September 9, 2010
You don’t have to look very far to find a rabid, hostile reaction to President Obama’s proposed $50 billion transportation infrastructure program. After all – it’s an election year. I was quite surprised when I read this paragraph from a BusinessWeek report about the proposal:
For companies that do the unglamorous work of pouring cement, crushing stones, and hauling earth, President Barack Obama’s $50 billion proposal outlined on Sept. 6 to rebuild U.S. roads, railways, and runways is welcome relief amid unrelenting economic gloom. If approved by Congress (an uncertain proposition in an election year) Obama’s plan would pick up the slack when most of the highway stimulus funds under the $814 billion American Recovery and Reinvestment Act is expected to be spent next year, says Mike Betts, an analyst with London-based Jefferies.
Stop and think about that for a moment. The phrase I wish to bring to your attention is:
. . . most of the highway stimulus funds under the $814 billion American Recovery and Reinvestment Act is expected to be spent next year . . .
The first question that came to mind was: Why the hell wasn’t it spent last year? We’ve been reading about how the effects of the “Obama stimulus bill” (a/k/a the American Recovery and Reinvestment Act) have already stopped boosting the economy. How much more of that money has been sitting on the sidelines? Beyond that, why didn’t the American Recovery and Reinvestment Act provide more funding for infrastructure?
The proposed transportation infrastructure program will cost approximately the same as the B-2 Stealth Bomber program, which produced 21 bombers at an average cost of $2.1 billion per aircraft in 1997 dollars.
Since July of last year, I have been among those arguing that the $787 billion economic stimulus package was inadequate, after reading about a Bloomberg survey of economists, which supported that conclusion in February of 2009. In early 2009, there was a greater sense of urgency about the state of the economy and a stronger political will to enact a more significant stimulus. Unfortunately, President Obama was not up to the task of pushing a larger bill through. As a result, the President is now making piecemeal stimulus efforts, such as the $50-billion infrastructure proposal. The tragedy of not getting it right the first time seemed more unfortunate after I read a recent posting by Barry Ritholtz at his blog, The Big Picture. Here is what Mr. Ritholtz had to say:
Yesterday on XM Sirius, we discussed Infrastructure.
One of the callers was a civil engineer who suggested we take a look at the US Infrastructure Report Card (infrastructurereportcard.org), which grades the US on a variety of factors. The 2009 Grades include: Aviation (D), Bridges (C), Dams (D), Drinking Water (D-), Energy (D+), Hazardous Waste (D), Inland Waterways (D-), Levees (D-), Public Parks and Recreation (C-), Rail (C-), Roads(D-), Schools (D), Solid Waste (C+), Transit (D), and Wastewater (D-).
Overall, America’s Infrastructure GPA was graded a “D.” To get to an “A” requires a 5 year infrastructure investment of $2.2 Trillion dollars. Hence, you can understand if I am underwhelmed by the latest $50B proposal.
Each individual state is also graded; NY’s is after the jump.
After reading about the Infrastructure Report Card, I couldn’t help but wonder how our economy would have benefited from a $2.2 trillion infrastructure program rather than the $850 billion stimulus program enacted in 2009. Consider what economist Joseph Stiglitz had to say about how the global financial crisis was affecting Australia in August of 2010:
Kevin Rudd, who was prime minister when the crisis struck, put in place one of the best-designed Keynesian stimulus packages of any country in the world. He realized that it was important to act early, with money that would be spent quickly, but that there was a risk that the crisis would not be over soon. So the first part of the stimulus was cash grants, followed by investments, which would take longer to put into place.
Rudd’s stimulus worked: Australia had the shortest and shallowest of recessions of the advanced industrial countries.
There’s a right way of doing economic stimulus and a wrong way of implementing such a program. Unfortunately, America did it the wrong way.
Once Upon A Crisis
As the 2012 Presidential election campaign heats up, there is plenty of historical revisionism taking place with respect to the 2008 financial / economic crisis. Economist Dean Baker wrote an article for The Guardian, wherein he debunked the Obama administration’s oft-repeated claim that the newly-elected President saved us from a “Second Great Depression”:
Joe Weisenthal of The Business Insider directed our attention to the interview with economist Paul Krugman appearing in the current issue of Playboy. Krugman, long considered a standard bearer for the Democratic Party’s economic agenda, was immediately thrown under the bus as soon as Obama took office. I’ll never forget reading about the “booby prize” roast beef dinner Obama held for Krugman and his fellow Nobel laureate, Joseph Stiglitz – when the two economists were informed that their free advice would be ignored. Fortunately, former Chief of Staff Rahm Emanuel was able to make sure that pork wasn’t the main course for that dinner. Throughout the Playboy interview, Krugman recalled his disappointment with the new President. Here’s what Joe Weisenthal had to say about the piece:
What follows is the prescient excerpt from Krugman’s March 9, 2009 essay, referenced by Joe Weisenthal:
In early July of 2009, I wrote a piece entitled, “The Second Stimulus”, in which I observed that President Obama had already reached the milestone anticipated by Krugman for September of that year. I made a point of including a list of ignored warnings about the inadequacy of the stimulus program. Most notable among them was the point that there were fifty economists who shared the concerns voiced by Krugman, Stiglitz and Jamie Galbraith:
Mike Grabell of ProPublica has written a new book entitled, Money Well Spent? which provided an even-handed analysis of what the stimulus did – and did not – accomplish. As I pointed out on February 13, some of the criticisms voiced by Mike Grabell concerning the programs funded by the Economic Recovery Act had been previously expressed by Keith Hennessey (former director of the National Economic Council under President George W. Bush) in a June 3, 2009 posting at Hennessey’s blog. I was particularly intrigued by this suggestion by Keith Hennessey from back in 2009:
Given the fact that the American economy is 70% consumer-driven, Keith Hennessey’s proposed stimulus would have boosted that sorely-missing consumer demand as far back as two years ago. We can only wonder where our unemployment level and our Gross Domestic Product would be now if Hennessey’s plan had been implemented – despite the fact that it would have been limited to the $787 billion amount.