Now that gasoline is below $2 per gallon, we allowed ourselves a bit of extra driving through Massachusetts during the weekend. We rolled over brand-new bridges, repaved roads, past sparkling new $50 million municipal libraries, gaping at new public school buildings (e.g., Newton’s more than $200 million high school). We listened to radio programs debating the likely effects of various government stimulus programs, including increased public works spending.
If public works spending were effective, shouldn’t Massachusetts already be doing great in jobs and growth? We have the highest per-capita public debt of any state in the union, presumably as a consequence of having spent a lot on infrastructure. Yet this Globe article says that we’re not going to be strangers to unemployment, which means that we’re doing worse than most states in job creation (because our population growth is very low compared to the national average (source)).
Throughout the U.S., local, state, and federal governments have not been slouching for the last 10 years in public works spending. In fact, many local and state governments went on spending sprees as their income and property tax revenues boomed. Yet 12.5 percent of Americans find themselves unemployed or “discouraged” from hunting for a job.
I think the problem is that most people think public works spending was one of the things that got us out of the Great Depression (which I think we shall at some point start referring to as the First Great Depression). I’m no economist, but from what I’ve read, there are a lot of reasons to be suspicious of this bit of tidy conventional wisdom. Make work programs don’t allocate resources well, the government is generally less efficient than private enterprise, and the kind of jobs created are usually temporary and don’t induce the kind of confidence in their recipients that leads to sustainable increases in spending. Furthermore, we were a hell of a lot more industrial back in GD I. Now we’re all white collar. Given that we don’t make anything, a lot of the infrastructure stimulus will just go to Asia. Second, how does increasing construction jobs help all the white collar unemployed? Are purchasing managers going to start picking up jack hammers?
So, I’m with you. This is BS, and may well actually protract the depression at the expense of putting future generations in debt. (Assuming future generations of productive people are actually willing to put up with what America will have turned in to by then.)
Public works spending isn’t automatically good; replacing a 10-year-old gleaming high school with a brand-new gleaming high school isn’t going to make much of a difference for a community. But it’s hard to believe that investing in bringing electricity or efficient roads to a large segment of a country isn’t an economic win. The problem is finding infrastructure investments that are dramatic improvements (often scary things that place big companies at risk), rather than marginal ones which seem to turn into boondoggles.
You’ve previously noted that ubiquitous wireless internet could generate a lot of economic activity. Maybe this should be government-sponsored, so we can all have great wireless internet access for cheap?
Or maybe the government should invest in bringing fiber to all our houses, so any set of people can collaborate without getting in their cars and polluting the air:
http://www.renesys.com/blog/2008/12/fiber-to-the-home-ideal-econom.shtml
Just because some infrastructure spending is useless doesn’t mean that *any* infrastructure spending must be.
I couldn’t agree more, except that I have zero faith that congress is capable of choosing the right projects, and not just handing out pork to favored lobby groups and contributors. Underlying our financial crisis is a crisis in ethics, though nobody is really talking about that, as it’s hard to think of a government bailout for that.
Jonathan (re nomenclature for this depression): the doomer websites I follow had picked “the Greater Depression”. But lately they have moved beyond that, thinking back to the fall of the Roman empire over several hundred years. The feeling was that such a long time period required a better description than just “depression”.
I kind of liked Kunstler’s “Long Emergency” concept. It might be more popular if his blog didn’t have a four letter word embedded in the title.
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RE high school buildings: I was following Howell, Michigan’s experience. They built a new high school for $73 million. The students used it in 2007, then the Board decided it wasn’t affordable. The new building is closed now, and the students are back in the old high school.
And the new Census data is out, median household income in my county dropped about 15% in the last eight years.
At least stimulus $ that gets used for public-works programs “stays here” for a while.
The alternative (“other end of the curve”) is writing stimulus checks to taxpayers. This $ gets spent (overwhelmingly) on Chinese (etc) goods. So in effect US “stimulus payments” literally fly out of the country.
Now, in a real turnabout, “rich people” got no stimulus check (because they were “rich”). But it seems “rich” people are more likely to spend locally, inject their check into the local economy.