"An Eisenhower Moment" for Infrastructure?

What can the incoming administration learn about infrastructure spending from Eisenhower's experience in creating the interstate highway system?:

Eisenhower's roads to prosperity, by Tom Lewis, Commentary, LA Times: ...President-elect Barack Obama vowed to "create millions of jobs by making the single largest new investment in our national infrastructure since the creation of the federal highway system..." The story of President Eisenhower's decision in 1956 to create the interstate highway system ... holds lessons that the new president and the country would do well to heed.

Eisenhower was the first Republican to occupy the White House after Herbert Hoover, who in the 1950s still wore a mantle of shame for his role in the market crash of 1929 and its aftermath. Eisenhower had an almost pathological, but healthy, fear that he might be blamed for allowing the nation to fall into another depression. When a mild recession ... pushed the unemployment rate above 5%, Eisenhower ... asked for solutions.

The highwaymen at the Bureau of Public Roads ... heeded the call. They reported that each federal dollar invested in construction generated close to one half-hour of employment. ... Workers across America, not just those who built the roadways, would benefit -- in cement and steel plants (50 tons of concrete and 20 tons of reinforcing steel go into each mile), in paint and sign manufacturers and in heavy equipment factories and oil refineries. ...

Eisenhower realized that he could not fail with highways. Americans wanted more roads for their postwar cars. Construction would prime the economic pump ... and help secure the nation's future. He signed ... the $25-billion Federal-Aid Highway Act to build a 42,000-mile interstate highway system by 1972. Ultimately the cost would escalate to more than $130 billion, and workers would not finish the roads until 1993...

Eisenhower wasn't afraid to create a huge public works program, and unlike today's presidents, he wasn't afraid of taxes. ... The 1956 highway bill levied a tax of 3 cents on each gallon of fuel -- equal to 24 cents today. The revenue went into a dedicated highway trust fund. ...

Eisenhower's interstates are an essential part of our culture. ... In 1956, Eisenhower likely didn't fully realize that he was creating not just a public works program but an economic and social blueprint for the next 50 years. Now, along with every other aspect of our infrastructure, the interstates are crumbling. Irresponsible legislators rail against the current federal highway tax of 18.4 cents a gallon -- far less in today's prices than Eisenhower's 3 cents. Seduced by easy money, governors consider leasing parts of the highway system to foreign companies.

So the lessons for Obama are clear: Don't be afraid to propose bold -- and often expensive -- programs that improve the nation's infrastructure and peoples' lives, and don't be afraid to pay for them with taxes.

It is said the 44th president is taking office at a Lincoln moment and a Roosevelt moment. True enough, but it can be an Eisenhower moment as well.

Keeping the budget in balance while the economy is struggling is not good policy. If the goal is to stimulate the economy and to create new jobs, then the "clear" lesson - the advice to pay for the spending on infrastructure by raising taxes - is wrong. The new infrastructure does need to be paid for, but the time to do that is when the economy is healthy, not when it is under performing.

Comments

[Beezer]

The reformation of our energy infrastructure and the transformation of our economy to a sustainable one are the two most important tasks facing the country.

The countries who best shed the legacies of fossil fuel economies will be the first to prosper. Obama must start explaining this effort early and often. If he needs to tax more, he should and can if he trusts the voters.

Meanwhile, the reality of finite energy sources will help him as they return to realistic prices once the global economy even hints at recovery.

[baileyman]

It's obviously coming, a massive public investment in more of what we already have, more roads to suburbia, more electrical generating capacity, more local pork, whatever state governments have on their lists, which they put together in the old days. No work on trains, jitney's and bikes, no change in zoning, no healthcare, no retirement, no education, no broad understanding of public assets.

One last big malinvestment. Following on the bailout investments in business as usual.

Then, when the deliberative bodies finally do deliberate what's needed, the wealth allocated to the old ways during our current terror will be missed.

[ken melvin]

Carpe diem indeed. Just telling the grandson whilst on a hike the other day, these are momentous times; the most momentous in a long time.

The past is past. All focus should be on the future. Trying to go back has cost too, too much. The basis has to be what is; not what was.

