Haste Could Make Waste on Stimulus, States Say
By Lori Montgomery and Michael D. ShearWith President-elect Barack Obama vowing to plow hundreds of billions of dollars into the nation's infrastructure, some state officials are warning that public works projects will fail to effectively lift the country out of recession unless they are chosen carefully and implemented rapidly.
In a private meeting yesterday in Philadelphia with 48 of the nation's governors, Obama stressed the importance of identifying projects that could put people to work quickly, participants said. He raised the specter of Japan, which languished in a decade-long recession in part because massive spending on construction projects in the late 1990s flowed too slowly to boost economic activity.
During the two-hour meeting, governors from both parties assured Obama that they could break ground almost immediately if Washington were to put up the cash to make up for state budget shortfalls. But less than half of the $136 billion in projects they said were ready to go could get underway within the next six months, according to the National Governors Association. And choosing among those projects could prove politically difficult, some governors said.
With the nation's economy in recession, Obama has pledged to create or preserve 2.5 million jobs over the next two years, primarily by dedicating federal dollars to rebuilding the nation's roads, bridges, schools and airports and to expanding sources of alternative energy. Democrats hope to send a spending package that could exceed $500 billion to the White House by Jan. 20, when Obama takes office.
In a recession that lasts only a few months, economists say spending on infrastructure would do little to revive the economy; public works projects typically take years to get underway. Even with projects that are ready to go -- meaning they have been designed, engineered and have cleared environmental and other bureaucratic hurdles -- only about a quarter of the overall cost is spent within the first year, according to the Transportation Department.
Because this recession is projected to extend well into 2009, many economists see infrastructure spending as a viable way to put people to work and keep money circulating domestically. Unlike tax rebates, which might be spent on foreign goods or used overseas, money for road projects would be used to hire U.S. workers and to purchase domestic gravel and steel.
Hmmhmmh ... China makes 38% of the world's steel compared to 7% for the U.S. The U.S. is the world's largest importer of steel already, and China is the world's largest exporter. With China's building boom slowing down, I suspect that Chinese steelmakers will try hard to supply a big share of Obama's infrastructure plan's steel needs.
The need for infrastructure improvements is enormous. Federal transportation officials have estimated that the nation should spend $225 billion a year to modernize and maintain its crumbling roads, bridges and transit systems.
Actually, that sounds exactly like the kind of projects you can quite reasonably put off for a few years during an economic crisis. Let's pause for a moment and notice just how counter-intuitive this whole infrastructure spending mania is. The concept is that there are a whole bunch of expensive projects that, back when we had a lot of money, didn't seem worth doing; but now that we're broke, it's a great time to blow a big wad of dough that we don't have anymore on projects that we could, quite easily, put off until we're not so broke again.
Now, there are some advantages to doing big projects during an economic collapse -- the price of Chinese steel is likely to be lower. And there will presumably be some "stimulus" effect somewhere down the road. But, let's be honest, this is basically Carnival in Rio Economics -- all the rules of common sense are suspended and we're just going to magically make up some money and spend it and not worry about how we'll pay it back when Ash Wednesday comes.
The real reason our infrastructure is pretty cruddy compared to other First World countries is because, as the Big Dig fiasco in Boston shows, we're bad at it. And the reason we're bad at efficiently spending big piles of government money on infrastructure is because of all the shakedown artists and leeches -- the unions, the politically connected contractors, the community organizers, etc etc -- that have to get their cut. (For example, to finish the Century Freeway to the LA Airport in 1988, CalTrans paids off hundreds of "community" groups to get them to stop protesting it, including an AIDS project 10 miles to the north in West Hollywood.)
Now, we've gone and elected a shakedown artist as President. Who knows, maybe that will work on the "It takes a thief to catch a thief" principle. Perhaps Obama will pardon Tony Rezko and install him in the West Wing to ram infrastructure projects past all the leeches with their hands out.
But with 41 states facing budget shortfalls, many governors are cutting scheduled projects. Maryland and Virginia recently cut more than $1 billion each from their six-year transportation programs. North Carolina expects to cut $200 million by next June. And New York plans to eliminate 10 percent of its projects, according to the American Road and Transportation Builders Association.
That's basically what you or I do when we've had an economic setback -- we paint the house less frequently and otherwise scrape by until we can afford to fix things up right. Of course, for the government, the rules are completely different. Yeah, right ...
