Infrastimulus
Andrew Samwick makes the case for infrastructure as the cornerstone of stimulus:
[T]here is no free lunch: the money we spend today is a loss to the Treasury, whether as “timely, temporary, and targeted” tax cuts that have no discernible impact; payments to delay bankruptcy for large, mismanaged entities, whether AIG or the Big 3; or the largest public works program since the interstate highway system. That loss to the Treasury must be made up at some future date, by later cohorts of taxpayers.
Fortunately, both of these problems can be overcome by focusing all new spending on investment rather than consumption and on public investment rather than private investment. By their nature, capital investments last for years or decades, so that there is a better chance that those who are paying for the spending are reaping its benefits. Public investment also meets the criterion that the spending goes for projects that are within the government’s responsibilities. Repairing roads today removes the need to repair them for a number of years. In 2005, the American Society of Civil Engineers released a report card in which it estimated that $1.6 trillion would be required over a five-year period to restore the nation’s physical infrastructure to good condition. If I had a target of $500 billion to spend, every dime would go for public infrastructure investments, and we’d still have quite a bit of work to do.
These are reasonable points. The counterbalancing consideration is that it takes time to get these projects going. My understanding is that there aren’t $500 billion worth of products that are “ready to go” within the relevant time frame. So we need to mix infrastructure investments with other stuff that acts faster like aid to state and local governments.
43 Responses to “Infrastimulus”
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December 12th, 2008 at 11:36 pm
I agree completely.
I also think that liberals, when they argue for public investment, should make the point that public investment complements business activity, instead of substituting for business activity.
December 12th, 2008 at 11:42 pm
So we need to mix infrastructure investments with other stuff that acts faster like aid to state and local governments.
Yup. Although I want to see quite a massive infrastructure program, spending “every dime” on infrastructure means we’ll see massive job losses in the public sector, as state and local governments struggle to balance their books.
December 12th, 2008 at 11:45 pm
Hey, can somebody here tell me about the best bagels and knish in brooklyn, in your opinion? I like di fara pizza the best and have had some kickass bagels in new utrecht but maybe you have some ideas. preferably near the brighton line (B/Q train) or the Culver (F train) or west end line (where the D goes) if possible.
December 12th, 2008 at 11:50 pm
Rescue family’s from financial ruin now, and the rescued children will reap benefits for a lifetime. We want our roads, bridges and today’s kids to all be in good shape 20 years from now.
December 13th, 2008 at 12:24 am
How about fixing levees, too? It’s not rocket science. Could save a city. We need to think about what we’ve got to lose by not maintaining our infrastructure.
Falling bridges…
December 13th, 2008 at 1:06 am
But Amity Shlaes warns us that a “tsunami of concrete” is a bad idea as stimulus. Why? Because they tried it Japan in the 90s but Japanese consumers became “appalled” with the budget deficit and stopped spending money. It makes a lot of sense, when you think about it. I’ve stopped spending money since year 3 of the Bush administration, and in the last couple of months I’ve actually taken to burning the money and destroying all the other usable capital I have, out of sheer disgust.
Seriously, that’s the argument.
http://www.washingtonpost.com/wp-dyn/content/article/2008/12/09/AR2008120902785.html
December 13th, 2008 at 1:07 am
“That loss to the Treasury must be made up at some future date, by later cohorts of taxpayers.”
This is not necessarily true. It may be true, but that is a choice we have, and discussion of this issue will be straightjacketed until we let go of this prejudice. We really can just print the money by having the Fed put it on the balance sheet. In fact, we are already doing this, but for private not government debt. Monetization means we pay with inflation in the short term rather than debt in the long. But we are in a deflationary environment, so we actually *need* some inflation.
December 13th, 2008 at 2:05 am
I am curious why everyone seems to accept that projects not “ready to go now” must necessarily take years to get going. I appreciate that a number of regulatory and administrative hurdles have to overcome to get a project from drawing board to ground breaking. However, these are extraordinary times when the advantages of fast tracking are very compelling. Why can’t an appartus be set up to bypass local regs in the interest of breaking ground. Honestly, look at the industrial output during WWII in this country – it is just unreal what they built in that short span. The Pentagon, biggest freaking building in the world, was planned and constructed in under two years (16 months from ground breaking to dedication). Can we really afford environmental impact studies and zoning niceties under these circumstances?
December 13th, 2008 at 2:12 am
We’re so behind on some things that reducing the expensive liability would create as much wealth as pouring new concrete. Reducing obesity is an example. So is thinning the overgrown fuels in the Sierra and preventing future expensive fires. Or restoring topsoils or grazing land. Just like paying down credit card debt is valuable, so is doing projects that reverse bad practices.
December 13th, 2008 at 3:34 am
Now that Matt has accepted my point that large infrastructure projects beyond the pothole-filling kind can’t be put together fast enough in modern post-1960s America to serve as an immediate stimulus, let me give him a buzzphrase he can ride.