All in the while, there needs be a repudiation of those most associated with the nation ruin; the likes of Fox and the neocons, and southern white/fundamentalist religion crap.

says...

With gasoline prices dropping precipitously, now IS the time to raise the gas tax. If nothing else, the pressure to make more fuel efficient cars needs to be maintained. If that money is plowed back in to infrastructure and energy efficiency projects, it is a net gain.

[anne]

The Eisenhower Presidency was wildly unsuccessful economically, unsuccessful in fostering general growth, allowing for 3 recessions, unsuccessful in limiting unemployment or increasing employment, unsuccessful in reducing poverty, unsuccessful even in stimulating an increase in private investment spending.

What would be nice would be a little meaningful comparison of Presidential policy and effectiveness is such an essay. We were left with a 22.2% poverty rate as the Eisenhower Presidency closed, which would be remarkably reduced to 12.8 by the close of the Johnson Presidency, a record not remotely bettered since.

[anne]

"With gasoline prices dropping precipitously, now IS the time to raise the gas tax."

Always, but always punish those who can least afford to be punished. Such is being an American reformer, especially a green reformer.

[bakho]

Gas prices returning to $4 would be far more punishing to the poor than a small gas tax to promote conservation efforts that would keep the price low.

[don]

"Always, but always punish those who can least afford to be punished. Such is being an American reformer, especially a green reformer."
Especially the poor SUV drivers (but not those who take the bus or ride a bike). The gas tax could be coupled with a reduction in payroll taxes or an increase in the EITC. But the relative price of gas definitely should be raised.

[anne]

"The gas tax could be coupled with a reduction in payroll taxes or an increase in the EITC. But the relative price of gas definitely should be raised."

Remember, what is important is always but always find a way to avoid having industry become increasingly efficient when ordinary people can be penalized for the failure of industry to be more efficient.

What is interesting about the Earned Income Tax Credit, another industry loving game is that paying ordinary workers decently and fairly is no longer the issue. Tax people more regressively, than return the taxes, never having industry have to become more efficient.

[Mattyoung]

Eisenhower did know he was building a productivity tool, for he often commented on the Nazi autoban while moving troops in WW Two.

If you discount war as a welfare policy, then the economy did not return to trend until the highway system was underway.

[anne]

"If you discount war as a welfare policy, then the economy did not return to trend until the highway system was underway."

Doubtless this was the reason why there were 2 Eisenhower recessions after the interstate highway system was begun, why there were no related gains in employment and no poverty reduction till Kennedy became President and fiscal policy began to be designed with New Deal objectives in focus.

Say what?

[Bruce Wilder]

I have no love for the EITC, and would like to see wages rise, generally. But, the gas tax should go up.

Technical efficiency has risen and will rise, but we won't substantially reduce our use of petroleum, until the relative price rises.

Without an increase in petroleum price, to reflect the actual costs, all the technical advances will be misapplied. We'll get gas-electric hybrid cars, like the Prius, designed for superb acceleration instead of superb mileage.

We need the technical advances and we need the infrastructure to make it possible to cope with a high petroleum price, but we need the high petroleum price to keep us honest.

Considerations of equity and income distribution in this context are misplaced. It doesn't do good to paralyze energy and environmental policy.

[anne]

http://www.nytimes.com/2008/12/27/us/27sludge.html?hp=&pagewanted=print

December 27, 2008

Coal Ash Spill Is Much Larger Than Initially Estimated
By SHAILA DEWAN

An aerial survey showed that 5.4 million cubic yards of wet coal ash had spilled in Roane County, Tenn., three times the original estimate.

[Industrial rules have to matter in terms of safety, by analogy I find no evidence as such that industrial rules will not matter in terms of energy and emissions efficiency. I would at least like the matter carefully examined since vehicle efficiency rules seemed to help considerably till standards were frozen in 1985.]

[Julio]

Bruce Wilder,

"Considerations of equity and income distribution in this context are misplaced. It doesn't do good to paralyze energy and environmental policy."

Given my general agreement with your positions, I'm trying to read this in the best possible light. You seem to be conflating "considerations of equity" and "paralysis of environmental and energy policy" -- what exactly do you mean?