The idea is that improving infrastructure will make the country more efficient through faster transportation and the like. Okay, but, keep in mind that it will make the country less efficient during the economic crisis because of the huge traffic jams caused by infrastructure projects.
The slowdown in public spending, combined with the worst housing bust in a generation, has devastated the construction industry. The unemployment rate among construction workers was 10.8 percent in October, well above the national average of 6.5 percent. Currently, nearly 1.1 million homebuilders, steelworkers and highway contractors are out of work.
I know a way to lower the unemployment rate among construction workers, but it will be a long, long time before it occurs to the Washington Post: send the illegal immigrant construction workers home.
... The devil, however, is in the details. What emerged yesterday in Philadelphia, and in ongoing discussions in Washington and in state capitals, is the concern that injecting such huge sums into public works projects could prove more complicated than anyone yet imagines.
Answering the simplest questions -- which projects are ready to go? -- can be surprisingly difficult.
The governors yesterday offered school, road, transit, wastewater and airport projects that California Gov. Arnold Schwarzenegger (R) said could be ready soon, "literally, putting shovels into the dirt within a few months after the administration starts."
California needs over $30 billion to balance its budget for Fiscal Year 2009 and it could get a lot worse than that. California and its counties and municipalities should not be worrying about starting expensive new construction projects. They should be worrying about meeting payroll in 2009 and 2010 for firemen, policemen, schoolteachers, and the like. I wouldn't be surprised if a year from now we see giant piles of Chinese steel sitting on the docks of Long Beach collecting dust while new California construction hiring is postponed indefinitely and Obama's infrastructure money is diverted to keeping current civil servants employed. Teachers and prison guards and the like will be renamed "human infrastructure."
But David Quam, director of federal relations for the National Governors Association, said many of the projects would take 24 months. Less than half of them -- projects worth about $57 billion -- would be ready to go within 120 days, Quam said, the time frame set in a stimulus bill that passed the House in September. An Obama aide said money dedicated to infrastructure should be spent within 24 months, not devoted to projects just getting underway at the end of 2010.
Yeah, Obama is going to get a lot of solar-powered magnetic levitation commuter rail systems built within 24 months...
The NGA proposals, moreover, were assembled from lists prepared by other organizations. The most commonly cited was created last January by the American Association of State Highway and Transportation Officials. It offers more than 3,000 highway projects that theoretically could put $18 billion to good use within 90 days.
$18 billion is 3.6% of the $500 billion they're talking about spending.
But that list is now nearly a year old, and for some states includes construction and repaving projects that could not begin in the winter months.
There are two seasons in Chicago for commuters: snow and ice season and road repair season. Obama probably figures he can Chicagoize all of America. But what else does he know other than the Chicago Way?
For other states, including Maryland and Virginia, that list does not necessarily represent specific projects, state officials said.
In an interview, Maryland Transportation Secretary John D. Porcari identified some "critically needed projects" that could get underway quickly, including improvements to bottlenecks at the intersection at Georgia Avenue and Randolph Road in Montgomery County and the intersection of Route 4 and Suitland Parkway in Prince George's County.
Virginia officials said they are still working on their list. But the projects they select will depend on what restrictions Washington places on the money, one Virginia official said. Projects with huge political support, such as the construction of a Metro line to Dulles airport, would not be good candidates for quick construction, the official said, while more routine projects such as the completion of the Fairfax County Parkway between I-95 and Rolling Road or the repair of the VRE rail infrastructure might make the grade.
Aides said Obama's transition team is trying to craft a strategy for prioritizing projects at the national level, relieving state officials of that responsibility. But the best candidates for stimulus spending are likely to be the least glamorous projects, the ones unlikely to thrill members of Congress, several transportation officials said: Bridge repair. Bus purchases. Filling potholes.
"It's not as if people are going to say: 'You know what? We got some money. We're going to go build a bridge.' For one thing, bridges take 13 years, start to finish," said Janet Kavinoky, a transportation expert with the U.S. Chamber of Commerce. "The dollars are for real basic work that needs to be done to maintain the system we already have." ...