Two words: “Human infrastructure.”
Soon, Schwarzenegger will go to Obama hat in hand for tens of billions to keep California state and local government employees employed. This can then be justified as “human infrastructure.”
December 13th, 2008 at 5:16 am
Even if we don’t turn a spade of dirt for years things like planning studies, soil tests, surveying, environmental impact statements don’t fall out of the sky. People have to be employed to do them. Some of them, high speed rail in the median of highways comes to mind, could be fast tracked. We already own the right of way, the EIS should be relatively fast and there aren’t a whole lot of people living in the median strip that will object… lots of things that could be done.
December 13th, 2008 at 5:27 am
Yglesias:
Is it really hard to see that your pony plan to solve the “crisis” will never happen? And that the “crisis” isn’t regular Americans getting fucked over in record numbers–that’s the stuff republican’s wet dreams are made of–but the need to stuff the empty wallets of corporate johns so that our holy whores won’t have to take a pay cut? This is just like Iraq: there was a real tragedy that terrified a nation, and it was exploited to serve privilaged political interests while little was done to fix the underlying problem.
Matt claims that he learned the lessions from 2003. Now, like then, he should ask himself if he wants to follow the Coburn wing of the GOP. Wither skepticism?
December 13th, 2008 at 8:18 am
Isn’t there a grey area of sorts between “aid to state and local governments” and “infrastructure?”
Where I live, in Richmond, VA, the housing bubble didn’t hit us terribly hard, yet there are still a couple of giant developments that went cold when the credit crunch hit. There are a couple of very large, favorably located tracts of land that are currently going to seed because the developer hasn’t enough units from the initial buildings to continue the project.
The developer is more or less obligated to pretend that these condos – poorly designed luxury condos and townhomes out of the reach of most people who live in the surrounding area – are eventually going to sell and that the development will eventually be completed. But I haven’t talked to anyone in local government who thinks that’s actually going to happen.
Couldn’t FedGov come in to places like that and, using eminent domain, reacquire the land at reasonable prices and turn it into something the community needs? Parks and things like that don’t require big lead times – you could break ground on a park within a couple months.
December 13th, 2008 at 9:01 am
I’m also unsure what “ready to go” means. I work for the water department of a town of 5000 and we alone could spend almost a million replacing pipe, cleaning lines and devising more efficient flow patterns by looping systems. Replacing pipes and valves and adding tank mixing systems could be done almost immediately and I’m talking a lot of money. Other projects might have a lead time of a year or so. I bet a lot of towns have things that they could do that they keep applying band aids to because the money has never been available.
December 13th, 2008 at 9:31 am
There is a lot of stuff at the state and local level that is ready to be cancelled because of state and local revenue problems. Doesn’t this qualify as shovel ready on day zero? I agree with the general gist of the quoted article, we have only limited funds to spend on the stimulus, and it is important that it have longterm benefits. Also given the challenge, that energy, and especially oil are expected to play in the future, these need to be a substantial part of the picture. Especially stuff like helping residents, and businesses save energy. These sorts of projects have pretty rapid payback times, and I have a feeling that a few years down the road, the economy will still be hurting -but we will have used up any budgetary capability for further Keynesian stimulus. So we better make sure, that we get significant midterm benefits from whatever it is we decide to do.
We need to be careful about making investments which might not be used post peak oil. Things like highway expansion, and airport expansions may never pay for themselves.
December 13th, 2008 at 10:04 am
The idea of using infrastructure projects as economic stimulus is usually bullshit.
The very place where infrastructure improvements are BADLY needed are areas of high economic growth and low unemployment.
In contrast, it is stupid to spend a lot of money on new TRANSPORT infrastructure in areas of low growth and high unemployment. Because the existing infrastructure will be more than sufficient as people move away to find jobs elsewhere.
In those places , you want to focus on economic transition or renewal efforts: Installation of high bandwidth fiber, major upgrades to local colleges to provide valuable education and partnerships with corporations who move into the area to hire the college grads. See,e.g, Pittsburgh and the new Bill Gates Center for Computer Science at Carnegie Mellon.
It is best to build transport infrastructure in an area that is projected to boom –but to do so BEFORE the boom. If you wait until after the boom is in progress, you get a hopelessly gridlocked shithole like Northern Virginia outside Washington DC. Where you can’t put in new roads because of the high cost of real estate and high local wages.
The things that kills liberal programs/goals — and fucks the common citizens of this country — is incompetent liberals.
December 13th, 2008 at 10:40 am
I wonder about the “ready to go” criteria as well. Even if projects are not ready to break ground in February, there are certainly plenty of concepts and designs in various stages of completion. Unclogging the pipeline to getting these projects going will surely accelerate the development of other projects earlier in process. Jobs for designers and engineers are also jobs, after all.
