Getting Shovels Ready
Initially, I was inclined to look forward to a stimulus package that was heavy on infrastructure investments. These are said to have a reliably high multiplier effect and they also have solid long-term payoff—if done right—beyond the short-term stimulative effect. Then I was brought back down to earth by the reality that there’s an unfortunately limited supply of so-called “shovel-ready” projects that could be done within the next two years. But Paul Krugman asks the reasonable question of why the stimulus time horizon is so short, noting that Obama’s economics team is predicting that their plan will leave elevated unemployment all throughout 2011 and 2012:
As far as I can tell, Mr. Obama’s planners have focused on investment projects that will deliver their main jobs boost over the next two years. But since unemployment is likely to remain high well beyond that two-year window, the plan should also include longer-term investment projects.
And bear in mind that even a project that delivers its main punch in, say, 2011 can provide significant economic support in earlier years. If Mr. Obama drops the “jump-start” metaphor, if he accepts the reality that we need a multi-year program rather than a short burst of activity, he can create a lot more jobs through government investment, even in the near term.
Still, shouldn’t Mr. Obama wait for proof that a bigger, longer-term plan is needed? No. Right now the investment portion of the Obama plan is limited by a shortage of “shovel ready” projects, projects ready to go on short notice. A lot more investment can be under way by late 2010 or 2011 if Mr. Obama gives the go-ahead now — but if he waits too long before deciding, that window of opportunity will be gone.
Broadening the window will increase the number of projects that can be completed within the time frame. In particular, it will increase the number of such projects because if you commit in February of 2009 to the money being available in 2011 and 2012 that means you can spend 2009 and 2010 getting the project shovel-ready. And, indeed, it means you can have some stimulus spending in 2009 and 2010 specifically focused on dreaming up and readying new projects. I wouldn’t dogmatically insist that the two-year time horizon is wrong—I’ve been assuming it’s right—but Krugman’s point that the Obama team’s own projections seem to imply it’s wrong seems sound.
I do, however, have some qualms with tying the case for infrastructure investments so closely to arguments about stimulus. There’s a case for enhanced infrastructure spending that’s entirely separate from this. And part of that case involves the idea that infrastructure spending should get different budgetary treatment and ought to be accounted for the way businesses account for their capital expenditures—on a depreciation scale—in a way that would better insulate decision-making from the year-to-year issue of managing the budget.
28 Responses to “Getting Shovels Ready”
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January 12th, 2009 at 10:30 am
Matt or perhaps a reader,
Can you point me to the source for t he fact that there is not enough “shovel ready” projects? I may have missed it. I honestly haven’t seen it.
January 12th, 2009 at 10:32 am
I’ve been seeing this whole situation as an opportunity to make the most of citizen understanding and political mood to try to rebuild the country to not miss out on the green / efficiency / alt.energy / etc. transition and to set the nation on a better path for the next quarter century or so.
Maybe it was easier to conceive of this sort of need for transformation when, like in the 1930s and 1940s, everyone could clearly see that leaving the American South a starving, diseased, uneducated, primary product export economy as is would harm the nation. Sort of a ‘clean’ slate, as it were, except not clean. Or when a third world country like South Korea sets out to be able to compete with and even rival the 1st world nations’ economies in a few generations.
A lot of people probably think we’re pretty close to optimal, and just need a bit o’ fiddlin’ to get back on track. I’m not one of those.
January 12th, 2009 at 10:34 am
I already wrote on this and in my opinion the necessity of an immediate impact outweighs what is in Krugman’s column. Given, I am of the belief that there are enough shovel ready projects, but I don’t really have anything to base this on. I say, that if right now, say a tax cut, or something else, would do better for right now, instead of infrastructure of 2011 or 2012 projects, it should be done. I would suggest that if we are still in need of stimulus in 2012 Krugman will get behind more spending then, and as you say infrastructure should be done anyway. I still think this stimulus should stick to stimulating now.
January 12th, 2009 at 10:37 am
I also find it odd that nobody is ring the alarm bell more than Krugman, and he seems to want to invest for the future with this stimulus, instead of an immediate injection RIGHT NOW – it’s an odd paradigm to me, but I imagine he’s smarter than me.
January 12th, 2009 at 10:39 am
“There’s a case for enhanced infrastructure spending that’s entirely separate from this.”
Absolutely. Keep flogging this horse. This needs to be shouted from, say, the Speaker’s spot in the House during a S of U.