Taken as it is, and given a situation in which we've made public transportation almost nonexistent, and therefore cars necessary, I think your statement goes too far.

I happen to agree that higher gas prices are a good thing. I also happen to believe that significant inflation for a few years could be a boon. Neither is a humane policy without active intervention to mitigate its transitional effects on people with marginal incomes.

[Bruce Wilder]

anne: "Industrial rules have to matter in terms of safety, by analogy I find no evidence as such that industrial rules will not matter in terms of energy and emissions efficiency."

Of course, rules matter. You won't get an argument from me on that.

I rant and rave constantly in comments against the economic ignorance -- common among economists, sadly -- that says allocative efficiency is all there is. I am constantly pointing out that administrative pricing predominates in real "markets" -- a clear indication that considerations of managerial and technical efficiency overwhelm allocative efficiency in the organization of production. I roll my eyes at the presumption of smooth capital-labor substitution.

But, none of that means that allocative efficiency doesn't exist or is completely unimportant. Petroleum is a commodity that is allocated at the margin by market price, and consumption of oil is governed by price.

Just as it is stupid of UofChicago types to insist against the evidence that the market price for movie tickets, or McDonald's hamburgers or Campbell's Soup resembles a competitive market price allocating goods in a market that clears, so it is crazy to deny that the market for oil does clear at a market price. (Which is not to say that "the price" at various intermediate stages in a long pipeline is not administered in important ways.)

The progress of technical efficiency follows the progress of scientific knowledge and practical experience. It may be accelerated a bit in the medium and short-term, as the focus changes, in response to price changes. A change in price changes the calculus of expected profitability for investing in various technical innovations. So that's one interaction with price.

The other, though, is the purely allocational. I worked on the auto fuel efficiency standards in the late 1970s and early 1980s as a Federal civil servant, and was intimately familiar with policy dynamic. The detailed evidence, then as now, is that price matters a lot to the results achieved. In narrow terms, it comes down to driving behavior and consumer preferences. At a higher gas price, consumers are willing to drive more conservatively and to buy smaller, lighter cars with less impressive acceleration.

Acceleration performance is critical. The same advance in technical fuel efficiency can translate into lower gas consumption, or into greater power and acceleration. The same driver can drive the same car more miles, faster and more aggressively, consuming more fuel and achieving a lower rate of fuel efficiency. At a higher gas price, consumers will manage their trips, and even manage their driving habits to achieve higher fuel efficiency. The fuel efficiency of vehicles can be enhanced on the order of 5 to 15% by changes in driving habits alone; for consumers willing to accept a degradation in acceleration, fuel efficiency of the vehicle can be further enhanced on the order of 15% to 40%. These are big numbers, and they all come back to allocative efficiency and the price of gas.

One product of the fuel efficiency standards, sans oil price tax, was the SUV. We shouldn't forget that the potent symbol of 21st century American automotive profligacy was, itself, a product of the inconsistent policy wishfulness that mandated fuel efficiency standards, and then forgetting all experience, embraced low oil prices. The SUV originated in a circumvention of the fleet fuel standards that allowed a distinction between passenger autos and trucks, with differing standards, and assigned the SUV to the truck category. The mistake was not the categories, which were an administrative convenience. The mistake was in allowing the price of gas to fall so far, that it encouraged consumer demand for these monsters.

The mistake was in not elevating the price of gas to reflect its cost to the environment, to the economy (in financialization), and to our foreign policy.

Again, I say, the price of gas should be much higher, as a matter of policy, a policy of self-preservation.

[Russ]

One thing I have not heard talked about sufficiently (at least in my view) is the effect of budget-deficit spending on expectations. If people feel that this two-year stimulus will ultimately have to be paid for by higher taxes in the future, then will they opt to save now rather than spend, thus limiting the effect of the stimulus? While balancing the budget may seem like a bad idea, a smaller deficit may lower the expectations of significant tax increases in the future. Are their types of tax hikes that can minimize the negative effects of trying to balance of a budget? Or am I overstating this issue altogether?

