Building Out of Economic Chaos
Image has not been found. URL: /wp-content/uploads/2008/10/bridge.jpgThe collapsed I-35W bridge in Minnesota (Flickr: TimDan2)
This is the second part in a three-part series on a new economic stimulus package. For the first part, see “Can Green Industry Save the Economy?”
The nation’s infrastructure is crumbling; its economy is sputtering, and deficits, for the moment, appear no barrier to government spending.
That trifecta, in the eyes of many economists, state officials and federal lawmakers, marks the perfect opening for Washington to tackle the trillions of dollars in road, bridge and other infrastructure projects that have been neglected for years. Not only would new investment in these areas strengthen the country’s structural backbone, these experts argue, it would replace lost jobs and help the country climb out of the current recession.
Less than a month after Congress bailed out Wall Street on borrowed cash, the chorus is rising to provide similar help to Main Street.
Illustration by: Matt Mahurin
“There is nothing more important than this infrastructure investment,” New Jersey Gov. Jon S. Corzine (D), a former executive at Goldman Sachs, said during testimony before the House Transportation and Infrastructure Committee Wednesday. “This time of adversity should be translated into a time of opportunity.”
The message is sure to inspire Democratic leaders, who are hoping to pump billions into infrastructure projects as part of a new stimulus package expected to surface next month. But passage is no sure thing. Senate Republicans killed, and the White House threatened to veto, a $58-billion stimulus bill passed by the House in September — largely because it contained vast new infrastructure spending.
What looms in November might be the final ideological battle between the outgoing President George W. Bush and the Democratic Congress. Still, as each day brings new evidence of economic decline, Democratic leaders appear more and more confident they can win the fight over a large stimulus bill. Infrastructure funding — which could replace thousands of local jobs lost in the downturn — seems increasingly to be driving the debate.
“There is a backlog,” said Rep. James Oberstar (D-Minn.), chairman of the Transportation and Infrastructure Committee. “There is a demand. There is a hunger. There is a need to invest. Our cities are crying out.”
Oberstar said he would work with Republicans on his panel to craft an infrastructure plan for the House to consider when Congress returns to Washington on Nov. 17, for a lame-duck session.
Rep. James Oberstar (D-Minn.) (Flickr: BikePortland.org)
There’s broad evidence that the country’s infrastructure could use a makeover. For example, the steel and concrete keeping together the interstate highway system — once the envy of the world — is, on average, between 35 and 40 years old, reports the Economic Policy Institute, a liberal policy analysis group. Road congestion costs nearly $80 billion per year in frittered time and fuel, the Texas Transportation Institute says.
Overall, the American Society of Civil Engineers estimates that it would require $1.6 trillion to get the nation’s infrastructure in good (not great) working condition over the next five years.
A tragic symptom of Washington’s failure to keep up with infrastructure maintenance arrived last year, when an interstate bridge spanning the Mississippi River in Minneapolis collapsed during rush hour. Thirteen people were killed and 145 were injured.
Including infrastructure rehab in a stimulus bill makes sense, said Rep. Leonard Boswell (D-Iowa), because “we have to do it anyway.”
Opponents of using infrastructure funding as a stimulus measure approach from two different angles. First, they say the reliance on deficit spending is counterproductive. Second, they contend that infrastructure projects launch too slowly to provide a quick shot in the arm.
“Infrastructure spending is never an effective means to create rapid stimulus,” the White House proclaimed in its veto threat.
Yet many state and local officials argue that a great number of projects could begin almost immediately. Corzine, for example, said that New Jersey has roughly $1.5 billion in projects ready to start within 90 days. Jerry E. Abramson, mayor of Louisville, said the city has $250 million in unfunded infrastructure initiatives set to go within 120 days. Nationwide, state transportation departments have more than 3,000 projects, totaling $17.9 billion, ready to launch within 90 days, according to a survey conducted by the American Assn. of State Highway and Transportation Officials.
In addition, many economists say the current recession will last long enough that the timeline criticism is irrelevant. “That argument has no force now,” Paul Krugman, the Nobel prize-winning economist, wrote in his Oct. 16 New York Times column, “since the chances that this slump will be over anytime soon are virtually nil. So let’s get those projects rolling.”
On that theme, economists point out that labor markets rebound from economic slumps far more slowly than other indicators. During the recession of 2001, for example, it took 30 months for unemployment to bottom out, according to John Irons, policy director at the Economic Policy Institute. Four years passed before employment rates rose above pre-recession levels, he added.
Much of the job creation from infrastructure funding would target construction workers, who are now struggling from the shrinking housing market. But others would benefit as well. For every 1,000 jobs created in construction, Irons said, more than 600 are created “upstream” — including positions in manufacturing, retail, waste management and administration.
There is a psychological component to the strategy, as well. Infrastructure spending borrows lessons from the New Deal programs that helped position the country to climb out of the Great Depression. Schools and bridges, unlike credit default swaps, are tangible things — manifestations of the positive change the stimulus program is meant to bring about.
“People understand, if you build the roads, you put a shovel in someone’s hand, that creates a job,” Irons said. “People get it.”
With job creation comes consumer confidence — the sense that work is being done, roads are being built and progress is being made toward a more prosperous tomorrow. Furthermore, experts point out, those jobs remain in the United States. “You don’t build the road in front of your house with a call center in Bangalore,” Oberstar said.
The debate arrives as other countries are pumping money into infrastructure programs to stimulate economic activity amid the global financial crisis. China, for example, recently invested $280 billion to expand its rail system, according to reports.
Earlier this month, Congress acted swiftly to address the credit crisis, approving $700 billion to get the banks and other financial institutions lending again. But the rescue of the financial sector has overshadowed similar plans to help state and local governments, many of whom face severe budget troubles.
Indeed, a September hearing on infrastructure in the Senate Finance Committee was cancelled because the star witness, New York City Mayor Michael Bloomberg, was needed at home to tend to the Wall Street crisis. Now, many economists warn that even a gushing supply of available credit would do little good if there is no demand for it on Main Street.
Many Republicans, including Rep. John Mica (R-Fla.), the ranking member of the House infrastructure panel, are calling on Democrats to include a number of business tax cuts in the coming stimulus package. While industry would certainly accept the offer, one powerful voice in the business community told lawmakers Wednesday that, even armed with enormous tax cuts, the private sector can only do so much to stimulate the economy.
“You’re talking about big projects here that need public investment,” said John Engler, former Michigan GOP governor and now head of the National Assn. of Manufacturers. “We aren’t ever going to have a bunch of small businesses get together and build a road.”