Faux Economics: American Recovery and Reinvestment Act

Driving about these days it’s hard to miss (at least in my area) the impact of the American Recovery and Reinvestment Act.

Road projects are littered throughout Massachusetts and it doesn’t seem to matter what hour of the day or night you are out, crews (including state police) are on site toiling away “reinvesting” our and future generations tax dollars in roads, bridges, sidewalks and all manner of decrepit infrastructure.

While this is certainly a means of pushing out dollars into the economy, is it fundamentally effective?

From the looks on the faces of road crews and state police they are simply going about their business, many likely vaguely aware of the government hand sponsoring the recent boom in demand for their labor but few stopping to ask questions.

To them, this is a boom and like all booms, active participants become complacent about their good fortune, neither dwelling on the artificial forces driving it nor considering the possibility of its end.

Like a massive wave of prosperity, booms wash over what by contrast looks like a dry and desolate beach of economic malaise lifting a commodity, equity, asset class or even a whole industry along with its labor force high into what appears to be a limitless stratosphere of economic expansion.

Of course, we know very well that no boom lasts forever.

So, what good is this boom in infrastructure spending actually doing?

The projects themselves are investments but only in a limited sense… infrastructure starts to deteriorate immediately upon use with each hour marking a step closer to future rounds of “reinvestment”.

Infrastructure is more of a liability - it needs continuous costly upkeep otherwise its defective state would be counterproductive and even, in some cases, dangerous.

Also, it’s not as if the government mandated a re-design of existing infrastructure… that might actually lead to real fundamental improvement; instead government is simply looking for a quick and dirty means of pushing dollars (future borrowed or current taxed and printed) into the economy under the guise of “investment”.

Participants aren’t any better off either.

Road crews and state police are working overtime likely making more money and bettering themselves for the moment but what did they really do to deserve this opportunity and good fortune?

Nothing, and how well they will manage the fruits of their labor will likely be a direct reflection of the ease at which it was produced.

But the government is counting on this as well. They ultimately want the “reinvestment boom” recipients to SPEND this phony prosperity NOT save it or use it to pay down prior debts.

But, are service providers, retailers, manufacturing and construction really any better off if the dollars funneled through “reinvestment” projects actually promote a temporary and artificial jump in consumption?

So you see, we keep pushing the questions on up the chain. What is the actual benefit of an artificial boom on false “investments” driving artificial earnings and artificial consumption?

Comments

[NUCLEAR1929:]

recovery will come for sure, after 3 decades

Sep 08 09:23 AM

[conceptwizard:]

The U.S. economy is at the beginning of a protracted period of adjustment. The sharp decline in business activity, which began in the summer of 2007, has moderated slightly, but there are few indications that growth will return to pre-crisis levels. Stocks have performed well in the last six months, beating most analysts expectations, but weakness in the underlying economy will continue to crimp demand reducing any chance of a strong rebound. Bankruptcies, delinquencies and defaults are all on the rise, which is pushing down asset prices and increasing unemployment. As joblessness soars, debts pile up, consumer spending slows, and businesses are forced to cut back even further. This is the deflationary spiral Fed chairman Ben Bernanke was hoping to avoid. Surging equities and an impressive "green shoots" public relations campaign have helped to improve consumer confidence, but the hard data conflicts with the optimistic narrative reiterated in the financial media. For the millions of Americans who don't qualify for government bailouts, things have never been worse.

Sep 08 01:38 PM

[William Ver...:]

If anyone cared to read my prior comments on the economy, they wouldn't question my pragmatic view. I feel that the administration has launched a large scale PR campaign complete with shining falsehoods. As the article stated, road crews are out fixing roads in Mass. at all hours of the day (and paying that overtime). If it wasn't for the financial fiasco, would those road crews be out fixing delapidated streets or would front ends on cars be out of alignment because of pot holes? Why weren't these same streets important BEFORE the collapse started? Why couldn't the gov't have parted with some bucks to create a better infrastructure that could eliminate traffic congestion and save a couple of bucks (or gallons) on gas that would be be beneficial in saving the entire economy money on energy costs. Why throw money into saving an economy reactively when, with a little forethought, they could have created a better economy proactively by spending in order to build and save. The recovery act is just that, and act. A bandaid on a shark bite.

Sep 08 02:00 PM

[Valley Boy:]

There are a huge number of road repair and improvement projects which need doing here in California. The backlog of work has been passed over in the last few decades in order to satisfy other legislative priorities and for paying ever increasing debt loads. Most of the work still needs to be done in order for the safe and practical movement of people, goods and services to be continued in the future. Some of the past projects should not have been undertaken since they obviously fell short in hindsight for any realistic cost-benefit analysis---overtime payments, trophy projects, demonstration projects, political goodies, etc.

Sep 08 03:28 PM

[ain't no fo...:]

"Also, it’s not as if the government mandated a re-design of existing infrastructure… that might actually lead to real fundamental improvement; instead government is simply looking for a quick and dirty means of pushing dollars (future borrowed or current taxed and printed) into the economy under the guise of “investment”."

I drove up Rt 95 from north FL to VT in early May and saw dozens of "slapping lipstick on the pig" road projects, all designed to merely get cash spending money out into the economy fast.

They ALL consisted of repaving roads, straightening and repainting guardrails, painting bridge abutments... nothing to truly rebuild our broken infrastructure like building NEW bridges (or even repairing many broken bridges), putting in/improving major commuter rail projects, replacing broken municipal bus fleets with nat gas -powered buses... like I said just slapping lipstick on a pig, temporary fixes to major long term infrastructure failure.

And it continues up here this summer in VT and NH on Rt 89, and MA on 495... and two years from now every one of these "fixes" will be cracked and broken and peeling and the cash long gone and hard to find.

Sep 09 11:13 AM

[Alan Young:]

$$ is going to roads because it's political pork: Americans love to drive, and smooth roads make them feel good. What we REALLY need is new electric transmission lines and better plumbing-- the kind of infrastructure project that takes many years to complete and is a lot less visible to the average voter.

Either way, the benefit is that anyone working on these projects is not collecting unemployment. That's the minimum. It's not the optimum. But most people who complain about the program have no idea about "optimum"; they seem to want NOTHING done. Oh, the joys of Depression.

Sep 09 04:02 PM

[Swashbuckler:]

ANFS---I think the water's safe now.


On Sep 09 11:13 AM ain't no fortunate son wrote:

> "Also, it’s not as if the government mandated a re-design of existing
> infrastructure… that might actually lead to real fundamental improvement;
> instead government is simply looking for a quick and dirty means
> of pushing dollars (future borrowed or current taxed and printed)
> into the economy under the guise of “investment”."
>
> I drove up Rt 95 from north FL to VT in early May and saw dozens
> of "slapping lipstick on the pig" road projects, all designed to
> merely get cash spending money out into the economy fast.
>
> They ALL consisted of repaving roads, straightening and repainting
> guardrails, painting bridge abutments... nothing to truly rebuild
> our broken infrastructure like building NEW bridges (or even repairing
> many broken bridges), putting in/improving major commuter rail projects,
> replacing broken municipal bus fleets with nat gas -powered buses...
> like I said just slapping lipstick on a pig, temporary fixes to major
> long term infrastructure failure.
>
> And it continues up here this summer in VT and NH on Rt 89, and MA
> on 495... and two years from now every one of these "fixes" will
> be cracked and broken and peeling and the cash long gone and hard
> to find.

Sep 16 04:08 PM