A Litmus Test

We are all about to find out whether government and industry will be back to business as usual or whether the ongoing economic turmoil and new "Change" administration in Washington actually will set us on a new course. An early litmus test will be where and how the massive promised injection of infrastructure money will be spent. Given the sorry, crumbling state of the nation's road systems, hundreds of billions of dollars could easily be targeted at just fixing highway overpasses and bridges. And that's probably where it should go--just for safety reasons alone. But if we see funding heading for typical boondoggles that result in politician ribbon cuttings--a new highway in North Dakota or playground complex in South Carolina--we know it's more of the same.
 
Then there is the issue of the paltry 18 cents a gallon federal gas tax, which hasn't been raised since 1993 for Congressional fear over voter antipathy. As a result, the Highway Trust Fund is in the red and won't be able to fund ongoing road and mass transit improvements, which the country desperately needs to remain economically competitive for the future. The recent fall in gas prices provides the opportunity for the country to establish a substantial nest egg to help create a new multi-modal transportation model to carry our economy well into the new century. The reason our roads and bridges are falling apart is because we have not been adequately funding them. People have come to think our roads are free and they drive oblivious to the costs (at least until gas prices reach $4 a gallon). That's why our economy tanks every time oil prices go up and why we are so dependent on foreign oil sources. If the President and Congress don't press the point for raising more infrastructure funds in ways that beneficially encourage people to change their behaviors--driving less because the costs are more directly linked--then we know we are back to spineless, rudderless politics as usual. And so what if the gas tax rises 50 cents a gallon over the next five years--the monies will be going to high speed rail and new mass transit--not to some Middle East potentate.   
 
Next, we need watch what happens on the regulatory landscape. Will reeling hedge funds and private equity players still have enough clout from their political contributions to deep six legislation that forces greater transparency? Will the SEC get beefed up so that it can actually monitor properly the securities industry? Will tax policy orient to encouraging long-term investment in American industry or allow a casino-trading environment to continue where investors can focus on flipping for short-term gains? And what will happen to credit default swaps? How will CMBS be regulated to restore bond-buyer confidence? And what will become of the ratings agencies who clearly weren't up to their task? If we get more Sarbanes Oxley--CEOs must sign off on quarterly financial statements--then we know it's business as usual. And if we have learned anything in the past year, we realize that most financial industry CEOs don't have a clue about what's behind their financial statements. In theory, free and unfettered markets sound like a great idea, but without watchdogs and limits we get the type of mess that now needs to be cleaned up. It's the Roaring Twenties redux.
 
Through history crisis brings opportunity for useful change. The country has that opportunity now. By next New Years we'll know better whether we have the gumption to forge a new future or continue on a perilous course. Let's see what happens with infrastructure, the gas tax, and financial regulation.
 
And Happy New Year!