. Additional fiscal measures like these would

boost demand and job creation. And yes, they would also add to the fiscal deficit. But the most

important driver of the deficit in the short run is weak tax revenues, reflecting weak economic

performance; and the most effective way to reduce the deficit in the next few years would be putting

people back to work . Every one percentage point of growth adds about $2.5 trillion in government

revenues. But even strong growth will not solve the long-run deficit problem. That will require a multi-

year balanced plan of spending cuts and revenue increases. Thats why Congress should pair such a plan

with temporary fiscal measures to boost job creationand pass both as a package now. Approving a

deficit-reduction plan now but deferring its starting date until the economy is near full employment

would reduce the danger that premature fiscal contraction will tip the economy back into recession. It

would also alleviate investor concerns about the creditworthiness of the U.S. government, concerns that

have been aggravated by recent political brinkmanship over the debt limit and the resulting S&P

downgrade. Unfortunately, the odds that the United States will get the fiscal policy it needs a

combination of countercyclical support now and balanced deficit reduction laterare low. And the odds

that Congressional gridlock will increase uncertainty, undermine confidence and endanger the

faltering recovery are high. These odds are not good for business, nor are they good for the millions of

Americans who need a job.

The plan immediately boosts employment and growth

Fareed Zakaria, Indian-American journalist and author. From 2000 to 2010, he was a columnist forNewsweek and editor of Newsweek International. In 2010 he became editor-at-large of Time. He is the

host of CNN's Fareed Zakaria GPS. He is also a frequent commentator and author about issues related to

international relations, trade and American foreign policy, 06-13-2011, Zakaria: U.S. needs an


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infrastructure bank,http://globalpublicsquare.blogs.cnn.com/2011/06/13/zakaria-u-s-needs-an-

infrastructure-bank/

President Obama has proposed a number of specific policies to tackle the jobs crisis, but they have gone

nowhere because Republicans say that their top concern is the deficit and debt.Those of us worried

about the debt - and I would strongly include myself - need to remember that if unemployment

doesn't go down fast, the deficit is going to get much worse. If you're serious about deficitreduction, the single most important factor that will shrink it is to have more people working and

paying taxes. I want to focus on one of Obama's proposals because it actually would add very little to

the deficit, it has some Republican supporters and it would have an immediate effect on boosting

employment and growth. Plus, it's good for the country anyway. We need a national infrastructure

bank to repair and rebuild America's crumbling infrastructure. The House Majority Leader, EricCantor, has played down this proposal as just more stimulus, but if Republicans set aside ideology, they

would actually see that this is an opportunity to push for two of their favorite ideas - privatization and

the elimination of earmarks. That's why Republicans like Kay Bailey Hutchison and Chuck Hagel are

strongly in favor of such a bank. The United States builds its infrastructure in a remarkably socialist

manner. The government funds bills and operates almost all American infrastructure. Now, in manycountries in Europe and Asia the private sector plays a much larger role in financing andoperating roads, highways, railroads, airports and other public resources. An infrastructure bankwould create a mechanism by which you could have private sector participation.Yes, there wouldbe some public money involved, though mostly through issuing bonds. And with interest rates at historic

lows, this is the time to use those low interest rates to borrow money and rebuild America'sinfrastructure. Such projects have huge long-term payoffs and can genuinely be thought of as

investments, not expenditures .A national infrastructure bank would also address a legitimate

complaint of the Tea Party - earmark spending. One of the reasons federal spending has been inefficient

is that Congress wants to spread the money around in ways that might make political sense but are

economic nonsense.An infrastructure bank would make those decisions using cost-benefit

analysis in a meritocratic system rather than spreading the wealth around and basing these decisionson patronage, politics and whimsy.Let's face it, America's infrastructure is in a shambles. Just a decadeago, we ranked sixth in infrastructure in the world according to the World Economic Forum.

Today we rank 23rd and dropping. We will not be able to compete with the nations of the world if

we cannot fix this problem. Is it too much to ask that Republicans and Democrats find a way to come

together on this?That moment of bipartisanship might actually be the biggest payoff of all.