[anne]

There is always an expectation effect in any government policy change, and there have been and are economists who argue against policy changes because reaction to the supposed effects of the changes will make the policy less effective or not effective at all. I know of no reasonable evidence supporting the argument.

[anne]

http://www.bls.gov/webapps/legacy/cpsatab1.htm

December 8, 2008

Unemployment Rate, 1948-2008

1948 (3.8) *
1949 (5.9) Truman

1950 (5.3)
1951 (3.3)
1952 (3.0)
1953 (2.9) Eisenhower (Low)
1954 (5.5)

1955 (4.4)
1956 (4.1)
1957 (4.3)
1958 (6.8)
1959 (5.5)

1960 (5.5)
1961 (6.7) Kennedy
1962 (5.5)
1963 (5.7) Johnson
1964 (5.2)

1965 (4.5)
1966 (3.8)
1967 (3.8)
1968 (3.6)
1969 (3.5) Nixon

[Bruce Wilder]

Julio, I agree with you that just raising the gas price, with no attention to infrastructure planning or consideration for the economic situation of the poor or those especially dependent on auto transport would be foolish.

But, the price of oil, and, probably, carbon-emitting fuels generally, should rise (in relative terms), and the need for that rise in price should not be traded away in a quixotic quest to "protect" this group or that.

When I say the price should rise, I mean, of course, that we should raise it, as a matter of government policy, gradually but fairly aggressively and with as much certainty of expectation as possible. I recommend that course, because I think that course consistent with maximizing the general economic welfare of the country and the world. Without that increase, we will, overall, be worse off.

We cannot preserve the world as it was, or even our dreams for the world as we wish it could be. The constraints on world production capacity -- peak oil, the commodity ceilings, limits on the ocean ecology and agriculture, and, finally, the carrying capacity of the global environment -- are paramount.

I don't propose to screw the poor, or to make common cause with those, who would do so in any circumstance. But, fixing a commodity price is a damn poor way to re-distribute income, not least because it reduces the total income available for re-distribution.

The poor in the U.S. mostly cannot afford automobiles, and would actually be materially aided by an expansion of mass transit and intercity rail. Just this year, we had an experiment with higher gas prices that demonstrated dramatically just how a higher gas price drives demand for those services. Let's pay attention.

[anne]

http://www.bls.gov/webapps/legacy/cpsatab1.htm

December 18, 2008

Employment Level, Percent Change, 1949-2008

1949 (- 1.2)

1950 ( 2.2)
1951 ( 1.8)
1952 ( 0.5)
1953 ( 1.5) Eisenhower
1954 (- 1.7)

1955 ( 3.4)
1956 ( 2.6)
1957 ( 0.4)
1958 (- 1.6)
1959 ( 2.5)

1960 ( 1.8)
1961 ( 0.0) Kennedy
1962 ( 1.5)
1963 ( 1.6) Johnson
1964 ( 2.3)

1965 ( 2.6)
1966 ( 2.5)
1967 ( 2.0)
1968 ( 2.1)
1969 ( 2.6) Nixon

[anne]

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1105628

November, 2003

The Most Technologically Progressive Decade of the Century
By Alexander J. Field

Abstract:

There is now an emerging consensus that over the course of U.S. economic history, multifactor productivity grew fastest over a broad plateau between 1905 and 1966, and within that period, in the two decades following 1929. This paper argues that the bulk of the achieved productivity levels in 1948 had already been attained before full scale war mobilization in 1942. It was not principally the war that laid the foundation for postwar prosperity. It was technological progress across a broad frontier of the American economy during the 1930s.

[anne]

http://edgeofthewest.wordpress.com/2008/12/15/make-work/

December 15, 2008

Make-work

Alexander J. Field argues the 1930s—or, more precisely, 1929-1941—were "the most technologically progressive decade of the century." Later productivity increases owed to shifts that occurred in the 'thirties.

