Mass Transit Stimulus
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One of the most effective possible uses of stimulus funds would be to cover gaps in the operating budgets of mass transit systems. The downfall in state and local tax revenue is forcing transit cutbacks across the country that have both a direct contractionary impact and also make it harder for people to live their lives and conduct their business. But currently stimulus funds can be used only for new capital projects rather than for operating costs. So you can have bus drivers being laid off even as new construction workers are hired.
Friday, Pete DeFazio (D-OR) and 26 other House members launched an initiative to try to change that:
Passenger rail and bus advocates are pressing conferees on the war supplemental bill to include a Senate-passed provision that would allow public transit agencies to spend some of their stimulus dollars on operating expenses, instead of capital improvements. The language in the Senate version of the bill (HR 2346) would let transit agencies use as much as 10 percent of their funding from the economic recovery law (PL 111-5) to fend off personnel and service cuts. Transit received $8.4 billion total in the stimulus.
Pat Garofalo argues at the Wonk Room:
Since one of the goals of the stimulus was to preserve jobs, it makes little sense to prevent cities from saving the jobs of transit employees, particularly as more and more people are turning towards public transportation. Hopefully, Congress makes a better decision this time around.
Summer’s coming and gasoline taxes are rising. One of the simplest things the government can do to push back on that situation is expand transit offerings. Really fundamental expansion requires capital expenditures and takes time. But increasing the number of bus routes, and the frequency of service on existing bus and rail routes, can be done fairly easily. It just takes money. But it’s a good use of stimulus funds.
43 Responses to “Mass Transit Stimulus”
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June 6th, 2009 at 2:52 pm
Great post.
I’d also argue that, big capital projects aside, many American transit systems could benefit from fairly small organizational changes as well. Just things like copying DC’s “next arriving” signs, or instituting standard internet-phone bus trackers. More ambitiously, you could reclassify certain lanes as “bus only,” or give buses authority to run red lights in certain situations.
This kind of thing is a hell of a lot cheaper than laying a whole new metro-rail line (or even trying to expand bus service — particularly with fancy new “Connnectors” intended to appeal to the wealthy), but it can do wonders for maximizing the usage of a region’s existing transit network.
June 6th, 2009 at 2:53 pm
Rates on debt are piling up faster than operating income can cover. The result is a delay in capital improvements as the limited supply of debt covers past commitments. Hence, multipliers are less than zero, each additional money borrowed to cover past expenses results in fewer jobs.
The bond market is fully aware that Obama is going to cover past expense, not invest in future technology. Hence, Obama will always pay a premium in long term rates meaning more and more of the budget becomes interest expense.
June 6th, 2009 at 2:58 pm
Sure it’s a good use of funds, and so are construction jobs (which will lead to more jobs for bus drivers). The idea that we should pare back the capital investment side of stimulus seems to frustrate the theory behind the stimulus. You’re shifting money from (i) stimulating our unused capacity to build infrastructure at times of depressed private investment to (ii) stimulating our unused capacity to drive buses at times of high marginal cost.
June 6th, 2009 at 3:05 pm
Mass transit is great, but how the Obama administration frames the issue could result in two very different final products. What I mean is that the expansion of “mass” transit may be selective, and that’s something to watch out for. This idea isn’t exactly one of my original thoughts, but I read a bit about it here: http://socialsciencelite.blogspot.com/
June 6th, 2009 at 3:08 pm
Re Matt Yglesias
Just to correct Mr. Yglesias’ post, gasoline taxes are not going up, gasoline prices are going up.
Re NS
Bus drivers in DC already run red lights.
June 6th, 2009 at 3:20 pm
Post like this just highlight why people with no experience in business should not be allowed to spend tax money.
The stimulus is one time money. Operating expense is repetitive money. This is the distinction Sanford in SC tried to make, to no avail.