That's how my neighbors, who mostly have a lot more money than I do, feel about repainting houses and cars. If their Infiniti's paintjob has lost a little luster in the three years they've had it, they trade it in for a new Lexus. On the other hand, my 11-year-old Accord's paint has completely eroded away from most of the roof and parts of the trunk and hood, but, guess what, it still takes me from point A to point B. Maybe I'm not traveling in style, but I like to think of myself as fashion-forward -- in a couple of years, lots of people will be driving cars that look like mine.
"I think we ought to have our eyes open. These steps come with a cost," said Indiana Gov. Mitch E. Daniels Jr. (R). "Therefore, let's try to make certain that they are well conceived, that they are really aimed not at bailing out excesses in states that should have known better, but aimed at putting people to work."If Mitch is thinking about stepping up to being a major Republican national figure, I've got three words of advice for him: Run against California.
All my life, everybody in America hates California because the weather is so nice. And now they've finally got a good reason for hating California: California basically got us in this mess.
The way I see the politics playing out is that Gov. Arnold will become Obama's new best friend in order to get California bailed out by the federal taxpayers. In return, Obama will get to claim that he's fulfilling his campaign pledge to move beyond partisanship. Look how much the Republican governor of California loves him! The media will chime in with how all the Republicans should become just like Arnold and Obey Giant Obama -- that's their only chance of survival.
This will create an opening among ornery Republican voters who hate the media and Hollywood movie stars for an anti-Schwarzenegger Republican to emerge, presumably a governor with a record of prudent administration, to run against the country bailing out California.
My published articles are archived at iSteve.com -- Steve Sailer
Nice stuff Steve!
ReplyDeleteWAPO writes: "Obama has pledged to create or preserve 2.5 million jobs"
Gotta love how the Big Brother media is changing the script again just weeks after the election. It was clear from Obama promises during the election that he was talking about "creating" those jobs, not "preserving" them. The slight implication of adding the word "or" between these terms means 5 mio. has now become 2,5 mio at best. Obama promised 2,5 mio. more, and the implicit assumption for the morons who voted for him was that that other 2,5 WAPO is now talking about would heave been preserved anyway. So that's 5 mio our hero would have created and preserved according to pre-election Obama.
WAPO, in true and trusted AA fashion has just lowered the bar for Obama: If he can prevent another 2,5 mio. jobs disappearing he has already won (which would be hard to prove anyway, and WAPO has just explained to us why Obama may not achieve that goal, that implicitly many of the GOP governors are also guilty).
Whether that would have been due to something more mundane such as a low oil price or whatever, WAPO will be ignoring for shure. Nice how these wordsmiths are always at it.
But then the reasoning of WAPO may be more mundane, such as Steve's point that journalists are clueless about basic math.
Steve,
ReplyDeleteYou should get a medal!
I was just laughing all the way through that article. And everything you wrote is true. Excellent post!
One consequence of this ec. downturn is that we are re-visiting the history of the Great Depression. Some suspect that low productivity policies such as propping up existing wages and the emphasis on "make work" projects prolonged the depression.
ReplyDeleteIn about a quarter of a century of hearing about "crumbling infrastructure," the only lousy roads, bridges, signage and other public facilities I have actually seen in America have been in the lousy parts of major cities where the local population demands government jobs and public assistance spending, rather than repair of roads and bridges. There are sections of Washington DC which do have pretty rusty and wrecked public facilities, but it is not because the government's total spending in these areas is stingy, quite the opposite.
ReplyDelete"If Mitch is thinking about stepping up to being a major Republican national figure, I've got three words of advice for him: Run against California."
ReplyDeleteAny Republican with half a brain would run against Calfornia, New York, and the media. All threee are hoplessly lost to the Republicans, so why not make them the Other?
The 600 billion dollars we have spent on Iraq (look, no WMD's!), sure could come in handy about now.
ReplyDeleteNever mind all that. Why didn't you break the Obama Mau Mau story?
ReplyDeleteThe silence out of Charles Murray about his citizen's dividend is deafening.
ReplyDeleteAnother reason why our infrastructure is in such cruddy shape: population increase due to immigration. Simply put, our infrastructure has no where near expanded enough to meet the demands that mass immigration has put on our resources. Just look at the NYC-Metropolitan area for example. Its infrastructure was essentially designed for the population that was projected for the 2nd half of the 20th century, EXCLUDING mass immigration. Also, money that could be going to infrastructure is now going to schools, social services, etc. for many low skilled immigrants. Damn shame....