"A large part of the infrastructure required for economically successful postwar housing construction was put in place during the 1930's, as the consequence of the use of public funds to improve the road transport system. During the 1920's, infrastructure, particularly streets and highways, did not keep up with the burgeoning sales of private vehicles. Public expenditures during the 1930's substantially remedied this, in a manner that has impacted the productivity of the housing sector as well as that of the economy as a whole." *

* http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1105628

-- Eric Rauchway

[anne]

What is striking is the extent to which a sharp and premature effort in 1937 to pay for the spending that had such an immediate impact on the Depression economy in 1933, set the economy in a recession that needed further spending to reverse. Though the Roosevelt programs from 1933 were experimental and too tentative for Keynes, nonetheless the programs had an immediate and dramatic effect on growth and employment and the lasting effects on productivity of the public works programs through the 1930s needs to be far more appreciated.

[don]

Russ -
Your argument is known as 'Ricardian equivalence.' But to the extent the stimulus redistributes income from rich (who pay the bulk of income taxes) to poor, its falure does not depend on irrational behavior or short-sightedness.

But a point that I think needs more emphasis is that the current account leakage is not a fixed thing - the stimulus, by expanding the federal deficit, will tend to increase the leakage. (See Menzie Chinn's work on this topic. Though he is talking about the effects of the Bush fiscal deficits brought about by tax cuts and increases in military spending on the trade account, the same logic applies to the effects of a fiscal deficit brought about by stimulus.) The U.S. needs to pay attention to this fact and start do something about it, or much of the stimulus will be drained away in bigger trade deficits.

[anne]

Where New Deal spending programs would lead to a reduction in unemployment from 24.9% in 1933 to 9.2% in 1937, or an additional 3.5 million workers employed on New Deal programs, unemployment increased through the Eisenhower years. The industrial production index which had declined for 40 months before Franklin Roosevelt, turned dramatically and increased in 49 of 54 months from then.

[Bruce Wilder]

I agree that the current account leakage could be a cause for concern, though I would file it under the general heading of concern that policy needs to both accommodate and accelerate adjustment, and not try to recreate the status quo ante. The dearth of household saving and the borrowing from China (and Japan and elsewhere) that characterized the peak the business cycle in 2005 was not sustainable or desirable, and we should not be trying to return to that state of the world.

We need a huge fiscal stimulus to bring the circular flow up to a level, where it can employ a reasonable percentage of available resources at something close to the present price level. The alternative is a crushing deflation. As it is, business bankruptcies and unemployment will be quite high. Let's keep our eye on that ball.

I do think it might be appropriate policy to stage a bond drive, to finance the stimulus rather dramatically from increased domestic household savings. I know the purists would regard that kind of drama as being superfluous and almost meaningless, but I think it might actually be helpful, both in providing an occasion for moral suasion in favor of raising the rate of household savings and increasing the salience of savings as a public policy issue, as well as highlighting the concern of the government for reducing its reliance on foreign finance. We can easily finance the prospective deficit domestically, and probably should do so, as part of a general policy of accelerating the necessary re-balancing of international flows.

[ken melvin]

The poor need jobs that pay a living wage, or sufficient subsistence.

[bakho]

It is clear that fuel price alone is a bad way to increase fuel efficiency. Note how high gas prices have pushed the Big3 to the brink of oblivion.

It is also clear that in the absence of moderate gasoline prices, their is no political will to demand fuel efficiency. Most of the political pressure is against doing those things that would keep energy efficiency high and energy prices steady. So we end up with policy (lax efficiency standards) that allow for wild swings in oil prices that in turn cause wild swings in policy. Meanwhile, a car purchased 3 years ago will still be on the road 4 years from now. This creates a huge response lag to the wild swings in energy pricing. A public, overoptimistic that gas prices will remain low, will not place enough value on fuel efficiency to price it properly.

People disliked Carter's energy policies, but those policies were what kept gas prices low for the next 20 years. The lag between Carter policy and its full implementation means that Carter policy never got the credit it deserved for low gas prices and keeping inflation low.

[run75441]

Bruce:

Great post on driving habits which is largely supported by the recent 5% reduction in oil consumption while driving the dinosaurs of the last decade. Driving slower and less frequently paid off!

The infrastructure is a serious problem and needs to be resolved over the next decade. Fixing it will help the economy by putting many people back to work. It will not resolve the trade deficit and the dolar problem.