If the transit system can’t make enough money to keep itself going, then there is a systemic problem with the organization. Taking one time money to plug a systemic hole, is a waste. Next year the need will reappear, with nothing to fill it. Meanwhile the infrastructure project will have been eliminated.
This is bad management. Don’t be wasteful.
June 6th, 2009 at 3:28 pm
shooter242,
strange name.
also, by your logic we should stop repairing all non-toll roads, as they bring in zero revenue.
June 6th, 2009 at 3:43 pm
Big Blue Bus!! Nice pic…
Semi-on topic, the bus system on the west side in LA is surprisingly excellent. Doesn’t help longer range commuters so much obviously cause buses get stuck in traffic too, but within 3/4 miles of the ocean and north of the airport you can get all over quite easily…
June 6th, 2009 at 4:35 pm
“your logic we should stop repairing all non-toll roads, as they bring in zero revenue.”
Where did this come from? Raads get gas taxes because cars use roads. Buses generally do not pay gas taxes (Barney Frank exemption), and if you read carefully, Yglesias always said we should take auto user fees and use them for something else. Then, in the same sentence, almost, he says gas taxes do not cover user fees.
In fact, going forward, the Barney Frank exemption will continue with Global Warming fees, always encouraging inefficient use of oil by government fleets.
June 6th, 2009 at 4:39 pm
Buses, bike paths and Portland. Beloved subjects of our gracious host.
http://www.pbs.org/wnet/blueprintamerica/reports/road-to-the-future/video-full-documentary/648/
Also, we need make this woman a Zsar. She is my kind of girl.
http://www.pbs.org/wnet/blueprintamerica/reports/road-to-the-future/extended-interview-commissioner-janette-sadik-khan/630/
June 6th, 2009 at 4:41 pm
That’s because of Santa Monica’s excellent Big Blue Bus system(”The Big Blue is calling us . . .” Jim Morrison of The Doors, The End)which can get you to almost anywhere in Venice (at least north of Venice Boulevard), all throughout Santa Monica, and up to UCLA quite easily ( and don’t forget the Culver City Green Buses).
LA City’s MTA buses? Not so good.
June 6th, 2009 at 4:42 pm
Mattyoung,
His logic was that anything that does not pay for itself should be cut in service until it does. Roads do not pay for themselves with the gas taxes collected by driving on them. At least in Texas, the gas taxes pay for only about 16% of the total cost of building, operating and maintaining roads.
I know you read this blog and comment every day. You must have missed this post:
http://yglesias.thinkprogress.org/archives/2009/05/do-roads-pay-for-themselves.php
June 6th, 2009 at 5:26 pm
Only if that’s the only thing you can think of to do, that saves money, or increases revenue.
But that wasn’t the point. If a relative died and left you a windfall, would you be smarter to build a house, or use it to support an extravagant lifestyle until the money runs out? I think even you can figure that one out. Hopefully.
So here the states get a windfall via the stimulus. Is it better to use it for something substantial that will last, or support a dysfunctional system until the money runs out?
The answer is to fix the system. Using the windfall is waste.
June 6th, 2009 at 5:32 pm
The distribution of stimulus money with respect to energy conservation is the inverse of the transportation law. It’s forbidden to swap money in the LIHEAP program that is used to pay energy providers to pay for energy conservation instead. The energy conservation would be stimulative, job creating, and have enduring benefits. Instead almost all the funds just go to pay operating expenses for poor homeowners. The only thing LIHEAP and tranportation stimulus have in common is that the big lobbyists have steered the benefits to themselves.
June 6th, 2009 at 6:29 pm
Mike S., I went through the research regarding Yglesias previous post abotu whether user fees pay for roads. The answer was as follows:
“Mark A. Delucchi of The Institute of Transportation Studies at UC Davis has researched this topic extensively. According to one study, Do Motor Vehicle Users in the U.S. pay their way?:
In the summary of the results , DeLucchi observes:
[C]urrent user payments probably are on the order of 80–90% of the associated government expenditures on MVIS.”
