This month marks the one-year anniversary of the stimulus act of 2009. How has it worked out for the U.S.? Beyond the explicit stimulus package, government at local, state, and federal levels have been acting in a stimulus-like fashion, continuing to grow as though the private economy had not contracted.
One element of stimulus that I think might not work as planned is infrastructure investment. Let’s look at the I-35 bridge that collapsed in Minneapolis and was rebuilt in 2007-8. According to Wikipedia, the original bridge cost $5.2 million to build in 1964-7, which is roughly $35 million in today’s dollars (admittedly not a bargain, given that it collapsed, but the collapse was due to a design flaw, not faulty construction or shoddy materials). The replacement cost $234 million. Public infrastructure, employing as it does an army of civil servants (and their pension obligations), union labor, and drawers full of lawyers, turns out to be one of the most expensive things in the world to buy. A sensible consumer, faced with a 7X increase in the real price of a good, would purchase less of that good rather than more. China is managing to grow quite nicely with a much smaller amount of public infrastructure per person (admittedly the country has been famous for its bridges since the time of Marco Polo (example; history)).
So… are we better or worse off than if the government had not kept spending for the last year? (The federal deficit alone is approximately 10% of GDP and state/local governments are probably adding another 2% via underfunded pension commitments, bond issues, and clever accounting, which brings up right up to parity with Greece, a country that supposedly is in tough shape due to its 12 percent deficit.)
In the case of the I-35 bridge, the government had no choice. It *had* to rebuild it. In that instance, the question is why it cost so much more money.
Also, although I do see local governments making cutbacks, I don’t think they are really able to make cutbacks where it matters the most: pension funds and health care costs. I don’t have any numbers to back that up, but it seems reasonable.
We’re getting better interest on CD’s than we would if your government wasn’t borrowing an extra $800 billion a year for stimulus packages.
I was rummaging around some of my recently deceased grandpas papers at the time his house was sold, and found a $50 bill for the complicated, premature birth of my mother. My daughter’s 2010 birth was billed at $29,000, not including the obgyn, who performed a routine c-section.
I am doing an engineering post bac that involves low registration priority at a moderately selective state university. There are 2 half-empty sections of differential equations and linear algebra, and about 20 crammed sections of high school algebra and pre-calculus. Let’s amortize that cost of getting kids fully prepared to flunk “business calculus” and switch to sociology over 4 years of high school and 1 of “college”.
On my street a bruising 3 year legal battle involving volumes of environmental impact reports was recently concluded in the city’s favor, allowing it to move ahead with its plan to paint bicycle lanes on a few miles of streets.
These are the three sectors into which we are pouring our last great resource, namely, Asians’ willingness to lend us their savings.
As an aside, the lot where my grandpa’s house was located could easily fit 40 compact family homes. It is zoned for a maximum of 4 dwellings.
Greece’s problem isn’t her one-year deficit, it’s the fact that she’s been running them for so long. It’s really a simpler problem than people make it out to be. With such a high amount of total outstanding debt, the market for Grecian bonds is saturated, so that future bond issuances result in prices too low to be sustainable.
A high deficit in time of severe recession is okay (if you’re into Keynes, that is), so long as you shrink the deficit or even run a surplus when the economy is going well. As long as they balance out so that the total debt/GDP ratio remains acceptable, things seem to work just fine.
The ultimate proof that the US is not in the same situation as Greece is that US Treasury offers are still being bid quite well. Maybe not as well as some of our investment banker-cum-Treasury officials would like, but still low enough that the cost of government borrowing is at historic lows.
If there’s ever a time to run a deficit, this is the least detrimental time to do it.
Nitpick: 1964 dollars should be calculated at roughly 13x for 2010 dollars, so 1964’s $5.2 million would be about $67 million today.
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Patrick: I used http://data.bls.gov/cgi-bin/cpicalc.pl and used 1965 (the original bridge was built 1964-7) and 2008 (the replacement bridge was completed in 2008). The result is $35 million.