StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



A Very Short To-Do List for the Next OMB Director

22 Jun 2010
Posted by Andrew Samwick

I am less concerned about who will succeed outgoing OMB Director Peter Orszag than what the new budget director will do.  We face an unusually high unemployment rate of 9.7 percent and ridiculously low interest rates, even out to 30 years.  Cheap credit and idle resources present a great opportunity to borrow and spend, particularly for things we know we need.

I have long been a fan of countercyclical government investment.  In January 2008, I proposed a better way to deal with downturns and a budget that plans for the future as a means of substantially increasing our infrastructure investment at the most opportune times in the business cycle.  At the time, I was trying to push back against calls for "timely, targeted, and temporary" measures that would widen the deficit without building anything of lasting value.  While that phrase has fallen out of fashion, the sorts of policies being discussed -- like the patchwork of relief programs that died in the Senate last week -- are the same old stuff.  It is a sign of how poorly our system of governance works that we cannot even plan for something that we have been enduring for two and a half years.

I wanted to see a federal spending program that got serious about capital spending.  Today, I still want that.  There is some sign that such spending will pick up this summer, based on prior measures that have been passed.  From an article last week in The New York Times:

For all the talk of “shovel-ready” infrastructure projects when the stimulus first passed, construction projects made up a comparatively small slice of the package, and many required considerable administrative spade work — planning, permitting and contracting — before actual dirt could be turned. The stimulus initially injected money into the economy mainly through tax cuts and aid to states and individuals.

[...]

Stimulus-financed construction is set to explode this summer: 10,700 highway projects should be under way next month, up from just 1,750 last July. States expect to weatherize 82,000 homes this summer — 27 times the number of homes that were weatherized last summer, when the program got off to a slow start. And there will be 2,828 clean-water projects under construction, a twentyfold increase over last year.

[...]

There will be 218 federal buildings under construction next month, nearly four times the amount last July, according to the White House tally. California will have 450 stimulus highway projects under way this summer, up from 9 last summer. Roughly 29,244 miles of road will be improved this summer, officials said, up from just 9,185 miles last summer. (During the New Deal, by contrast, the far bigger Works Progress Administration was credited with building or fixing 650,000 miles of roads.)

[...]

Now industry groups and officials are already wondering about what happens when this burst of money is spent. In Ohio, Mr. Obama spoke of the need to invest more in infrastructure projects in order to compete globally. “We’ve got to get serious,” he said, “about our infrastructure.”

The scale of what's being done is still too small.  I would much rather spend money paying people to work than paying people extended unemployment benefits.  So the one-item to-do list for the next OMB director is to implement that plan, to get as much value out of deficit spending as possible. And President Obama should back up his words with his actions and staff the position appropriately.

I realize this is for the

I realize this is for the Treasury Secretary not the Budget Director, but it would also be nice to see the Government issuing more 10 and 30 year bonds, instead of this rolling cycle of short-term offerings. It is the Federal Budget equivilent of an ARM and it doesn't make sense. As bad as racking up this debt is, let's not compound the problem by having to roll it over at 8, 9 or 15% in three or five years. How can we expect these people to understand the regulatory requirements for CDS's when they can't even do simple budgeting.


Exactly what Keynes wanted....

As those of us who've actually read the General Theory know, this is essentially what Keynes recommended during the Great Depression. He proposed splitting the government budget into an operating budget (which would always be in balance) and a capital budget (which would operate countercyclically). One of the key rationales was that private investment spending was far more volatile than private consumption spending and this was a core cause of the business cycle.

One little nit I'd like to pick however - why does everyone limit their thinking of public investment to roads and bridges? How about the government undertake investment projects more apropos to 2010 than 1910? Let's get ultra high speed broadband like they have in South Korea and other countries (roughly 10X faster than what we have) to every major metropolitan area in the US, and let's get some form of broadband to every rural resident in the US. Let's get serious about sinking billions of dollars into realistic alternative energy research projects. Let's get serious about public funding of health research. Let's get serious about retraining workers for the jobs needed for the next few decades.


Everyone indeed

I agree with you and our friend Lord Keynes.  From 1/7/2009, discussing a smarter electric grid:

I hope the fact that we need this investment isn't a reason for it to be excluded from plans for fiscal stimulus.


transitional stimulus

I'm thinking it might be a good idea to use stimulus funding on jobs that will be useful even after the stimulus fades; building highways and bridges might be a good thing, but during the housing boom we had a lot of construction jobs that disappeared after the bubble burst.

It seems like a fair bet that we'll need healthcare workers long after the stimulus ends; if we could use the stimulus to get people into those jobs (training of course, but maybe even direct hiring...?) they're more likely to stay employed after the feds walk away.

People are feeling very insecure right now and giving them a job that can survive the stimulus would likely improve their psychology and bring some stability to their personal situations.

Which seems like a good thing given our current environment.


Here's a suggestion

Employ an army - and I mean, half a million people or preferably many more - train them to do audits on energy, water, heat, waste of every residential building and every small business occupied commercial residence. (Plus all government buildings).

For every project (no matter how small) identified to generate savings for a payback period of five years or less - provide financing at 5% through a government bank.

Ideally, combine this with an announcement that government will substantially increase taxes on all fossil fuels beginning in January, 2012.

You employ half a million people or more directly, you train them to do something useful, they identify projects of (say) $50,000 of investment each - soon you're talking real money, $250 bln or more. This is not just demand moved forward a quarter, like the housing credits.

Government can borrow this and should still be able to make a profit.

The announcement of taxes well in advance moves investment projects forward (from, well, currently never, since no-one knows when they're coming or how much). Those who participate save money.

The bond markets can't complain if the pre-announced tax increase is large enough.




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