Paul Krugman: Today's Workers Better Off With Big Stimulus (and Deficit)
In the New York Times today, columnist Paul Krugman argues that "deficit worriers have it all wrong."
He concedes that government should, in the long run, do a better job of balancing its budget, but argues:
But right now we have a fundamental shortfall in private spending: consumers are rediscovering the virtues of saving at the same moment that businesses, burned by past excesses and hamstrung by the troubles of the financial system, are cutting back on investment. That gap will eventually close, but until it does, government spending must take up the slack. Otherwise, private investment, and the economy as a whole, will plunge even more.
"The best course of action, both for today’s workers and for their children, is to do whatever it takes to get this economy on the road to recovery," he writes. Krugman is an advocate of stimulus infrastructure spending--putting people to work building roads and bridges.
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Public infrastructure -- has the worst history of cost overruns, corruption, construction incompetence, and economic harm.
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This bad plan just got worse. A key part of the plan will be a "use it or lose it provision.
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“If a state doesn’t act quickly to invest in roads and bridges in their communities, they’ll lose the money.
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Even with the luxury of following normal planning processes, which can take years for large projects, states are incapable of effectively implementing, monitoring and controlling infrastructure construction. The example of the Big Dig is symptomatic of what happens when money is thrown at grand projects.
Here's some examples but, there is many more examples out there to how this system will not work!!
A small 338-foot bridge project in Barrington, Rhode Island, is not completed despite 10 years of construction. The project has been "plagued by erroneous designs and the subsequent negotiation of costs." The cost of this small project has more than doubled and is ending up costing $40,000 per foot.
As reported in the Providence Journal:
One of its current projects is the Barrington Bridge, which has taken so long to build that the DOT has had to repave the temporary bridge next to it twice. The bridge carries traffic on Route 114, a heavily traveled secondary road running up the east side of Narragansett Bay, across the Barrington River.
That project is taking twice as long to build as it was supposed to, and it could cost more than twice as much as its $10.4 million bid price. With the project far behind schedule, the state paid Shire $5.3 million in September 2006 to settle the company’s claim that the DOT caused the delays.
Rhode Island so bungled its transportation infrastructure when times were good, that now that times are bad Rhode Island is considering re-instituting highway tolls, increased license fees, gas tax increases, and even taxing car owners based on miles driven:
Rhode Island is sinking economically, with the highest unemployment rate in the country due to high taxes, unsustainable union contracts, and an anti-business culture. The inability of the state to oversee infrastructure construction has contributed to these problems, and is set to make the Rhode Island economy even more tax heavy. In Rhode Island, infrastructure construction has been a problem which has wreaked havoc on the economy because of the inability of the state to handle projects currently on the table.
The Obama "use it or lose it" infrastructure construction plan will be a disaster. While throwing federal money at infrastructure construction may ease the burden on states, forcing states to rush into such projects at risk of losing funding will cause even more problems. You simply cannot force projects through a bureaucratic system which is having trouble handling its current workload without precipitating fraud, corruption, and incompetence on a massive scale.
Fiscal stimulus
Jobs building and maintaining infrastructure can be and SHOULD BE around for years. The reason our infrastructure is falling apart is to a large extent BECAUSE the long-term goals of ownership of infrastructure have been ignored. Maintaining infrastructure properly requires capital BECAUSE it requires a commitment of labor and capital.
The thing is that, building and maintaining infrastructure for the long term not only creates jobs for the long term... Building and MAINTAINING infrastructure for the long term results in a high value of ownership.
We all complain about crappy roads, but don't want to invest in repairing and maintaining them because there is a cost. Does the cost result in improved infrastructure? Yes. Does the cost involve hiring people to do the work? Yes. Can anyone honestly say they are UNhappy with the idea of having decent roads? Sidewalks? Public buildings?.
Is anyone who lives in central Nebraska UNhappy with rural electrification? I'm thinking not. How about access to telephones? Anybody UNhappy with that?
These things cost money because they require labor and materials and making the materials also requires labor. Labor equals jobs, and jobs are needed to stimulate the economy.
The only way we lose, in my opinion, is by too much of our money being diverted into bribery or graft or into the pockets of people who are doing nothing but basically collecting commissions on the labor of others or for the questionable "favor" of banking our money for us in the form of insurance funds for redistribution later to the people who actually provide labor. Which is a whole 'nother subject.
But by encouraging investment in infrastructure and our communities, we encourage and nurture a "demand" that has been long neglected.
Demand stimulates growth just as abundance inhibits growth. "Over-demand," for want of a better word, stimulates more growth just as overabundance inhibits growth. A big part of our problem is overabundance, which is why this thing is so hard to solve.
Demand creates jobs and those of us who still have jobs pretty much have what we NEED. We're not going to risk more debt, so we're not going to be increasing spending beyond "maintenance" level for a while. The alternative is to create jobs, and ANY job is a good job to a person who needs income.
Do we give money to businesses to encourage them to hire labor to produce goods for which there is no demand? Duh. Been doing that for a LONG time, and it's resulted in lots of big bonuses and an economy that's considerably WORSE in the way of growth than it's been for decades. Clue: No businessman in his right mind is going to invest a single penny producing goods for which there is no demand. It doesn't create long-term jobs; it doesn't create short-term jobs. It doesn't create ANY jobs. So what do we do?
Maintenance that we've been neglecting.
And take a breath and look around and see what's next.
Fiscal Stimulus--Consumer Confidence
How will building roads and bridges help consumer confidence, which is preventing discretionary purchasing? If one is worried about having a job next week he will do as little spending as possible.
I agree fiscal stimulus is needed but it must be directed at jobs that will be around for years.
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