This has two really good ideas:
The plan envisions extending and revising a broad transportation policy bill that is usually renewed every five years or so but has been stalled in Congress. Although Mr. Obama is calling for investment over six years, the White House said it would be front-loaded with an initial investment of $50 billion in taxpayer money, followed by more spending in later years, to help create jobs as early as next year.
The administration said it would work with Congress to find ways to pay for the plan so that it would not add to the nation’s rising deficit. The White House is proposing to cut tax breaks and existing subsidies for oil and gas exploration and production as one way to pay for the plan, but officials said Mr. Obama is open to other ideas. Historically, transportation projects have been paid for largely with dedicated taxes like those on gasoline.
Mr. Obama also called for what the White House is describing as an “infrastructure bank” that would focus on paying for national and regional transportation projects by pooling private money with public investment. He said the bank would eliminate a patchwork system in which transportation projects are financed through Congressional earmarks rather than based on merit.
First, the infrastructure bill itself. Despite Republican idiocy, this is great policy. The government builds roads and basic infrastructure, not the private sector. And there is no doubt that our infrastructure is in dire need of substantial repairs and modernization. The politics are good as well: if you vote for us, we will fix your roads and trains and airports and make sure the country doesn’t fall farther behind Europe and China. if you vote for the GOP, they won’t and you can watch your children’s future be shipped to Germany or China.
The second good idea is the infrastructure bank. Right now, infrastructure in this country is assigned through a really ugly process of horse trading, power politics and earmarks. An infrastructure bank could be used to eliminate much of this inefficiency and to take some steps to ensuring that infrastructure projects are funded based on ROI and need. That in and of itself is an enormous step towards better government and a stronger country.
Good politics and good policy. More like this please.
leanleft
Kevin
tgirsch
Kevin T. Keith
Judd
It would be best to read the bill in question before deciding that it’s a good idea. Too many times a bill that at face value sounds good has actually been fairly horrible.
I’d also not want to see it passed without it fixed in stone how it would be paid for. Obama’s assurances aren’t worth the CO2 he spews when he mouths them and anyone with a hint of brain knows that.
As for the “infrastructure bank” – whether or not that’s a good idea or a horrendous one would boil down to which branch of the government is in control of it and what level of accountability it is forced to endure.
Knowing Obama, he wants it to be under the Executive and to have little or no accountability. That would be bad, very bad. It would be too easy for him to use it as a weapon against states who fought against his agenda. That point would also hold true for his successors.
Final note – actually, it’s bad politics. Too many people remember that Hitler was elected largely because he promised to get the trains into Berlin running on time…
Godwin, what?
Kevin,
I’m certainly curious as to the details of how the infrastructure bank would be administered so as to avoid lobby-driven earmarking. I’m willing to believe it can be done, but I’d like to see some existing models of such efficacy.
As for funding, I’m much less convinced that Obama or anyone else can actually cut oil subsidies. Despite being overwhelmingly unpopular, on the whole bad for the economy, and harmful to national security, corporate welfare has always been far more of a third rail than Social Security has been in the last half century.
Uh huh, we definitely need more of what worked so well before:
“Stubbornly high unemployment and signs of persistent weakness in the housing market have prompted economists to further cut their outlook for U.S. growth in the second half of the year, a Reuters poll showed on Wednesday [9/8/10].
The September poll marked the third consecutive month economists had scaled back expectations for gross domestic product in the second half, and followed the U.S. government’s announcement on Friday that unemployment ticked up to 9.6 percent in August.” (http://news.yahoo.com/s/nm/20100908/bs_nm/us_usa_economy;_ylt=AnmutkvyQfOLcbnwatySw.KyBhIF;_ylu=X3oDMTJmbm10aWJzBGFzc2V0A25tLzIwMTAwOTA4L3VzX3VzYV9lY29ub215BGNwb3MDMwRwb3MDNwRzZWMDeW5fdG9wX3N0b3J5BHNsawNlY29ub21pc3RzZnU-)
I recall asking tgirsch back when the first Obama stimulus plan was being debated (or shortly after it passed) whether he would choose to double down when it failed to produce its intended effects. Since then, we’ve seen the miserable failures of that stimulus, the home mortgage tax credit, cash for clunkers, and cash for caulkers. But here we are, deja vu all over again.