Scenario 1 is death

Unemployment causes widespread suffering and death

Dean Baker, Co-Director of the Center for Economic and Policy Research, and Kevin Hassett, SeniorFellow and Director of Economic Policy Studies at the American Enterprise Institute, former served as a

senior economist at the Board of Governors of the Federal Reserve System and an associate professor of

economics and finance at the Graduate School of Business of Columbia University, holds a Ph.D. in

Economics from the University of Pennsylvania, 05-12-2012, The Human Disaster of Unemployment,http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/the-human-disaster-of-

unemployment

Long-term unemployment is experienced disproportionately by the young, the old, the less educated,

and African-American and Latino workers. While older workers are less likely to be laid off than younger
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workers, they are about half as likely to be rehired. One result is that older workers have seen the

largest proportionate increase in unemployment in this downturn. The number of unemployed people

between ages 50 and 65 has more than doubled. The prospects for the re-employment of older workers

deteriorate sharply the longer they are unemployed. A worker between ages 50 and 61 who has been

unemployed for 17 months has only about a 9 percent chance of finding a new job in the next three

months. A worker who is 62 or older and in the same situation has only about a 6 percent chance. As

unemployment increases in duration, these slim chances drop steadily. The result is nothing short of a

national emergency. Millions of workers have been disconnected from the work force, and possibly

even from society. If they are not reconnected, the costs to them and to society will be grim.

Unemployment is almost always a traumatic event , especially for older workers. A paper by the

economists Daniel Sullivan and Till von Wachter estimates a 50 to 100 percent increase in death rates

for older male workers in the years immediately following a job loss, if they previously had been

consistently employed. This higher mortality rate implies that a male worker displaced in midcareer can

expect to live about one and a half years less than a worker who keeps his job. There are various

reasons for this rise in mortality. One is suicide. A recent study found that a 10 percent increase in the

unemployment rate (say from 8 to 8.8 percent) would increase the suicide rate for males by 1.47

percent. This is not a small effect. Assuming a link of that scale, the increase in unemployment would

lead to an additional 128 suicides per month in the United States. The picture for the long-termunemployed is especially disturbing. The duration of unemployment is the dominant force in the

relationship between joblessness and the risk of suicide. Joblessness is also associated with some

serious illnesses, although the causal links are poorly understood. Studies have found strong links

between unemployment and cancer, with unemployed men facing a 25 percent higher risk of dying of

the disease. Similarly higher risks have been found for heart disease and psychiatric problems. The

physical and psychological consequences of unemployment are significant enough to affect family

members. The economists Kerwin Charles and Melvin Stephens recently found an 18 percent increase in

the probability of divorce following a husbands job loss and 13 percent after a wifes. Unemployment of

parents also has a negative impact on achievement of their children. In the long run, children whose

fathers lose a job when they are kids have reduced earnings as adults about 9 percent lower annually

than children whose fathers do not experience unemployment. We all understand how the humancosts can be so high. For many people, their very identity is their occupation. Few events rival the

emotional strain of job loss.

Scenario 2 is protectionism

Unemployment causes the U.S to label China a currency manipulator- causes free market

trade backlash and china bashing

JIMENEZ 12 - Master's student at Georgetown University; degree in political science and international

relations from CIDE, Mexico City. (Protectionism Makes Comeback As Recovery Stalls,

http://atlanticsentinel.com/2012/01/protectionism-makes-comeback-as-recovery-stalls/)

As a result, protectionism could gain weight in the upcoming months and while it may be vilifiedby conventional wisdom which rightfully points out the benefits of free trade, there is a human face

which legitimizes it. Supporters of protectionism tend to justify their demands through what they

regard as the direct negative effects of trade with other countries. Some of these effects are caused by

the unfair practices of governments as Chinas. Others are due to the abundance of cheap labor in

countries as Mexico. Whatever the reason, according to protectionists unchecked trade

liberalization causes unemployment and income inequality. Americas disturbing trade deficit