ReplyDeleteTwo words: Haley Barbour.
ReplyDeleteThe Big Dig is really awesome now that it is done. A few deaths in the the years it has been open should not discredit it. Both an incredible engineering marvel, and something that has greatly helped beatify Boston by removing a big freeway that cut through and divided its historic center.
ReplyDeleteIn terms of time saved and increased property values everywhere around it, I think it is cost justified. While some of the money comes from federal sources, MA is one of the states that pays much more in federal taxes than it gets in federal spending. Illinois is another!
On potholes, one reason European roads last longer, even adjusting for weather, is they have stricter regulations on heavy vehicles. Isn't regulating heavy vehicles on roads SWPL (if they bothered to think about it)?
Another, as you mention, is that the roads are simply made better, for example they are dug deeper and higher quality materials are used.
Euro cars also tend to be lighter than American cars and light trucks, but these cause so little road wear compared to heavy trucks that this difference is not material.
The idea behind economic stimulus is to essentially give money away to consumers, who will then spend it on goods and stimulate business spending, via the multiplier. Infrastructure projects like these are little different than Bush's stimulus checks; the actual project is window-dressing.
ReplyDeleteHere's a practical idea for infrastructure projects: build nuclear power plants. That would create jobs and produce something economically useful as a result.
ReplyDeleteMitch Daniels has promised not to run for any other office after he finishes his term as Indiana's governor. And he shouldn't, being that he's gone and made Indiana solvent, forcing us to make sacrifices and spend our money intelligently.
ReplyDeleteWe don't get to be fiscally irresponsible and get bailed out. No, we'll have to pony up to bail your state out, Steve. I'll be expecting a check in the mail from you when it happens, to square us up.
P.S.
I had an opportunity to question Lt Gov Becky Skillman about illegal immigration while she was on the campaign trail. She was painfully evasive, obfuscatory, and careful to avoid siding with state senator Mike Delph's admirable efforts to clamp down on illegal immigration.
And the reason we're bad at efficiently spending big piles of government money on infrastructure is because of all the shakedown artists and leeches -- the unions, the politically connected contractors, the community organizers, etc etc -- that have to get their cut.
ReplyDeleteThose are the same reasons GM has been failing for so many years. 30% of their hourly workforce is Black compared to 1% at Toyota USA, they have to pay exorbitant wages to unskilled laborers and they are prohibited by law from dumping dealers they do not want. We are seeing the long term fallout from the New Deal. If we go into a depression instead of a recession we can look back at FDR as the man who made it happen.
"The real reason our infrastructure is pretty cruddy compared to other First World countries"
ReplyDeleteIs it? What proof is there that this is so?
They have been proposing so much spending and bailouts that I'm not sure anymore which one they are taking about. I literally just got done reading your article about it and I'm totally confused again..... LOL
ReplyDeleteI think I need a pie chart or something easier to understand this....
Maybe I'm not traveling in style, but I like to think of myself as fashion-forward -- in a couple of years, lots of people will be driving cars that look like mine.
ReplyDeleteHa! Swimming in schadenfreude, and the water's fine!
I live in Atlanta, and my personal definition of it is Ground Zero for Manhattan wannabe/cash-rich assholes. (That could be a Rolex brand by the way: the Yacht-Master, the Submariner, the Manhattan Wannabe, the Cash-Rich Asshole...)
There are all these developments premised on Atlanta being populated exclusively by millionaires in 2009. Here's one of them. Just a couple more years and you'll be able to admire that $300 tie you bought over that $50 plate of appetizers and $20 glass of wine. And you'll be able to do so in an atmosphere of utmost solicitiousness, being the only customer they've had in a week. It'll be a pleasant diversion from pondering how your mostly empty condo building is going to come up with a million dollars to keep the elevators and the HVAC running now that the developer's in bankruptcy.
You should move here Steve-o, once the market realizes the worth of your brilliant, Swiftian takedowns of the mainstream print media. But for heaven's sake please buy yourself a new car.
--Senor Doug
He raised the specter of Japan, which languished in a decade-long recession in part because massive spending on construction projects in the late 1990s flowed too slowly to boost economic activity.
