If there’s something awry in the logic of Larry Summers’ argument here for more infrastructure investment, I certainly can’t see it. Based on low real interest rates, still high unemployment particularly among blue-collar production and construction workers, and most of all, the need for productivity-enhancing investments in our aging public goods, Larry is very much correct to ask “if not now, when?”
A few key points:
–we are, at some point, going to wise up and start engaging in the needed maintenance of our depreciating stock of public goods. America’s roads, airports, and public schools of 2024 will not be those of 2014. So given the confluence of factors Larry identifies, shouldn’t we start now?
–there are many “two-fers” in this space: create jobs for the un- and underemployed WHILE improving productive capacity; borrow to invest WHILE real rates are still low; repair our public schools WHILE improving their energy efficiency (see our FAST! idea)
–Larry doesn’t get much into the politics, but they’re of course central. One could historically count on bipartisan support for this type of investment. I mean, business interests might oppose the minimum wage and unions, but of course they want and need adequate ports, roads, airports, and so on, not to mention a skilled work force. No firm can supply these public goods.
–But in a sign of how different these times are, not only is bipartisan support for infrastructure investment far from forthcoming, Rep. Paul Ryan’s new budget significantly cuts transportation funding. According to the Senate Budget Committee’s analysis of the Ryan budget “… would cut funding for transportation projects next year by $51 billion…and a total of $167.5 billion from federal transportation programs over the next decade if no additional revenue is identified. Roll Call (no link) points out that the budget “…also suggests a pilot program to allow states to opt out of the federal motor fuels taxes and funding programs entirely and pay for transportation projects strictly with state revenue.”
Rep. Ryan calls his plan a “Pathway to Prosperity.” All’s I can say is that if you’re driving down that pathway, you’d better have some serious shock absorbers because that path is fraught with deep, deep potholes.
“–But in a sign of how different these times are, not only is bipartisan support for infrastructure investment far from forthcoming…”
None of these investments would be consistent with undermining the government, starving the beast, and, ultimately, undermining democracy. Ayne Rand and her anarchists friends simply forgot to mention that the anarchist utopia had few public goods and crumbling infrastructure. We’ve elected these people and bought into this propaganda without even questioning its origins and foundations. Welcome to utopia! Its time to invest in shock absorber technologies & kidney belts.
It is as if after 30+ years of ‘supply side economics’, some folks – Ryan being a case in point – can’t get their heads around the concept of ‘demand side’, which Summers elucidates.
There is another piece to the demand/employment picture, however – corporate accounting rules now erode labor opportunities via downsizing and part-timers. Yves Smith at NakedCapitalism just ran a piece by the (always insightful) Wolf Richter, which is relevant to the larger conversation about creating more robust employment opportunities, whether via public investment or by other means: http://www.nakedcapitalism.com/2014/04/wolf-richter-structural-unemployment-crisis.html
It’s good to see the emphasis on investment, and the evidence that infrastructure investment pays dividends over the long term. However, the accounting rules that affect labor probably also need a great deal of attention in the interests of long-term economic sustainability.
“…also suggests a pilot program to allow states to opt out of the federal motor fuels taxes and funding programs entirely and pay for transportation projects strictly with state revenue.”
And guess what. States don’t have that money either. Here in NH we haven’t raised the gas tax since 1991 (it’s at 18 cents!) and, so far, nobody wants to raise it here. (We may be getting close to raising it 4 cents: a Republican state senator broke ranks and proposed a small hike.)
I’m constantly amazed how a 4 cents tax hike — maybe 60 cents on a tank of gas — will break people, while the 10 to15 cent variation in the price hovering around $3.50 isn’t seen as the real culprit. Maybe it’s because people can “vote” on a tax hike, or at least complain to someone they might vote for.
And then too, taxes seem to make a one-way trip. Out of the hard-earned cash in one’s pocket. Never back into the economy, hiring local contractors and making lots of local jobs, in the case of roads and infrastructure. Why can’t people see the loop?