The reason that, in general, only 70% of the costs have been covered recently is that the gas taxes are partially drained for other uses. Another reason was fewer miles driven. That is, we were using stimulus money in the past to pay for old style transportation under the assumption that it would last.
Another”
“The Highway Trust Fund was established in 1956 and was created to allocate funds for the interstate highways (Buechner, 1997). These revenues are collected from a portion of the gasoline tax. In 1997, almost 84 percent of these revenues were distributed towards interstate highways (Buechner, 1997).”
So, the Congess take away 15% immediately, probably most of that should be returned to road maintenance.
When Yglesias posted his slanted story (aren’t they all?) I point out at the time that only 70% of federal gas tax gets to roads, another 10% taken by states for other purposes.
But none of this matters to progressives, as I pointed out, the accounting system they use varies depending on whether they want bigger fund for their projects.
June 6th, 2009 at 6:47 pm
Uhhh…you know we’re in a recession, right? With declines in revenues reducing the funding available for things like mass transit?
June 6th, 2009 at 6:50 pm
Ah, yes, the “extravagent lifestyle” of running the transit system with slightly less, instead of drastically less, service.
To answer your question, if you inherited that money six months after you’d been laid off, and you had no savings, it would be a great deal smarter to pay your bills, your mortgage, and keep the fridge stocked until you found a new job, than to build a house you can’t afford to heat and maintain.
June 6th, 2009 at 7:54 pm
As a transit professional, I can assure you that driving a bus is a really hard job, and a really important one. Drivers are the face of transit to their customers, and when they’re lazy or incompetent they are pushing customers away.
So all transit-advocates should have an interest in making the bus driver’s job more attractive and thus more desirable. Unstable operating funding, leading to a constant boom and bust of service cuts and adds, fuels feelings of insecurity among drivers. This in turn leads to a lower-quality and less-committed workforce, because ultimately, like all employees, drivers will only feel committed to serving us if they sense we’re committed to them.
All of which is to say, yes, bravo. You can’t cut a ribbon on operating funds, but any legislator who values working transit systems more than political stunts will be out in front on this one.
June 6th, 2009 at 10:44 pm
I should have known better than to trust a young conservative.
Below is the entire abstract from the Mark A. Delucchi whit paper. Clearly, a somewhere around $.55 dollar increase in the per gallon gasoline tax would be required just to pay for the roads, not even the indirect costs of the carbon emissions. In any case, we spend a hundred billion a year, just on roads.
“Governments in the US spend over a hundred billion dollars per year to build and maintain roads and provide a variety
of services for motor-vehicle users. To pay for these infrastructure and services governments collect revenue from a variety
of taxes and fees. The basic objective of this paper is to compare these government expenditures with the corresponding
user tax and fee payments in the US. At the outset I argue that the such comparisons tell us something about the equity but
not necessarily the economic efficiency of highway financing. I then present four different ways one might tally up government
expenditures and user payments, depending on the extent to which one wishes to count ‘‘indirect’’ expenditures (e.g.,
on prosecuting car thieves) and non-targeted general-tax payments (e.g., severance taxes on oil). I make a comprehensive
analysis of all possible expenditures and payments, and then compare them according to three of the four ways of counting
expenditures and payments. The analysis indicates that in the US current tax and fee payments to the government by
motor-vehicle users fall short of government expenditures related to motor-vehicle use by approximately 20–70 cents
per gallon of all motor fuel. (Note that in this accounting we include only government expenditures; we do not include
any ‘‘external’’ costs of motor-vehicle use.) The extent to which one counts indirect government expenditures related to
motor-vehicle use is a key factor in the comparison.