December 13th, 2008 at 11:34 am
People will be amazed at how flexible the definition of “infrastructure” becomes once Congress starts spending like there’s no tomorrow.
December 13th, 2008 at 11:53 am
“People will be amazed at how flexible the definition of “infrastructure” becomes once Congress starts spending like there’s no tomorrow.”
I get the feeling I’m supposed to react to this by yuk-yuk-yukking about wasteful government, but instead I say… I hope so!
APS
December 13th, 2008 at 1:11 pm
Actually, the argument that there aren’t enough projects ready to go comes from a Goldman Sachs estimate (and I wouldn’t trust those guys right now with a wooden nickle). If on the other hand, you ask the people who actually have to build the infrastructure, you get a very different picture: the U.S Conference of Mayors reported that “154 cities of all sizes in all regions of the country. These cities have identified a total
of 4,645 infrastructure projects” ready to go right now.
(http://www.usmayors.org/mainstreeteconomicrecovery/documents/mser-report-200811.pdf)
Moreover, the speed at which you can create works projects actually relies upon whether we’re talking about light construction (streets, houses, public buildings, etc.) or heavy construction (bridges, tunnels, the Hoover Dam.). In 1933, the Civil Works Administration was able to put 4,263,644 workers within three months, and they didn’t have an extensive list of ready-to-go projects, they designed the projects as they went about hiring people.
December 13th, 2008 at 2:11 pm
Good points framed in a box of nonsense.
The government is the monopoly issuer of fiat currency. The limit on the ability to deficit spend is therefore the speed at which we can mobilize resources and the external accounts, where dollars have to be swapped for other currency issued by other governments (and credit-money leveraged against that fiat currency).
That’s why the focus should be as much useful, energy conserving or sustainable harvesting of domestic energy, and productivity enhancing infrastructure.
Indeed, that hits up against the problems the Japanese had in the 1990’s. Japanese corporations were engaged in a very substantial shift of domestic value added of Japanese manufacturing … from the neighborhood of 90% to the neighborhood of 60% (still higher than for the US, BTW). That means an extended capital investment slump as firs stood pat on domestic capacity other than technology upgrade, and focused on foreign direct investment in subsidiaries in Southeast Asia and China. And of course as the most important machine tool producer in the East Pacific region, much of that FDI was financing the purchase of Japanese produced equipment.
Its a consequence of double entry book-keeping that:
EXP+INV+GVT=IMP+SAV+TAX, so
Saving = Investment + Trade Surplus + Government Budget Deficit
With Japanese Government Deficits, to battle the effects of the investment drought, and Trade Surpluses, with weak consumption and ongoing exports, its childish to look for a psychodrama explanation for a high savings rate, with Japanese consumers “appalled” at budget deficits … there’s no helping a high savings rate in those circumstances, with the only question being the distribution between retained earnings and household savings.
December 13th, 2008 at 2:16 pm
Here in CA, public transportation funding is one of the (many) things whose funding is threatened. This may make a reasonable target for federal “fill-the-gap” funds. Of course, it’s impossible to verify which pot of money goes where…
December 13th, 2008 at 4:00 pm
I’m confused with all the talk about infrastructure stimulus on a few fronts:
1. Are there really that many unemployed construction and related labor workers?
2. Will these dollars be hoarded? And if there not will they even trickle down enough to create private demand for service workers (hotel, airline, retail, et al)
3. If not are non labor workers (bloggers, consultants, secretataries, et al) expected to learn how to operate a forklift?
k1
ryanculver.blogspot.com
December 13th, 2008 at 4:36 pm
Kforceone:
1. Yes. The collapse of the housing market means that there a huge number of people who know how to build things who need work. However, more on this on point three.
2. No. Generally speaking, unemployed people have a very high propensity to consume because they’ve been throttling back their demand to make ends meet by substituting, not making purchases that are non-essentials, stretching out existing purchases (especially clothes) to avoid new ones, and not paying their bills. You put a paycheck in their hands, and the whole thing gets spent right away, and it tends to enter the market at the bottom and generate a lot of respendings.
3. Yes, people are going to need to learn how to do no things. Keep in mind that 1. a lot of the unemployed are high school graduates or below who are especially feeling the squeeze because they were in low-wage labor to begin with and are now feeling the pressure as laid-off skilled workers downgrade to survive – manual labor is something that anybody can learn to do very quickly, and the more skilled aspects (electrical, plumbing, power tools, heavy machinery, etc.) can be picked up through on-the-job training and apprenticeships. 2. a lot of infrastructure work isn’t the heavy lifting, but rather the administrative and technical work that’s perfect for laid-off white collar workers.
December 13th, 2008 at 7:00 pm
DTM: The problem is that to fight a deflationary recession/depression, you WANT consumption. That is in fact the basic nature of the stimulus you are trying to achieve.
Solve ourproblems by continuing to consume more than we produce? I welcome your plan to reduce pollution by increasing the burning of fossil fuels.
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