The collapse of the Francis Scott Key Bridge in Baltimore closed one of the largest ports in the world, with important implications for world trade and for rubber tire vehicle traffic in the Baltimore area.  For example, it is both an import platform for car and farm equipment parts headed for assembly plants in the Midwest, and a platform for coal exports to Europe, particularly vital while Putin uses Russian energy as leverage.         

         The bridge itself was one of three ways to drive through the Baltimore area for the high-volume traffic from Washington DC to New York City and on up to Boston.  On a typical weekday, the bridge carried 34,000 cars and trucks that must now be jammed onto the other two arteries.   

         The initial cost estimate of the disaster is 15 million dollars per day in lost economic activity plus three billion to replace the bridge.  Although the ship owner will likely be liable to contribute to cost recovery eventually, settling such a claim will take years.  Therefore,   President Biden announced that he will direct the federal government to immediately commit to covering all costs, including salary replacement for the estimated 8,000 port workers who are temporarily without work.

         Some entity has to bear the cost in the interim pending settlement with the ship owner.  The federal government has a comparative advantage in paying up front and attempting future reimbursement. But how will it get the money for immediate spending? Answer: where it gets all its money: taxes and borrowing.  The loss of those two productive assets -- the bridge and the port -- made the country poorer.  The borrowing enables recovery of that loss. 

         But why the federal government? Why not states or private entities?  First, the shutdown of the Baltimore harbor has national implications.   The federal government can recognize those national benefits and costs and spread the costs of the bridge collapse across each citizen. Essentially, through its taxing authority, the federal government is the insurer of last resort. In this role of insurer, the federal government has another advantage: lower interest rates.  The cost of the bridge is massive,  only the federal government can borrow such sums at reasonable interest rates and terms. Since the federal government has taxing authority that states do not have, and has never been in default on its debt, the citizens/taxpayers have earned this advantage. On behalf of those citizens, the government uses the resulting cost advantage when paying the costs of accidents and natural disasters such as earthquakes, tornadoes, hurricanes, floods, pandemics, as well as  the Key Bridge collapse.

         In its customary reflex against federal spending, the congressional "Freedom Caucus" responded to Biden's recovery plan by pointing out that the government is already $34 trillion in debt, 120 percent of national income.    They propose that rather than borrow, adding to debt, the government should find ways to cut  somewhere else in the budget.  But is extracting money from previously enacted legislation really better than borrowing?

            Does that debt balance -- 34 Trillion dollars in debt due to past borrowing -- change the decision to borrow or cut other spending?    Actually, the debt is a "sunk cost."  Future borrowing decisions should depend on a comparison of the additional future benefit net of the additional future cost of the additional borrowing.

         In other words, the decision to borrow extra money does not depend on total borrowing done in the past.  The decision to borrow for additional investments depends on a comparison of additional liabilities to additional asset values obtained by that borrowing.    The bridge and port are assets.  They will be enjoyed for years to come, and passed on to future generations, with value  many multiples of the costs to restore them after this accident.     

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