Please note that this research is suspect because it is an Elsevier article. This makes it much more likely that this was sponsored by an industry trade group and only published if the findings were in line with what the industry wanted.
http://crookedtimber.org/2009/05/11/friends-dont-let-friends-publish-in-elsevier-journals/
June 6th, 2009 at 11:00 pm
Joel from Lowell says…
Good heavens, really? Well then, you have several choices. Raise rates, raise taxes, and/or reduce expenses. You know, like most real live businesses do.
Excuse me, where did I say anything about drastically less service? If slightly less does the job, hunky dory.
Bus service hasn’t stopped and is still generating revenue. Nobody has been laid off. Spending capital to prop up a dysfunctional business is a waste. That applies to GM, Chrysler, California, and public transportation.
June 6th, 2009 at 11:25 pm
Hey! Thread consensus. Everyone agrees we are taxing the shit out of gas hogs so the oppressive Federales can use the money force suburban sprawl on defenseless local governments.
Whether this is a good thing or a bad thing is a point of contention, however.
June 6th, 2009 at 11:30 pm
You’re dodging the point. I reminded you of that salient fact in response to your statement: If the transit system can’t make enough money to keep itself going, then there is a systemic problem with the organization. No, incorrect – the fact that transit systems are facing huge budget cuts is not the result of a systemic problem. This was your argument against spending stimulus funds on operating costs, remember?
When you stated your opposition to the use of stimulus funds for operating expenses. Again, your argument, remember?
Umwhut?
June 7th, 2009 at 1:10 am
joe from Lowell
Joe, I give you a lot of credit. You are tireless in your efforts to educate the less fortunate of mind. But, I have to say, you would have more success trying to impart wisdom to- a rock.
June 7th, 2009 at 1:13 am
Well then, you have several choices. Raise rates, raise taxes, and/or reduce expenses.
All of which would be bad for the economy. In other words, you just helped make Matt’s point: “One of the most effective possible uses of stimulus funds would be to cover gaps in the operating budgets of mass transit systems.”
June 7th, 2009 at 8:08 am
Wow, this is worse than I thought, on the other hand it’s a teaching opportunity.
Of course it is. Just like the housing bubble, or overextending one’s credit cards. Promises were made on the basis of unrealistic ideas of present and future revenues. People thought the gravy train would run forever, but it didn’t. That is a systemic problem. Let me also mention that the emotional hand flapping of “huge” budget cuts is unconvincing and part of the problem. Without actual numbers, this is just trying to stampede the liberal herd with manufactured thunder.
If budget cuts are here this year, what in the world makes you think they won’t be here next year, and the years after that? So if you blow the stimulus money on this year’s budget, what are you going to do about next year’s budget? Cry to the feds, or get the system back into equilibrium? Wouldn’t it be smarter to get the system into equilibrium now, and save the stimulus for something concrete? You are operating on the assumption that there is a “right” to bus service, and that there will always be increasing tax monies available to pay for it. Well surprise! That’s wrong.
In addressing my example of what to do with a windfall, you replied with an example where someone is laid off. That’s wrong. Someone laid off has no money coming in, but the transit systems DO have money coming in. Just not as much as the transit system wants. Well guess what? That means adjustments are going to have to be made. I understand this is anathema to the bureaucracy and the commenters here, but just like all the families battered by the recession, changes will have to be made. If not, California is what happens. There really are consequences to being piggish.
June 7th, 2009 at 8:37 am
Actually no. Perhaps you recall the Clinton era where balancing budgets was good for the economy?
In the period in question, the economy was in the expansionary part of the business cycle, which is when you should indeed be trying to balance the budget (or even running a surplus). We are in the contractionary part of the business cycle, when the exact opposite is the case.
Generally, I don’t know why it is so hard for some people to grasp the nature of countercyclical fiscal policy, which was what the stimulus was all about.
Meanwhile back at the buses, you can fix the imbalances now, or down the road after you’ve blown your windfall.
When we are back to the expansionary part of the business cycle “down the road”, it may make sense to reduce the federal subsidy to mass transit, although it also may make sense to instead raise taxes and continue the subsidy.
