A few weeks ago, I made this comment to Peter Nicholas from the LA Times:
“Many projects turned out to be a little more capital intensive than we might have thought, rather than labor intensive. So, instead of 50 guys and 10 machines, you’d have 10 guys and 50 machines.”
My old colleague Ron Klain has an important piece out today that fleshes that thought out much further. Ron worked closely (and very effectively) with VP Biden on implementation of the Recovery Act, and he knows of what he speaks.
Gather round all ye Keynesians and absorb this key lesson. Keynes actually said little about implementation. His famous letter to Roosevelt (still remarkably resonant) was about the deepest he got into it, aside from the “pay one group of unemployed to bury money and another group to dig it up” quip.
But implementation is a huge issue: balancing speed and oversight, getting the biggest bang for the buck, evaluating “shovel-readiness”…all very challenging.
As Ron notes, you also have to think carefully about capital vs labor intensivity. All else equal, you want to place your money on labor intensive projects, or at least be aware of the job-creation limits when a project is highly capital intensive.
And when in job creation mode (say, versus productivity-enhancing mode), these insights might move you away from tax policies that subsidize equipment vs. labor (e.g., on this margin, a payroll tax cut dominates accelerated depreciation or equipment expensing tax credits).