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with China is one of the favorite arguments of trade critics in the United States. These opinions

have a considerable impact in various segments of the population. The 2008 financial crisis only

helped enforce the notion that Americans industry ought to be protected from unfair

competition overseas. According to theory, trade liberalization benefits an economy by expanding itsproduction capabilities and diversifying the goods it can consume. Trade dynamics promoted by

international competition lead to a decrease in prices, benefiting consumers and producers alike. It alsoexpands the labor pool, thereby reducing costs. Trade leads to specialization. Every country has a

comparative advantage in producing certain type of goods due to its factor endowment. An economy

will specialize in the production of goods which uses intensively its relative abundant factor. Thus,

Germany, which is relatively abundant in high skill labor, specializes in the production of high end goods

(computers, pharmaceuticals, etc.), while Vietnam, which is relatively abundant in low skill labor,

specializes in the production of basic goods (agricultural products, clothes). Through specialization,

countries are able to increase their respective national income because they produce what they are

more efficient in producing and trade it to the world. But then, what happens to those industries in

which a nation is inefficient? Herein lays the main dilemma of trade which can fuel protectionism

specialization leads to the disappearance of inefficient industries. Theoretically, this should not be a

problem, since workers in these industries will gravitate to other industries which are succeeding.Reality is more complex. Skill biased technological change has made it very difficult for job

displacement to occur. All types of jobs have modified their requirements in line with technological

chance. A laid off worker will struggle to find another job because he doesnt have the required set of

skills. Retraining could take years. The protectionists argue that this is exactly why the state must design

and implement policies to offset those effects of liberalization. Its easy for Americans to blame the

Chinese for their trade deficit, to propose to punish China by turning its currency manipulation

into an illegal subsidy and disregard recommendations to change domestic consumption patternswhich, in fact, makes American society the main actor responsible for their current situation. A more

effective way to enable economic growth than either raise or reduce trade tariffs may be the

implementation of an industrial policy. This refers to measures introduced by governments to channel

resources into sectors which they view as critical to future economic growth. It implies benefiting someby hurting others (the financial resources have to come from somewhere else). Consequently, industrial

policy should only be deployed to counter market failures and externalities which prevent the industries

in which a country has comparative advantage from naturally becoming as efficient as they should be.

The successful examples of Japan, South Korea and the Southeast Asian tiger economies encourage

governments around the world to intervene in their industries through subsidies, tariffs, taxes, etc. so as

to increase their profitability. The idea is to benefit those sectors that the state believes have a

comparative advantage over those of other countries and create national champions There are

problems with this analysis. Japan and South Korea both had the overt support of the United States

which, due to Cold War dynamics, prevented their experiments from failing. For their part, the tigers,

except Hong Kong, had authoritarian governments that facilitated the implementation of policies and

they, too, enjoyed American support. There are examples that demonstrate both successes and failures

but, to be fair, the outcomes were contingent upon other variables which require closer analysis. Chinasis the most recent case of an industrial policy, and, so far, it seems it has been successful. This has

caused alarm in the United States where Chinas success is increasingly perceived as coming at

the expense of American workers. The politicization of industrial policy that aims to correct marketimbalances unfortunately often leads democratic governments to privilege certain interest groups,

whether theyre corporations or unions, at the expense of their economys competitiveness as a whole.

Perhaps, in this sense, Chinas comparative advantage is its very authoritarianism?


23/32

Protectionism snowballs and causes nuclear war

Panzner 8 faculty at the New York Institute of Finance, 25-year veteran of the global stock,

bond, and currency markets who has worked in New York and London for HSBC, Soros Funds,ABN Amro, Dresdner Bank, and JPMorgan Chase (Michael, Financial Armageddon: Protect Your

Future from Economic Collapse, p. 136-138)

Continuing calls for curbs on the flow of finance and trade will inspire the United States and

other nations to spew forth protectionist legislation like the notorious Smoot-Hawley bill.