June 7th, 2009 at 9:01 am
Because it requires fiscal discipline at some point. And that is not going to happen in this administration. Bernanke is calling for balance, but the markets know this is just the opening salvo in hiking taxes beyond letting the Bush cuts expire. Boy that’s going to make people feel better about their prospects.
This goes to my point about spending windfalls. A continuing subsidy is not the same as stimulus money. It is repetitive and ongoing. I have no problem with federal subsidies as part of the revenue stream. It’s spending a one time windfall on operating costs that’s a waste.
Sadly though, I expect trillion dollar deficits forevermore.
June 7th, 2009 at 11:09 am
Because it requires fiscal discipline at some point. And that is not going to happen in this administration. Bernanke is calling for balance, but the markets know this is just the opening salvo in hiking taxes beyond letting the Bush cuts expire.
You do realize this is internally contradictory, right? Raising taxes later WOULD be showing the fiscal discopline required for countercyclical fiscal policy: you run up a cyclical debt during the contractionary phase, then pay off that debt during the expansionary stage by raising taxes.
Of course this is the exact sort of fiscal discipline that the last threee REPUBLICAN administrations have failed to demonstrate–e.g., Bush arguably had good reason to run up debts during the recession at the beginning of his first term, but he then should have increased taxes to pay off that debt. However, instead he tried to make his tax cuts permanent–a perfect example of poor fiscal discpline. But by your own prediction, the Obama Administration is going to do better.
It’s spending a one time windfall on operating costs that’s a waste.
Again, if what you are doing is prevent local public spending from contracting at the same time as the general economy, then a temporary increasing in federal subsidies is perfectly well warranted as a stimulus measure. From an economic standpoint, it doesn’t matter whether that is for capital costs or operating costs.
Generally, I still wonder if you get what countercyclical fiscal policy is supposed to look like–temporary spending is the whole point.
June 7th, 2009 at 12:06 pm
LOL. Or more appropriately, reducing spending. Assuming we have a $2 trillion deficit this year and more thereafter, there is no amount of tax hikes that can pay for them.
My degree was in economics, I understand the counter-cyclical full well. More importantly I’ve owned a business and understand the vagaries of human nature when money is involved. The flaw here is that politicians are running the show. Nobody in their right mind expects Obama to pay down debt. He can hike tax rates to 99% and it will all go to new spending.
Economies are good and bad based on expectations. What isn’t stated, that bolloxes up your grand plan, is the recognition there isn’t the desire or discipline to cut spending by Obama. People understand how hard cutting spending is for a politician. When it is definitively demonstrated that an administration is incapable of doing that one thing (Bush included), then it is recognized that tax hikes will NOT pay down debt, just encourage more spending. That one realization is all it takes to depress the countries belief in the future.
The budgeting process is broken, and the expectation is that it won’t get fixed, leading to the next necessary expectation that taking risks with business, hiring, or expansion is a non-starter. Ergo the economy diminishes even more. You can’t tax your way into prosperity.
Yes it does. Capital is used to build something that generates a revenue stream. Blowing it on getting the buses to run every ten minutes, rather than every twenty is a waste. I don’t know how to explain that any more clearly.
June 7th, 2009 at 12:13 pm
Max,
I’m not trying to educate him. I’m trying to discredit him in the eyes of other readers.
A devoted, faith-based wingnut isn’t going to change his mind based on facts and logic, because he didn’t arrive at his current beliefs through faith and logic, but pointing out where his arguments don’t add up is useful for those who might come across his slickly-packaged nonsense.
June 7th, 2009 at 12:22 pm
Um…yeeeeah, once again, I’m going to have to go back to: Uhhh…you know we’re in a recession, right? With declines in revenues reducing the funding available for things like mass transit? You’re pretending that the current revenue situation, in the midst of the worst downturn since the Great Depression, is the new normal, and it’s not. It’s a short-term emergency that will pass.