Fix the disparity between the Dollar, the Yuan, and the Yen. Fix that issue and many jobs will come back to the US and lessen the trade deficit. That issue will remain the biggest issue facing Obama and the US economy.

[Inf Spending]

Spending money into maintaining Interstate Highways is money lost. The Interstate systems still work and allow individuals to go from A to B in time t. Additional spending will decrease the time by delta_t. If the present value of delta_t exceeds the costs, the investments may be worthwhile. But, if the same money is used in a new transportation infrastructure investment, then we are opening a new competitive paradigm of transportation. To me, the no-brainer would be mass transit systems. That will lead to outcomes similar to the Interstate systems, but will address new markets and new opportunities.

[Bupa]

anne:

"Remember, what is important is always but always find a way to avoid having industry become increasingly efficient when ordinary people can be penalized for the failure of industry to be more efficient.

What is interesting about the Earned Income Tax Credit, another industry loving game is that paying ordinary workers decently and fairly is no longer the issue. Tax people more regressively, than return the taxes, never having industry have to become more efficient."

anne, short-sighted and depressingly American-centric of you to oppose a gas tax. Folks in Poland and Hungary pay 3 or 4 times as much for petrol as you do in America, despite being 3 or 4 times poorer than Americans. They manage by driving smaller and more fuel efficient cars than Americans and they drive fewer kilometers each year.

America's gluttonous ways must stop. Americans suck up too much of the world's resources and spew out too much carbon dioxide.

The children of Bangladesh, who will suffer more from climate change than the children of America, would very much appreciate whatever steps Americans might take to reduce their carbon footprint.

A gas tax would certainly help.

[ken melvin]

Context is everything. Klein,when with Newsweek, was one of the worst offenders ever. The Eisenhower years were about contraction after expansion - they hadn't yet sold Americans on two- three car, TV, and bathroom families (the interstates sold a lot of cars, tires, motels and gasoline). Those most hurt by increased gasoline prices are the, both working and non-working rural poor, like the ones who die from CO after driving 75 miles to work in a goddamned ski resort because of housing prices (see Elizabeth Warren); the underlying being poor paying jobs and lack of affordable housing, which are both tied into bad economic policies resultant really bad politics.

[hapa]

1st, hello, been lurking.

2nd, oil price alone did not kill Da 3. they were making their living selling trucks to the housing bubble, financed by the credit bubble. doomed.

3rd, plan b is excellent reading when discussing infrastructure.

[hapa]

eh. typo html.

plan b

[anne]

http://www.earth-policy.org/Books/PB3/index.htm
http://www.earth-policy.org/

2008

Plan B 3.0
Mobilizing to Save Civilization
By Lester R. Brown

[Here are the working links for the book and for Earth Policy.]

[Demand Side]

"Eisenhower realized that he could not fail with highways. Americans wanted more roads for their postwar cars. Construction would prime the economic pump ... and help secure the nation's future. He signed ... the $25-billion Federal-Aid Highway Act to build a 42,000-mile interstate highway system."

Poor reporting in the article. Commonly known as the "National Interstate and Defense Highways Act of 1956," the interstate system was sold to the public at least partly as a way of avoiding the impending nuclear attack from Russia. And who was Secretary of Defense under Eisenhower? The notorious "What's good for America is good for GM and vice versa" Charles E. "direct from CEO at GM" Wilson.

It was these GM Americans, who wanted to sell cars and who lobbied long and hard for public funding to build the pavement to put them on. The rational people wanted to develop a rail system for the vast American landscape. One can only imagine what the country and the planet would look like if those billions had been invested in rail rather than pavement. (Probably wouldn't be crumbling quite yet.)

[anne]

Demand:

Commonly known as the "National Interstate and Defense Highways Act of 1956," the interstate system was sold to the public at least partly as a way of avoiding the impending nuclear attack from Russia. And who was Secretary of Defense under Eisenhower? The notorious "What's good for America is good for GM and vice versa" Charles E. "direct from CEO at GM" Wilson.

[Right, I thought I had read a little along this line and am pleased to have such a clear confirmation. Even the name of the Act tells us more of what we need to focus on as a rationale. That Wilson was Secretary of Defense is remarkable.]