Tuesday, October 12, 2010

FLG Was Thinking About This Yesterday

Here's David Brooks today:
This situation [,an immobile government that is desperately overcommitted in all the wrong ways], if you’ll forgive me for saying so, has been the Democratic Party’s epic failure. The party believes in the positive uses of government. But if you want the country to share that belief, you have to provide a government that is nimble, tough-minded and effective. That means occasionally standing up to the excessive demands of public employee unions. Instead of standing up to those demands, the party has become captured by the unions. Liberal activism has become paralyzed by its own special interests.

Yesterday, FLG was thinking about this post from Andrew Samwick in which he pulls this quotation from the FT:
[Larry] Summers called it a “short-term imperative and a long-term macroeconomic imperative” that the US government increase infrastructure investment. He said that a combination of low borrowing costs, cheap building costs and high levels of unemployment in the construction sector made this the ideal time to rebuild roads, bridges and airports.

I can't argue against this in theory. It makes sense. But then I was thinking more toward the political reality. On one hand you have the Republicans who, at least in my opinion, have gone into full obstruction mode, even on things like infrastructure spending that make sense. But that's not really a problem with the theory, but rather cynical short-term political calculation. On the other hand, you have Democratic constituencies and the reflexive economic thinking of Democrats that make the theory difficult to implement. I mean, sure, building could be cheap, but when you end up paying union wages and much of that justification is removed. Likewise, when you start placating the environmentalist crowd, with high-speed rail etc, I'm not sure you're still in the land of most bang for the buck economically. On the third hand, you have the parochial interests of powerful senators of either party, so that we get things like the Robert C. Byrd Expressway, the John Murtha Airport and Ted Stevens' Bridge to Nowhere, which have damn near zero long-term economic benefit. Those second two are, as far as FLG can tell, real problems with fiscal stimulus as a viable strategy.

Well, the last point always applies regardless of who is in power. So, FLG guesses the issue for him is really that the party most inclined to embark on extensive and expensive building programs is also the one least likely to take advantage of the cheapness of building in a downturn. The question for FLG is whether those problems overwhelm the benefits of investing in infrastructure as a stimulus? Clearly, another connection between New Jersey and New York will have massive economic benefits. Even a colossal boondoggle would probably make economic sense, as long as it got completed eventually.

All told, FLG is skeptical of these arguments. Yes, it's cheaper to build in a downturn, if you don't artificially inflate the wages back up. But on the other hand, this sounds a lot like people who think they should buy houses when interest rates or prices are low. Yes, that makes sense and all, but the best strategy is probably to buy and sell a home when you need it and not to think of it as an investment strategy. Similarly, we should build infrastructure when we think we'll need it. Reasonable projections of medium- to long-term future needs and project cost-benefit analysis with less emphasis on what the current unemployment rate or government budget problems is and are. If you need a tunnel, which FLG totally thinks the NY-NJ crossing does, then build it. But leave the jobs stuff aside.

2 comments:

George Pal said...

I realize FLG is, in large part, making a theoretical point; all things considered, A is best when B is the motivating factor, not as good but reasonable etc. What I find interesting is Brooks, Summers, and FLG have all agreed, in effect, to making their points based on the political reality being status quo ante. Surely, that’s not the case.

Now FLG may be in it for argument’s sake but what’s the excuse for Brooks and Summers?

Brooks’, Summers’ and the Democratic Party’s “positive uses of government” is now akin to a discussion on the positive uses of the rudder on a ship that’s been steered into a berg, is fast taking on water, and is listing to port.

Those so cognitively challenged that ”Eventus stultorum magister” can have no effect should be dismissed without a second’s thought. Allowing them to persist in their lessons will ruin us all.

FLG said...

George:

I don't agree that our ship has been hit by an iceberg. I think it's more akin to our ship is barreling headlong toward an iceberg, but if we turn to port there's less choppy seas.

The Republicans seem to want to hit full stop, which is fine insofar as we probably won't hit the iceberg, but then we're not getting anywhere either. The Democrats want to keep the engine at full, but refuse to change course. Even though the iceberg is only a mile or so ahead, it's too far away for their nearsighted eyes to see.

 
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