A. You haven’t provided any numbers. B. The fiscal situation facing transit operators – the collapse of funding from municipal, regional, and state sources – isn’t remotely controversial or obscure enough to justify hiding behind feigned ignorance.
Once again, and again, and again: Uhhh…you know we’re in a recession, right? With declines in revenues reducing the funding available for things like mass transit?
Oh oh oh, I gotcha. I thought you were asserting that transit providers weren’t laying people off, contributing to unemployment in the midst of a recession.
Someone laid off has no money coming in, but the transit systems DO have money coming in. Just not as much as the transit system wants. Well guess what? That means adjustments are going to have to be made. Yes, and in this case, the adjustment that’s being made is for the federal government to take on some debt for a short time, to avoid unacceptable service cuts and to prevent the worsening of the employment situation.
In general, shooter, you seem to be missing the point of stimulus spending. It’s not actually about the bus service, though that’s a nice benefit. It’s about keeping unemployment from getting too high, and about pumping money into an economy that was falling off a cliff into a depressionary cycle.
June 7th, 2009 at 12:26 pm
You’re projecting the beliefs of a small fringe of Obama-haters onto the economy and society as a whole. I know YOU feel like that, Shooter. You probably also feel that Sonia Sotomayor is a racist, the invasion of Iraq was a great idea, and Michelle Obama is a bitter, unlikable person. Well, you’re entitled to your opinions, but you shouldn’t make broad assertions about how widespread they are.
June 7th, 2009 at 12:34 pm
It is truly a paradox that so many hyperactive minds dedicated to the fantasy of Friedman economics cannot imagine a different form of economics- such as the reality in which we live in which roads do not pay for themselves and yet, they exist!
I’m guessing most of these clowns voted for the Republican presidents who have kept the national debt alive and well. Yes, they sat around the kitchen table with Ronald Reagan and learned that spending a billion on a bridge is just like deciding between beans or steak for dinner. Then they all went out and bought McGreasy burgers because fast food is one element of a stable economy.
They’re morons, but that doesn’t change the fact that spending on buses is generally wrong. When demand increases, buses can’t meet it. When demand falls, services are cut. Riders and property owners conclude that bus service is not reliable. This is not how you build a society in which more people can rely on public transportation to get where they want to go.
Yes, it is very sad that Americans are now caught in their web of bad decisions. We have insensibly become a second-world country, or, in some respects, a third-world country, but as long as we could buy cars on time everything seemed to be just fine.
Subsidize another year of bus operations and you end up with a slightly larger and slightly older fleet of buses. This is not change we can believe in.
June 7th, 2009 at 12:54 pm
LOL. Or more appropriately, reducing spending.
See, this is what I mean by a person not understanding countercyclical fiscal policy. Once you are safely out of the contractionary phase you can reduce your spending back to normal levels, assuming you were at an appropriate level to begin with. But that still leaves the question of what to do with the cyclical debt you accumulated, and the only thing to do is to increase taxes until you have paid it off. In other words, a stimulus costs money, and so there is no getting around the need to pay some extra taxes in order to fund a stimulus (extra meaning on top of the taxes needed to pay for a normal level of services). But it is worth the cost if it moderates the contractionary phase.
My degree was in economics, I understand the counter-cyclical [sic] full well. More importantly I’ve owned a business and understand the vagaries of human nature when money is involved.
Apparently along the way no one bothered to teach you the difference between micro and macro.
Nobody in their right mind expects Obama to pay down debt.
After the huge accumulation of federal debt in WWII, federal debt as a percentage of GDP was paid down in every administration with three exceptions: Reagan, Bush I, and Bush II. Accordingly, the smart money is actually on debt being lower as a percentage of GDP at the end of Obama’s administration, since he is not a Reagan Republican.
You can’t tax your way into prosperity.