And, if the Administration thought this latest proposal was such a good idea and would work, why are we only hearing about it now? It seems more likely they’re just grasping at straws (“We have tried spending money. We are spending more than we have ever spent before and it does not work.” Henry Morgenthau Jr.).
Matt
You know, you aren’t even close to right:
We have a demand shortage in the middle of a debt crisis and a deflating housing bubble. The only institution capable of making up the demand difference is the government.
And, hey, look what austerity has done for Greece:
Yes, Kevin, the CBO fed its Keynesian economic models data (the amount and type of money spent) and, oddly enough, those Keynesian models spit out conclusions/assumptions of a number of jobs created. What those models cannot account for is the possibility (in this case the real probability) that the assumptions on which they are based are wrong.
Then you have the real world where, contrary to what the models predicted, unemployment rose from the neighborhood of 7% before the stimulus to over 10% before stabilizing at about 9.5%, ticking up last month to 9.6% as the economy again shed more jobs than it created. It looks to me like reality is proving the models wrong.
Matt
So now your argument is that the CBO, the gold standard of economic modeling, has a magical bias that makes them suddenly unreliable. Fact are facts, son, whether you like them or not. Prove that the CBO is biased or shut up and admit that your arguments have no basis in reality. And proof does not constitute saying “Keynsian, Keynsian!” over andf over again.
Your other arguments are just as much BS. The model had a bad staring point because the data used ot compile it was inaccurate at the time time it was offered. the Bush recession was much, much worse than originally believed. Second, the only reason that the economy lost jobs was of government cut backs — private sector added jobs. Third, look at this:
http://www.washingtonmonthly.com/archives/individual/2010_09/025514.php
See how when the stimulus kicked in jobs started to be created?
Kevin,
If the economic model upon which the CBO relies in making its estimates relies on Keynesian assumptions about fiscal stimulus, then there’s no need for any bias, intentional or otherwise. The CBO report is not looking at actual job numbers because, beyond the limited measure of jobs directly funded by the stimulus program, there is simply no way to distinguish between a job created or saved by stimulus spending, or one that would have been created or saved even in the absence of the stimulus. Nor is there any way to distinguish between jobs lost in spite of the stimulus, or ones lost because of the stimulus. Consequently, the CBO relies on economic modeling that itself relies on economic assumptions (Keynesian assumptions).
In other words, the CBO is saying that, based upon certain assumptions, it estimates x (range) number of jobs have been saved or created as a result of spending y amount of money.
Is there evidence you can cite for your assertion that the “Bush recession” was “much, much worse than originally believed?” What critical data was unavailable to the Administration at the time it proposed the stimulus plan that later became available and showed the recession was worse than originally believed? Or are you resorting to something of a circular argument: “The stimulus didn’t achieve the anticipated results because the recession was worse than originally believed, and we know it was worse than originally believed because the stimulus didn’t achieve the anticipated results?”
Next, in our present economy, it is not enough that there are more jobs created than lost because we are currently adding more potential workers to the workforce than we lose to retirement, etc. In other words, to keep the unemployment rate static, there have to be more jobs created than are lost. As the unemployment rate has increased to a high of 10.2% October 2009, and, after hovering at 9.5%, ticked back up to 9.6% in August since the stimulus was enacted, we can definitively say the stimulus has not been effective in creating a sufficient number of new jobs to drop the unemployment rate in any significant way or maintain job growth.
Yes, in August 2010, according to BLS, there was a net gain in private sector jobs that was offset by losses in the public sector (primarily Census workers), but the net effect was still job losses rather than gains.
Additionally, what typically follows a recession, regardless of what is done or not done by government, is that there is a recovery. Historically, sharper recoveries have followed sharper recessions; consequently, there was an early expectation that there would be rapid growth in the economy following this recession. Instead, GDP growth is estimated to be at the anemic rate of 1.8% in the 3rd Quarter of this year. There are a number of possibilities for why a sharper recovery hasn’t happened in this case, principally either that there was something particularly unique about this recession, or the stimulus (and proposed and enacted legislation) actually retarded the rebound. No one will ever be able to definitively say what the true cause was, but there is significant reason to believe it’s a combination of the massive debt incurred as a result of the stimulus spending and the economic uncertainty created by that debt, the health care bill, the financial reform package, the looming January 2011 tax increases, and proposed legislation such as card check and cap and trade.
