StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

What Should Obama Do First? His Public Works Plan, My Reasons

09 Dec 2008
Posted by Andrew Samwick

Continuing the series, how should a $500 billion spending plan be structured?

If I had my druthers, the word "stimulus" would be expunged from public discussion, along with "bailout" and "rescue."  These words convey the idea that, because we have so mismanaged our economic and financial affairs, we are somehow able or entitled to conjure up additional funds out of thin air to fix our problems.  There are two problems with this idea. 

First, the purpose of government spending is to purchase goods and services that the government needs to meet its responsibilities, not to hand out resources to those who pandhandle most loudly for them.  The reason to spend more in a recession is not to employ idle resources -- it is to be able to stretch the taxpayers' money further by getting a better price for its purchases because workers without jobs will work for less and owners of empty factories will charge less. 

Second, there is no free lunch: the money we spend today is a loss to the Treasury, whether as "timely, temporary, and targeted" tax cuts that have no discernible impact; payments to delay bankruptcy for large, mismanaged entities, whether AIG or the Big 3; or the largest public works program since the interstate highway system.  That loss to the Treasury must be made up at some future date, by later cohorts of taxpayers. 

Fortunately, both of these problems can be overcome by focusing all new spending on investment rather than consumption and on public investment rather than private investment.  By their nature, capital investments last for years or decades, so that there is a better chance that those who are paying for the spending are reaping its benefits.  Public investment also meets the criterion that the spending goes for projects that are within the government's responsibilities.  Repairing roads today removes the need to repair them for a number of years.  In 2005, the American Society of Civil Engineers released a report card in which it estimated that $1.6 trillion would be required over a five-year period to restore the nation’s physical infrastructure to good condition.  If I had a target of $500 billion to spend, every dime would go for public infrastructure investments, and we'd still have quite a bit of work to do.

So I give Obama praise for the direction his policy is taking.  I may have more to say as the details are made more explicit.  For my earlier writing on this issue, see these op-eds.  For similar thoughts from a conservative expressed more recently, see this op-ed by Emil Henry.

Public Investment not a Panacea

Investment is a good thing to focus on because it has a relatively higher impact on future growth than consumption. However, public investment, especially for maintenance, does not have the same impact as private investment. At a relatively low level of infrastructure it does. But it is very unlikely to do the same at this point. While the roads I drive on may not be as great as the ASCE reports, it is not a hindrance to economic activity. We're not limited to the point we can't drive between major commerce hubs and cities. Plus, by using government spending you're diverting money from what would have went into private investment. It is private investment that generates a return on investment. That's not to say we don't as a nation spend enough to simply maintain what we have. But if you're looking to public investment as a mechanism for economic growth you're unlikely to find it there.

Public investment needed now

One bridge collapse over a year ago (and now rebuilt) cost businesses and commuters hundreds of millions of dollars in time and additional fuel to detour (not to mention the injuries and deaths). Another key bridge is now closed completely (unsafe) and several others could collapse at any time.

Private business won't invest if the public infrastructure sucks. They just won't show up . . . they'll do business somewhere else like overseas or whatever.

And when was the last time you ran through the antiquated locks on the Mississippi? Barges take hours get get through those, and that costs all of us in increased cost of food and raw materials.

We need infrastructure investment to build a better business climate, and we need it now. Samwick is correct on this -- solid infrastructure investments pay dividends for years. The interstate highway system was one of the best investments ever made to spur economic growth in this country . . . but that was over 40 years ago. It's time to invest again for the future.

Let them build it, and we will come and pay the tolls

'Private business won't invest if the public infrastructure sucks.'

So, let private business build the infrastructure. Want a nice bridge like this one in France:

It's a business venture, opened on time and under budget. You can have one in Minnesota, just ask for proposals.

Privatizing the roads and bridges

I'm not sure it's an affordable model . . . we have to drive over bridges constantly (Mississippi runs between TCs, St. Croix on east, many other rivers and lakes). We have many fracture critical bridges that need replacement now.

One expensive privately run bridge in France that costs $12 toll to drive over ($33 for a commercial vehicle) is not a sustainable model, IMO. Patrick, commuters and businesses probably wouldn't get behind this idea, and that's why Governor Pawlenty hasn't proposed you rsolution either.

Public Investment

A major concern that pushes toward public investment in roadways, bridges, ect. is that it opens jobs up. This leads to taxes paid and the money staying in the country while improving on the infrastructure. It is a plus all the way. A few years back, they built a bridge in Alaska that literally led to no where, but it opened jobs and caused the economy to rise in that area. So to a regular person, that wouldn't make since, but think about in a job building sense. Anything that opens jobs is a economy booster and will HELP the country out of recession.

My personal opinion is that

My personal opinion is that Obama shouldn't focus on investment and money. The most important problem nowadays is pollution. Doing something for our planet will benefit more that just another $100mio...

Good Investment Advice.......

The current economic meltdown has changed the face of Wall Street, possibly forever. For decades the energy in the market had been fueled by high-rolling investment bankers. Good investment advice is always sought after. Good investment advice is even more critical since the stock market has tanked. It would seem after Jon Stewart pilloried Jim Cramer and Rick Santelli, CNBC isn’t the greatest source for good advice on Wall Street. Payday loans are doubtless starting to look more attractive. Santelli and Cramer were taken to task with vicious satire for their lack of journalistic integrity, bad stock advice, and glorification of Wall Street firms that were given lavish bailout funding at the taxpayers’ expense. It seems CNBC shouldn’t give investment advice at all.

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