So sayeth the Reagan Republicans, and so they don’t even try to set tax rates at an appropriate level, and as a result they pass along extra debt to the next person. Again, though, history says it is entirely possible to pay down debt as a percentage of GDP, so thank goodness the Reagan Republicans aren’t running anything anymore.
Capital is used to build something that generates a revenue stream. Blowing it on getting the buses to run every ten minutes, rather than every twenty is a waste. I don’t know how to explain that any more clearly.
Well, then you don’t have much of an argument, because that is incoherent and irrelevant nonsense. First, that has absolutely nothing to do with the stimulus effect of the spending. Second, taken seriously your argument would imply that all spending on operations is less economically beneficial than all spending on capital goods, but of course that isn’t the case: in the real world it is a question of balance.
June 7th, 2009 at 5:14 pm
I’d say this nicely encapsulates the differences in our views. Your view is pretty much the same one held by most in 1930-31. Me, I’ll plan for the worst and hope for the best.
Oh please, now you’re just being hyperbolic. Did I miss some aspect of the trillions of debt Obama is incurring, which indicates his willingness to stop spending at an appropriate time? Tsk.
June 7th, 2009 at 6:19 pm
No, this is incomprehensibility of someone who thinks there is only one way to retire debt. After the contractionary phase one has a choice. You can raise taxes, or reduce spending and apply the difference to the debt. Your internal contradiction is that if you want to raise taxes AFTER the contractionary phase then one has to believe in lowering taxes IN the contractionary phase. Or do you just believe in raising taxes at all times?
Considering that Obama’s current deficit is bigger than all of Bush’s deficits for his first seven years, and the taxation you advocate will be huge… Well let’s just say, the bond vigilantes think you’re wrong. Personally I’m betting on Carter style stagflation.
Bush 43 exited at 39%.
Wow, the resistence to downsizing government here is just amazing to me. This reinforces my belief that cutting spending is never going to happen, and that all “extra” taxation will be wasted. But back to your point, spending on operations IS the economy. The problem here is an operation that isn’t self sustaining and requires continuing subsidy. OK, let’s assume you use the stimulus money for operations. What do you do, when that money runs out? What do you do, when you need new buses, or want to expand routes? Are you going to borrow to pay operations? That’s what California has done and they are near bankruptcy. I really am curious, where do you expect to get money after the stimulus goes away?
June 7th, 2009 at 6:30 pm
DTM, like Barack Obama and me, supported the tax cuts in the stimulus bill – that is, the tax cuts that amounted to more than 1/3 of the entire package.
But remember, folks: Shooter TOTALLY understands the idea of countercyclical spending. Totally.
Sigh. As a wise man once – no, wait, repeatedly – said Uhhh…you know we’re in a recession, right? With declines in revenues reducing the funding available for things like mass transit?
June 7th, 2009 at 6:58 pm
Sorry, to be another libertarian asshole, but I would like to give a counterpoint to the lovefest for a mass transit stimulus. Like the auto bailouts, the outpouring of stimulus money again sets the precedent that the federal government (or really the buyers of T-bills) will come to the rescue of any politically connected entity.
The transit service, or if not the transit service then the government supporting the transit service, likely had a good few years where tax receipts were much higher than normal. It was politically easier, though, to spend this money right away than saving it for a downturn and the state and local governments are suffering for it now.
I don’t say this will be easy, or that it won’t suck for transit agencies or their customers without a bailout, but bankruptcy, layoffs and other facets of capitalist economies also suck. But the realization of punishment for underproducing or not managing money effectively is what propels firms to compete to provide the best product and what propels consumers to spend money wisely.
Now, that’s what I think from political and economic philosophy point of view. On a practical point, I am not Austrian with respect to countercyclical measures. I do think a government has to take actions to smooth out both peaks and valleys in economic cycles.