Introduced at the start of the Great Depression, it triggered a series of tit-for-tat economic

responses, which many commentators believe helped turn a serious economic downturn into a

prolonged and devastating global disaster. But if history is any guide, those lessons will have

been long forgotten during the next collapse. Eventually, fed by a mood of desperation and

growing public anger, restrictions on trade, finance, investment, and immigration will almost

certainly intensify. Authorities and ordinary citizens will likely scrutinize the cross-bordermovement of Americans and outsiders alike, and lawmakers may even call for a general

crackdown on nonessential travel. Meanwhile, many nations will make transporting or sending

funds to other countries exceedingly difficult. As desperate officials try to limit the fallout from

decades of ill-conceived, corrupt, and reckless policies, they will introduce controls on foreign

exchange. Foreign individuals and companies seeking to acquire certain American infrastructure

assets, or trying to buy property and other assets on the cheap thanks to a rapidly depreciating

dollar, will be stymied by limits on investment by noncitizens. Those efforts will cause spasms to

ripple across economies and markets, disrupting global payment, settlement, and clearing

mechanisms. All of this will, of course, continue to undermine business confidence and

consumer spending. In a world of lockouts and lockdowns, any link that transmits systemic

financial pressures across markets through arbitrage or portfolio-based risk management, or

that allows diseases to be easily spread from one country to the next by tourists and wildlife, or

that otherwise facilitates unwelcome exchanges of any kind will be viewed with suspicion and

dealt with accordingly. The rise in isolationism and protectionism will bring about ever more

heated arguments and dangerous confrontations over shared sources of oil, gas, and other key

commodities as well as factors of production that must, out of necessity, be acquired from less-

than-friendly nations. Whether involving raw materials used in strategic industries or basic

necessities such as food, water, and energy, efforts to secure adequate supplies will take

increasing precedence in a world where demand seems constantly out of kilter with supply.

Disputes over the misuse, overuse, and pollution of the environment and natural resources will

become more commonplace. Around the world, such tensions will give rise to full-scale

military encounters, often with minimal provocation. In some instances, economic conditions

will serve as a convenient pretext for conflicts that stem from cultural and religious differences.

Alternatively, nations may look to divert attention away from domestic problems by channeling

frustration and populist sentiment toward other countries and cultures. Enabled by cheap

technology and the waning threat of American retribution, terrorist groups will likely boost the

frequency and scale of their horrifying attacks, bringing the threat of random violence to a


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whole new level. Turbulent conditions will encourage aggressive saber rattling and interdictions

by rogue nations running amok. Age-old clashes will also take on a new, more heated sense of

urgency. China will likely assume an increasingly belligerent posture toward Taiwan, while Iran

may embark on overt colonization of its neighbors in the Mideast. Israel, for its part, may look

to draw a dwindling list of allies from around the world into a growing number of conflicts.

Some observers, like John Mearsheimer, a political scientist at the University of Chicago, haveeven speculated that an intense confrontation between the United States and China is

inevitable at some point. More than a few disputes will turn out to be almost wholly

ideological. Growing cultural and religious differences will be transformed from wars of words

to battles soaked in blood . Long-simmering resentments could also degenerate quickly,

spurring the basest of human instincts and triggering genocidal acts. Terrorists employing

biological or nuclear weapons will vie with conventional forces using jets, cruise missiles, and

bunker-busting bombs to cause widespread destruction. Many will interpret stepped-up

conflicts between Muslims and Western societies as the beginnings of a new world war.

Tit for tat measures reach zero point- China WarREUTERS 11(Analysis: Obama to challenge China on trade as election nears,

http://www.reuters.com/article/2011/10/13/us-usa-china-trade-idUSTRE79C72820111013)

Analysts cautioned the highly charged political atmosphere in Washington -- as Republicans and

Democrats struggle for position ahead of presidential and congressional elections in 2012 --

could be misread by Beijing. China faces a leadership succession of its own in 2012-13, adding

to the potential for tensions between the two countries to worsen. "We've been seeing for

some time in (the United States) a serious flirtation with increased protectionism," said Doug

Paal, a China expert and vice president for studies at the Carnegie Endowment for International

Peace. "I have been telling the Chinese that they should take this seriously, but I've been

warning them that next year is the one that they're really going to have to worry about." Eswar

Prasad, a senior fellow at the Washington-based Brookings Institution, said any tit-for-tat

measures had the potential to blow up into something much more serious. "There is a real and

present danger that symbolic measures initiated by either side spiral into a more serious trade

conflict as both sides strive to flex their muscles for the benefit of domestic au

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