In short, the stimulus was intended to stop the job losses and reduce unemployment. Instead, we see the unemployment rate hit 10.2% in October 2009, drop earlier this year to 9.5%, and then increase again last month to 9.6%. The stimulus package hasn’t delivered as promised, and I refuse to accept as “fact” the estimates of the CBO that rely on quite likely flawed assumptions. Are you prepared to argue why you believe the CBO’s economic models are accurate and correct?
(As an aside, the table you linked to actually begins to show positive changes in employment (the trend changing toward declining job losses) in February 2009 (the package wasn’t enacted until Feb. 17, 2009 and the bulk of the money was not injected into the economy until later. Moreover, rather than continuing a generally uniform trend line of declining job losses and then increasing job gains, the chart shows a current trend line that has either flattened or is actually sloping downward again.)
Matt
So, to be blunt, you have nothing other than the fact that you don;t think that Keynsian is valid – despite the reams and reams of economic theory and evidence to the contrary. Duly noted.
BTW, your GOP collegues don;t feel the same:
http://www.washingtonmonthly.com/archives/individual/2010_02/022522.php
Your comment about the recovery are completely wrong. Different kinds of recession produce different kinds of recoveries:
http://seekingalpha.com/article/182686-mckinsey-history-suggests-recovery-from-financial-crisis-will-be-slow-and-painful
That you don’t know this basic fact is pretty appalling. That you would base an argument about the effectiveness of one approach or the other without knowing this is pretty telling.
And your point about the jobs just proves my point: job growth only started once the stimulus kicked in. Now that it is slowing, job growth is slowing.
Kevin,
To be blunt, you haven’t refuted my point that the CBO is only estimating the number of jobs created or saved by relying on Keynesian economic models that assume certain multiplier effects for fiscal stimulus. Thus, I take it you agree we are only talking about estimates, based upon assumptions, rather than hard data (“facts”). If that is indeed the case, then the facts we have are that the stimulus package has not performed as promised. Unemployment has significantly exceeded what was forecast by the Administration which relied on similar Keynesian based economic models in making the forecasts.
That raised the other questions I asked above to which you didn’t respond: “Is there evidence you can cite for your assertion that the ‘Bush recession’ was ‘much, much worse than originally believed?’ What critical data was unavailable to the Administration at the time it proposed the stimulus plan that later became available and showed the recession was worse than originally believed?”
Next, different types of recessions certainly can lead to different types of recoveries, but that was not the position taken by the Administration early on. It assumed a substantially faster rate of recovery based upon historical data.
It’s also interesting to note the reason provided for an expected slower recovery in the January 2010 McKinsey article you cited: “The recent bursting of the great global credit bubble not only led to the first worldwide recession since the 1930s but also left an enormous burden of debt that now weighs on the prospects for recovery. …Deleveraging episodes are painful, lasting six to seven years on average and reducing the ratio of debt to GDP by 25 percent. GDP typically contracts during the first several years and then recovers.” In other words, the amount of debt slows the pace of recovery, yet we’ve piled on more debt. Moreover, the article doesn’t indicate whether the analysis performed took into account government response to the studied recessions – in other words, did they account for the possibility that it was the response, not the nature of the recession, that was a factor in the type/length of recovery?
“And your point about the jobs just proves my point: job growth only started once the stimulus kicked in. Now that it is slowing, job growth is slowing.”
No, it doesn’t. Recessions end and recoveries begin. As the recession ends, businesses first stop downsizing and eventually begin expanding again. The table you linked to demonstrated a change in the trend that occurred before the stimulus was enacted into law and well before its spending began occurring. Next, the purpose of fiscal (Keynesian) stimulus, is to prime the pump – circulate money in the economy so that it is spent within the private sector and that sector then begins to grow. In theory, fiscal stimulus is somewhat analogous to jump starting a car: an outside “jolt” is applied, the engine is started, and then the car starts generating its own electrical power. Once that happens, the slave battery is removed but the engine continues to hum along. Theoretically then, with the application of fiscal stimulus, the economy should begin to expand at an increasing rate as the spending occurs and then continue as the spending is stopped. When that doesn’t happen, as is the present case, Keynesians simply argue we didn’t spend enough, or we stopped too soon. Then, they want to double down with more stimulus. But, if Keynesian theory is so well-settled, why is it that it does such a poor job of forecasting how much is needed and when it can be stopped?