January 12th, 2009 at 10:42 am
Forcing the stimulus to focus only on 2009 and 2010 “reflects a failure of vision, planning, and leadership” that Matt described earlier. Waiting is not an acceptable option when there are good ideas that could be implemented with a little foreknowledge.
January 12th, 2009 at 10:50 am
I sure hope Obama and company get Joesph Stiglitz on board.I think once we get rolling on the green economy with manufacturing solar panels and getting them on houses and buildings,bring back and update Jimmy Carters energy plan,our schools are as out dated and rundown as our roads,our sewer systems and Water facilities need repair.The long term porjects like these and many more are there they just need funding and where is that funding?Iraq at 12billion a month.It`s getting the right honest people in place to do the job and tell Obama the truth of what needs to be done, no yes man allowed because one way thinking got us into this mess in the first place.
January 12th, 2009 at 11:23 am
why not spend some money on health care infrastructure. I don’t think it takes as much planning as it might to build a bridge, or rather, in my experience as a software professional, mistakes are not as costly.
Also, the creation of a lot of low-skilled data entry jobs (given to Americans only) might be good as well.
January 12th, 2009 at 11:40 am
The other reason to invest more is to hedge the risk that the recession could be much WORSE than currently projected. Given the long delay between decision and ultimate effect on the economy we should be trying to do more infrastructure, not less. What’s the worst that could happen? Roads that are in excessively good repair? Too many schools with new roofs and insulation? If inflation start to be a problem all we have to do is have the Fed raise rates from their current near-zero state!
January 12th, 2009 at 12:12 pm
Under my plan, and my suggestions for Krugman in the recent suggestions for Krugman thread, there would be a sharp inflection in February
January 12th, 2009 at 12:15 pm
Now is the time for me to once again put in my two cents to argue for a greater emphasis on providing support to state and local governments!
According to the CBPP, the combined state budget gaps for the remainder of this fiscal year and fiscal years 2010 and 2011 are estimated to total more than $350 billion.
January 12th, 2009 at 1:38 pm
I agree that committing funds now to longer-term infrastructure spending can be very helpful to short-term economic recovery. Longer term commitments create target markets that businesses can safely invest in because they know that there will be reliable levels of demand, in the medium-term as well as the short-term. Even if this longer-term spending doesn’t make it into the stimulus bill, I think the Obama people need to start some serious talk about it.
January 12th, 2009 at 1:40 pm
‘Shovel’ jobs tend to go primarily to males while there is a huge population of women who are also unemployed or underemployed. There is a whole category of jobs that don’t require shovels that should be looked at as well. We could be paying people to tutor kids, teach illiterate adults, take care of old people in their homes, computerize health care information (h/t MC), run food shelves and homeless shelters. The government hired artists, writers, journalists and musicians during the New Deal. We need to think outside the ‘roads and bridges’ box in order to employ a diversity of people.
January 12th, 2009 at 2:25 pm
Good points, Miriam. I’m afraid the Obama administration is not being nearly ambitious enough.
Of course, there are those out there (many of whom comment on this site) who think that Obama is purposely starting out from a position of weakness and offering a crappy stimulus plan because he knows that congressional Republicans (who are against the stimulus bill) will work with congressional Democrats to inflate the actual stimulus bill far above what the Obama camp has floated, to date. Or something like that. To be honest, their logic fails me.
January 12th, 2009 at 4:49 pm
A recent commenter hear triumphantly announced that the California supertrain would, if all goes according to plan, have all its environmental and other permits by 2012, a mere 14 years after the permitting process was started in 1998. (Of course, nothing big happens on schedule.)
So, Matt, I think you need to extend your time frame for emergency stimulus projects by a couple of decades.
Or, you could call for deregulation of infrastructure projects. Build, baby, build! After all, liberals have spent 40 years making it excruciatingly slow to build stuff on either coast to stymie nonliberals. Environmental regulations are supposed to hurt bad people, not good people, so the laws shouldn’t apply to you. Bulldoze, baby, bulldoze!
January 12th, 2009 at 8:26 pm
“Can you point me to the source for t he fact that there is not enough “shovel ready” projects? I may have missed it. I honestly haven’t seen it.”
Nobody has, because that claim is a tired myth. States and cities are scaling back all infrastructure projects, cities are closing swimming pools and libraries, but of course, to our brilliant economic punditry, there are just not enough occasions to spend money on, so we might as well subsidize banks or flush freshly printed banknotes down the drain rather than (what a radical thought) spend money on something actually useful to the community.
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