A Different $700 Billion

Seems to be the magic number these days, especially if you’re not quite sure what is needed.  Oh, a round $700 billion might do…

The front page of yesterday's Washington Post (story by Lori Montgomery) read:  “Democrats’ Stimulus Plan May Reach $700 Billion.”

And after yesterday’s press conference unveiling the top of the Obama Administration’s economic team, this story on WashingtonPost.com (probably for today’s print edition):

The announcements came as Obama and his advisers made plans for a massive fiscal stimulus package that some Democrats estimated could cost between $500 billion and $700 billion. The program would be aimed at creating or preserving 2.5 million jobs over the next two years, primarily by spending billions of dollars to rebuild roads and bridges, modernize public schools and tap alternative sources of energy.

Now 2.5 million jobs is indeed a lot of jobs to create, even as a “gross” increase.  (Obama’s advisors have explained that there will still likely be a net loss of jobs in 2009, as without the stimulus we’d lose more than jobs created/saved by the stimulus.)  $500 billion to $700 billion to get there implies $200,000 to $280,000 spent per job created/saved. 

If we could also get some new infrastructure out if it, I suppose that is not a bad deal, even if we have to deficit-finance it.  But if it instead fails to generate new, sustainable jobs, physical capital, technologies, and industries for our economy, and meanwhile racks up a considerable amount of new debt that will remain on the federal books for a long time (to be paid off by our children and grandchildren later), then it won’t look like such a great deal.

Comments

[who:]

Why is it governments can only come with infrastructure projects to simulate employment? Infrastructure projects are good, but benefit mainly the construction industry which much is lost through contacting, sub-contracting, etc., and what happens when the projects are completed?

Can't governments do more for the middle class and small business where longer economic benefits can be realized?

2008 Nov 25 03:03 AM

[Steven Hansen:]

infrastructure projects projects provide great stimulus to the economy if properly targeted. and that is the problem. infrastructure in most cases (highways, power plants, mass transit, etc) is in the domain of the states. the federal government must hand down the funds to the states for implementation.

the states are very short of cash. state politicians are as crafty as federal ones when it comes to slight of hand - shifting money from infrastructure to state operations. the federal government needs to ride shotgun on the projects to make sure the money does not evaporate.

but to spend this money quick enough is also a problem. most infrastructure projects need a design cycle which take years. and when you dump a lot of money at once into the market, the management, quality, and control mechanisms cannot grow fast enough to efficiently and effectively utilize the money. this translates into cost overruns and schedule busts.

short of digging holes with one crew and filling them with another - i see no quick way to create 2.5 million jobs where the american taxpayer gets his money's worth. this will be another case where economists who have not spent a single day producing productive labor will lead this country to the wrong ramp onto the freeway. the road to hell is paved with good intensions.

2008 Nov 25 04:17 AM

[derryl:]

the Hand is right. My son's father in law, Jeff, is in the planning, engineering and development department of the small city where I live. A few years ago our city received $5 million from the federal gov't for "more infrastructure". Jeff laughed. Our economy was already overheated. All that happened is that contract prices rose to absorb the additional money and no "more" projects were done. It's a great scheme if you're in the institutional construction or road building business!

On some of the projects the city put out to tender they got only 1 bid and the price was "I really don't want this job but if you pay this scandalous price I'll fit it in". Other regional projects have seen contract prices triple in the past 5 years. There are only so many contractors and men and machines available to do the jobs. I don't think too many of the laid off sales girls of Linens 'n Things are going to become carpenters, pavers and heavy equipment operators any time soon.

Good old economics still applies. If you pump too much money too fast all that happens is price inflation. I'm not saying stimulus via infrastructure and R&D spending is wrong. It will be a boon to anyone who is currently underemployed or is otherwise positioned to scale up their operation with the new spending. That money will circulate through the economy as the front line beneficiaries spend their new incomes.

My point is only that there will be significant price inflation in whatever sectors are targeted by the new money, unless you target depressed sectors and regions. So the taxpayers who eventually have to repay the deficit spending may not get great value for their money, unless something like a marvelous new battery technology is invented that makes electric cars cheap and viable.

I don't think we should overly discount this latter possibility. GM claims it is almost there now. Pumping money into a depressed industry will not inflate that sector's prices. It will just sustain the industry rather than see it decline. The trick will be to target the stimulus spending for maximum value, but trying to do this "fast" is probably counterproductive.

2008 Nov 25 09:14 AM

[Jason Rines...:]

Bingo comment Hand. Accurate insights as per norm.


On Nov 25 04:17 AM The hand wrote:

> infrastructure projects projects provide great stimulus to the economy
> if properly targeted. and that is the problem. infrastructure in
> most cases (highways, power plants, mass transit, etc) is in the
> domain of the states. the federal government must hand down the funds
> to the states for implementation.
>
> the states are very short of cash. state politicians are as crafty
> as federal ones when it comes to slight of hand - shifting money
> from infrastructure to state operations. the federal government needs
> to ride shotgun on the projects to make sure the money does not evaporate.
>
>
> but to spend this money quick enough is also a problem. most infrastructure
> projects need a design cycle which take years. and when you dump
> a lot of money at once into the market, the management, quality,
> and control mechanisms cannot grow fast enough to efficiently and
> effectively utilize the money. this translates into cost overruns
> and schedule busts.
>
> short of digging holes with one crew and filling them with another
> - i see no quick way to create 2.5 million jobs where the american
> taxpayer gets his money's worth. this will be another case where
> economists who have not spent a single day producing productive labor
> will lead this country to the wrong ramp onto the freeway. the road
> to hell is paved with good intensions.
>
>

2008 Nov 25 10:01 AM

[mallarde:]

Oh, and if any of those construction jobs are created in California or the rest of the Southwest, Mexico will benefit more than Americans because Mexicans are the ones working construction jobs. They are also working in other trades.

Eliminate illegal labor and many working class Americans would find decent paying jobs immediately. And not at taxpayer expense to boot.

2008 Nov 26 03:03 AM

[mallarde:]

My comment was misleading. Mexicans are not just "working" construction jobs. They virtually occupy the entire field. In fact, they perform most of the manual labor in California. You might see "gringo" foremen at a job site occasionally, but that is it. These jobs used to support American families. Now they help illegal Mexican journeymen.

This inundation of cheap labor has aggravated -- or is a principal cause of -- the problems working class Americans are experiencing.

2008 Nov 26 03:07 AM

[SW Richmond:]

Well, it looks like the Obama team has lowered their expectations already with a sleight-of-word trick. They were going to "create" 2.5 Million new jobs, now they're going to "create OR PRESERVE" that number. Soon they'll be showing charts of projected job losses over time and telling us how they "preserved" jobs even though the unemployment lines are still jammed.

Bastards.

2008 Dec 10 07:50 AM