ReplyDeleteOh is that what it was? I was under the impression that the Japanese government drove their economy further into the ground by misappropriating their capital in order to steer projects to mob connected construction unions. It was ridiculous of me to think that the same thing could happen here.
"I know a way to lower the unemployment rate among construction workers, but it will be a long, long time before it occurs to the Washington Post: send the illegal immigrant construction workers home."
ReplyDeleteDoes anyone know if the federal government stats on unemployment include illegal aliens?
I expect something like a national birthright college bill. Something that can be touted as a GI Bill "for all Americans".
ReplyDeleteI think the pump is already being primed on this with news reports of sympathetic college kids being forced to drop out or delay college because of the frozen student loan market.
In a perverse way, it makes perfect sense. About the time people are starting to figure out college doesn't pencil out for a great many colleges and careers, the Govt steps in and interferes with the market.
On the other hand, my 11-year-old Accord's paint has completely eroded away from most of the roof and parts of the trunk and hood, but, guess what, it still takes me from point A to point B.
ReplyDeleteHa you and I don't agree on much I must say I you are "on the money" here.
Maybe I'm not traveling in style, but I like to think of myself as fashion-forward -- in a couple of years, lots of people will be driving cars that look like mine.
*shakes head in agreement*
In 2011, they will be called vintage or grunge wheels. Every celebrity in Hollywood will own one.
Allan F saidIn a perverse way, it makes perfect sense. About the time people are starting to figure out college doesn't pencil out for a great many colleges and careers, the Govt steps in and interferes with the market
ReplyDeletePerhaps many colleges will lower tuition since they can't count on student loans. There is no good reason going to a non Ivy League college should cost as much as a house.
http://ny.therealdeal.com/articles/city-s-immigrants-shut-out-of-affordable-housing
ReplyDeleteI thought you might find this interesting. California isn't the only state having trouble with immigration and housing.
Dear Mr. Obama: you know, there's this fence that needs to be finished down in the Southwest...
ReplyDeleteRecover in 2009? Pure delusion, willfully ignoring basic facts.
ReplyDeleteSuch as the fact that the engine driving this whole collapse is still going strong: the housing collapse. In fact, the housing collapse is still accelerating. We have not even reached its peak yet, let alone being anywhere near its recovery.
The deflation driven by the housing collapse is still picking up steam. Oil now below $50, everything on super-sale, businesses collapsing daily, banks still refusing to lend money in the deflationary environment, the stock market collapsing by the day, evaporating over half of our nation's investment and savings, manufacturing activity at an all time low, unemployment and food stamp claims spiking.
And people are talking recovery as if it just around the corner?
If we cancel all debt right now, we would have an instantaneous recovery. Canceling all debt is the only way to end the negative effects of deflation and unhinge our productive economy from our fiscal death spiral. But until we face economic and fiscal realities, we are in for a long slow bleeding death.
Concerned sed:
ReplyDelete"The real reason our infrastructure is pretty cruddy compared to other First World countries"
"Is it? What proof is there that this is so?"
Concerned, you obviously haven't been to Germany or Switzerland. When I landed in Chicago, after leaving Düsseldorf, I was struck by the poor quality of workmanship w.r.t. steelwork (welding joints), floor tiles (joints, alignment), electrical gear etc. The roads are huge but not very aligned or straight. I was not impressed. It goes on and on. If you are from Europe you see it immediately.
Allan F:
ReplyDeletea GI Bill "for all Americans".
Good God, that's brilliant! Pure evil, but absolutely brilliant. I fully expect this now. There's no way our betters will miss this opportunity to reinvigorate credentialism.
headache said...
ReplyDeleteConcerned, you obviously haven't been to Germany or Switzerland. When I landed in Chicago, after leaving Düsseldorf, I was struck by the poor quality of workmanship w.r.t. steelwork (welding joints), floor tiles (joints, alignment), electrical gear etc. The roads are huge but not very aligned or straight. I was not impressed. It goes on and on. If you are from Europe you see it immediately.
You should see the airport here in Phoenix. Simple, clean and well put together, at least compared to the airport in LA that I remember going to. *For the time being* AZ looks nice compared to other parts of the country. In Northern states like Illinois the unions don't add much value in training, they are just another extortion racket. This means that under qualified workers get protected while good men who could do better are locked out of the building trade. In a Democratic controlled state everything seems to get distorted towards rent-seeking.