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Friday, February 01, 2013

'Infrastructure Is So . . . Stimulating'

We have years yet before the economy will fully recover, and I've been calling for infrastructure spending recently to try to help things along. We'd need the spending even if we didn't have an unemployment problem, so infrastructure spending can be defended without even considering its ability to stimulate the economy. The fact that it can also help the recovery is icing on the cake.

This Megan McArdle, nearly five years ago (July 2008), telling us that the recession would be over before we could possible get infrastructure projects in place. After all, we were experiencing one of the "more modest recessions of today," and we'd fully recover before we could even get started:

Infrastructure is so . . . stimulating, by Megan McArdle: Mark Thoma wants us to look at spending for stimulus, instead of tax cuts:

I agree that Fed policy alone may not be enough to get the economy back on track, I've argued that for a long time. But tax cuts are not the only option for stimulating the economy, government spending can also be used, and in theory ... a one dollar increase in government spending has a bigger impact on GDP than a one dollar tax cut. Infrastructure is an obvious target for spending, it's surely needed...

The idea that we should use emergency infrastructure spending as a stimulus is gaining strength among liberals. As the daughter of a transportation guy, I can certainly vouch for the fact that many areas of American infrastructure are in dire need of improvement.

However, as the daughter of a transportation guy, I regret to report that the idea of using infrastructure spending as a stimulus is a complete fantasy. This is not your grandfather's stimulus spending. FDR could spend whacking great sums on dams and roads and rural electrification, and hope to have an immediate effect, because FDR was working on a multi-year depression, and in the pre-1960s regulatory environment.

Between the environmental impact statements, public review periods, and byzantine bidding process, the development cycle for anything more complicated than painting a bus station is now measured in decades, not years. This wouldn't even work to get us out of the ten-year Great Depression, much less the more modest recessions of today. As my father likes to point out, if Bush had come into office declaring that his number one priority was shoring up the levees in New Orleans, by the time Katrina hit they might, with luck and a huge amount of political pressure, have been ready to put the EIS out for public review. More likely, they would still have been wrangling over the funding mechanisms and which state and federal agencies had exactly what authority*.

The reason we rely mostly on monetary policy and tax cuts for stimulus is that it is possible to rapidly implement whatever stimulus you decide on. With the exception of a few transfer programs such as food stamps and unemployment insurance, which are hard to funnel very large sums of money through, there is nothing on the spending side that matches tax cuts for speed. You could allocate the money, to be sure, but by the time it actually hit an agency and went through the bureaucratic procedures necessary to actually spend it, the window for effective stimulus would have passed.

We could improve matters by ripping out all of the procedural hurdles and community review procedures we've forced on the government, and in my opinion, that wouldn't be a bad thing. But in my opinion, this is somewhat less likely to be achieved than my teenage dreams of becoming a rock star.

The other thing we might consider is just not having the stimulus. It seems to me that both monetary and fiscal stimulus at this point are trying to attack supply shocks by goosing demand. America is going to have to get used to consuming less oil and less cheap foreign credit some time, and maybe the best way to do that is to let the shocks work their way through the system.

Yep, just a little supply-shock, nothing to worry about -- certainly nothing to attack with an inherently supply-side policy (with important demand-side benefits) such as infrastructure.

Nearly five years later there's still time -- and the need -- for infrastructure spending.

    Posted by on Friday, February 1, 2013 at 02:21 PM in Economics, Fiscal Policy | Permalink  Comments (79)

          


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