Returning for a moment to the CBO, what you’re essentially arguing is that you know the stimulus worked because the CBO, relying on economic models that assume such spending works, estimates that such spending worked. I don’t think you’d let me get away with that kind of logic.
Oy, I see I’ve been away too long.
Matt:
If the CBO isn’t good enough for you, how about Moody’s Economy, Macroeconomic Advisers or Global Insight? Or are groups that disagree with YOUR preferred conclusions automatically disqualified?
Since then, we’ve seen the miserable failures of that stimulus, the home mortgage tax credit, cash for clunkers, and cash for caulkers.
Nice try, but economists from across the political spectrum largely agree that the economy would be in far worse shape if we hadn’t passed the ARRA, undersized and imperfect though it was.
The point here, then, is that even if one completely disregards what the CBO says, the broad consensus is still that the stimulus actually helped, and that unemployment would be worse without it. And the “free market” agrees, by the way: ask investors why they’re worried about a “double dip” recession, and they won’t tell you it’s debt or the deficit. They’ll tell you that it’s because the stimulus is running out, and nothing promises to replace it. A whopping 75% of business forecasters told a WSJ survey that they think the ARRA was “a net positive for growth,” against just 12% who believed it was a net negative.
But getting back to the CBO for the moment, you’ve made an unsubstantiated claim: that the CBO’s scoring of the stimulus is good only because it’s based on models that assume, absent any evidence, that such spending works. Are you prepared to substantiate that claim? Or are you once again substituting assertion where argumentation ought to be?
Matt:
When that doesn’t happen, as is the present case, Keynesians simply argue we didn’t spend enough, or we stopped too soon.
This would be a valid complaint if such things took the form of post hoc rationalizations, but they do not. New Keynesian economists, from Krugman to De Long to Baker, were arguing from the very beginning that the proposed stimulus was far too small. They specified in advance how much they expected was needed to be effective (in Krugman’s case, for example, at least $800 billion in fiscal stimulus per year, or nearly triple what ARRA included).
Your complaints against Keynesian economics always either attack a straw man version, or are simply ignorant of what Keynesians actually argue. I suspect a little of both. For example, Keynesians will tell you that you’re not supposed to back off of stimulus until the economy has returned to full employment. Doing so when full employment has not been reached is unwise, they say, and often counterproductive (as the example of 1937-1938 shows).
That ARRA didn’t bring about a full recovery isn’t an indictment of Keynesian fiscal stimulus. It’s an indictment of half-assed attempts at fiscal stimulus.
As Krugman has noted repeatedly, austerity (of the type called for by conservatives and libertarians) in a weak economy has historically been self-defeating, i.e., it has caused the economy to contract at a greater rate than can be compensated for by the cuts being made. Meanwhile, as the FDR example shows, taking on lots of debt via fiscal stimulus doesn’t necessarily worsen the financial picture — the debt-to-GDP ratio under Hoover grew dramatically, even though he pursued austerity, while under FDR and the New Deal, that ratio stayed relatively flat, because GDP was growing at a rate that compensated for the increased debt.
T:
Quickly for now, are you disputing that the CBO report gives only estimates of the number of jobs created or saved by the stimulus package and that those estimates rely on economic models based upon Keynesian assumptions? In other words, you’ll agree, won’t you, that the CBO report are estimates, not hard data?
I don’t deny that they’re estimates — all such reports are. What I’m saying is that you’ve repeatedly asserted that the estimates are largely or solely based on Keynesian models (i.e., that either nobody at the CBO has ever heard of Milton Friedman, or they all hate him), and that this is a fact not in evidence.
Frankly, I’m not sure to what extent the CBOs estimates rely on models (of any kind) versus actual economic indicators.