However, monetary policy typically does a much better job of countercyclical intervention than fiscal policy. Good monetary policy is broad-based, providing money throughout the whole economy. Consumers get extra money and governments get extra taxes, while prices stay even in the short-term due to menu costs. Consumers eventually spend their money on what consumers want and the economy shifts to produce what is valued and not what’s overbuilt, i.e. fiber optic line in 2000 or housing today.
On the other hand, fiscal policy has many drawbacks. Government debt is ill-timed; most of the stimulus money will not flow this year. Government debt goes to a few politically connected entities, such as the UAW or home-builders or California or bridges to nowhere, instead of flowing throughout the economy and letting consumers decide where to spend it.
This is not a typical downturn, but it seems that the broad-based expansion of the Fed balance sheet and not the stimulus bill has provided the inflection point of the economic downturn. Most of the stimulus and the auto bailouts will do little other than enabling dysfunctional entities (California, GM, Chrysler, etc.) to continue the status quo while significantly increasing the debt burden for the average American.
June 7th, 2009 at 7:50 pm
Your internal contradiction is that if you want to raise taxes AFTER the contractionary phase then one has to believe in lowering taxes IN the contractionary phase.
Indeed. And there were big tax cuts in the stimulus plan.
Considering that Obama’s current deficit is bigger than all of Bush’s deficits for his first seven years, and the taxation you advocate will be huge . . . .
Again, your prediction of increased taxation in the expansionary phase actually support the notion that Obama is more likely than his spend-more-but-tax-less Reagan Republicans to do his part to reduce debt as a percentage of GDP.
Wow, the resistence to downsizing government here is just amazing to me.
First, again, “downsizing government” in the contractionary phase would be bad for the economy. Second, I’m not against some ways of “downsizing” government in the long run. But I don’t think mass transit in particular is a good place to be downsizing, and we are talking about peanuts anyway compared to the big discretionary spending categories. In other words, if you want to prove you are serious about downsizing government, tell me how much you want to cut from defense spending.
OK, let’s assume you use the stimulus money for operations. What do you do, when that money runs out?
If all the stimulus is doing is replacing local revenues lost to the recession, then you can phase out the subsidy as the economy improves and the local revenues come back.
June 7th, 2009 at 8:28 pm
DTM and Joel
You two were right about the tax cuts. I didn’t get one so they slipped my mind. Oh well, easy come easy go.
I’d say we’ve hit the limit on this thread and I have little doubt in your faith that this is temporary. Luckily, time will prove one of us right. So how temporary do you two think this will be? I’ll make a prediction based on my view of the economy.
No positive growth on the GDP till next June, 8% mortgage rates, unemployment at 12%, and a retest of the Dow lows by end of the year. And oh yeah, transit systems will be out of money and in crisis. Again.
What say you?
June 8th, 2009 at 9:03 am
I don’t know why conservatives don’t support mass transit more. Mass transit allows people to get to their jobs without driving. It allows poor people to get to jobs if they don’t have a car. Seen that way, it’s a very efficient subsidy to the working poor.
This is beyond giving a man to fish, or teaching him how to fish. This is getting him to the lake.
June 8th, 2009 at 10:29 am
[...] A push for Mass Transit Stimulus? Yglesias [...]
June 8th, 2009 at 11:42 am
I don’t say this will be easy, or that it won’t suck for transit agencies or their customers without a bailout, but bankruptcy, layoffs and other facets of capitalist economies also suck. But the realization of punishment for underproducing or not managing money effectively is what propels firms to compete to provide the best product and what propels consumers to spend money wisely.
Governments aren’t firms. They can’t go out of business or lose market share to a competitor. There’s no room for creative destruction in local government – only destructive destruction.
On the other hand, government governance is quite different from corporate governance – if you think your local government is doing something badly, you don’t have to buy stock to change it, just vote, or go to local government meetings and talk, or become a community organizer or activist.
In the meantime, in the real world, the fact that “facets of capitalist economies suck” is one of the problems government is tasked with solving, or at least mitigating. That’s what mixed economies are all about.