Point of clarification: gas taxes in NH are on the gallon, not on the sale price. When we instituted our 18 cents/gallon in 1991, the price of gas was $1.20.
Summers problem is that he keeps talking about “secular stagnation.” That’s a nice euphemism, but secular stagnation is a symptom, not the disease. So Larry can only suggest treatments for the symptoms, not the underlying problem.
Ironically, Ben Bernanke (a Bushman appointee) had the guts to name the disease: “Global Savings Glut!”
No, PK did.
Do you have a cite?
Let me supply the cite:
Krugman’s 2009 column, “Revenge of the Glut.”
Where he writes:
“How did this global debt crisis happen? Why is it so widespread? The answer, I’d suggest, can be found in a speech Ben Bernanke, the Federal Reserve chairman, gave four years ago.”
“The speech, titled “The Global Saving Glut and the U.S. Current Account Deficit,” offered a novel explanation for the rapid rise of the U.S. trade deficit in the early 21st century.”
Benanke said it first. Krugman has the guts to say “Saving Glut.” Summers doesn’t.
Yes. But I was mistaken. I neglected to credit Robin Wells for her contribution to the concept.
Twice wrong. You are right, Kevin, BB did use the phrase first. Sorry.
“The term “global savings glut” actually comes from a speech given by Ben Bernanke in early 2005.”
Larry Summers is on track. Why did everyone ignore Paul Krugman when he called for this same fiscal intervention previously? PK has been the visionary of the Boomers.
But you’re missing the really wonderful point about transportation spending in Rep Ryan’s budget. So what if the roads deteriorate? Republicans believe in the future. It’s been a long wait since the year 2000, but OUR FLYING CARS ARE FINALLY COMING!
Many schools are still on XP.
In many areas undocumented workers will get first shot at some of the jobs.
Something politicians don’t like to talk about.
What? They don’t have labor unions in the Midwest. We certainly do here in the East. Besides – I wouldn’t mind having a few Mexicans work on the subways here. Someone needs to clean this mess up.
But Obama and, for that matter, most prominent Democrats, seem remarkably blase about infrastructure. Sure, they come up with a bill that Republicans won’t vote for or even allow out of committee, and after a contrived-for-TV meeting somewhere with the now-obligatory audience smiling and clapping behind the President, that’s about the end of it. Where is the apocalyptic case being made about how Republicans refusing to vote for basic maintenance and modernization of all of our public necessities not only is going to continue high unemployment when we could be putting millions back to work, but is going to make the country fall further and further behind other major world countries? Where is the fight being picked to put Republicans on the hot seat, identifying them specifically for the blame? Saving all the outrage for elections in 2014, elections that the Democratic Party actually seems to have conceded in advance except for possibly hanging onto the Senate by the fingernails, is not going to put much fire in anyone’s belly.
Come to the New York/New Jersey area. NYC has a crumbling subway system while New Jersey has too few tunnels and a bridge so old that they just shut it down for 2 years (Time for Some Traffic Problems Redux?). While the governor of New Jersey started his tenure by supposedly protecting taxpayers from infrastructure investment in tunnels and bridges, he does have appointees over at that Port Authority that doles out billions who will give you a contract if you support him politically. The Republican Party – combining “penny wise and pound foolish” with government corruption that would make Milton Friedman roll over in his grave.
Simple questions, Mr. Bernstein:
**Why are we talking stimulus now, when Obama (and his advisers) should have focused on the economy in his first term? **
The economy was plummeting/ falling apart from late 2008-10, and other than a small effort at a stimulus and some really awesome corporate welfare/bank rescuing, the president focused all of his energy and political capital on Obamacare. To have given up so easily was ridiculous.
While wonks are sitting around trying to restructure healthcare (a long term process), people have been losing their jobs, houses, defaulting on student loans, getting evicted, etc.
Think any of that money, effort, and political capital would have been useful to the unwashed masses? Was he too worried about keeping the bank/corp donations coming in for 2012?
Ultimately, healthcare is worthless unless you have shelter and food. I just don’t get why people don’t understand that.