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The problems with a fiscal stimulus
Tyler Cowen
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Kai Ryssdal: Whatever the politics of a new stimulus package turn out to be -- and they are going to be big -- there are going to be a lot of questions too. Tax cuts or more spending? Infrastructure or green jobs? Commentator Tyler Cowen says Congress ought to be asking whether there should be a stimulus package at all.
Tyler Cowen: Borrowing and spending more money isn't the way out of a bad economy. Recovery is really about economic production. The phrase "fiscal stimulus" sounds like it will do good things but in reality it's not so simple. First, a lot of project ideas won't put unemployed people to work. Take solar energy, which would be wonderful if it were cheaper. The whole point of solar energy is that the sun does most of the work. A new technology could be invented by scientists, and designed by engineers, but those are exactly the people who already have jobs and are least likely to lose them. Obama also proposed broadband access for everyone, but again, that kind of construction doesn't match the skill set of the current unemployed.
Second, quick projects are usually wasteful projects. Good new projects need to be thought out and planned. The environmental impact study alone can take years. But Obama has told the state governments they will have to "use it or lose it" when it comes to federal grants. The result will be a lot of poorly conceived projects just to capture the money.
The biggest problem with a fiscal stimulus is this: our economic problems stem from having spent too much in the first place. Now that our homes are no longer rising in value every year and America is aging, more saving is in order, not more spending. Recovery will come only when we discover which new and valuable things the economy should produce as it shifts out of real estate and finance. Simply borrowing and doling out more cash doesn't solve that problem.
The Federal government shouldn't just sit still. It's important to help state and local governments preserve their current budgeting and that task will prove hard enough. We're all hoping for an economic revival, but the bitter reality is that we will be very lucky simply to hold even and prevent further declines. Fiscal stimulus won't change that fact.
Ryssdal: Tyler Cowen is a professor of economics at George Mason University.
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From what I have seen the solar power plans which use reflected sunlight don't look very high-tech. They are rows and rows of reflectors, pipes and turbines etc. Just the type of stuff you could make in closed-down auto plant. Just the type of stuff that auto workers are used to making!
Let's see, the claim is made that quick infrastructure project are wasteful, can't happen quickly, blah blah....
So, according to the Tyler Cohen's of economic theory and ideology, the I-35W bridge that collapsed less than 18 months ago after replacement was delayed until 2020 because the half billion dollar replacement cost would have required tax increases, must be years from starting with the price tag sky rocketing, with no one available to do the work.
Well, Tyler needs to leave the ivory tower and take a drive over the bridge he knows can't exist. The replacement bridge was completed some months ago, taking far less than the projected three years for a normal lots of planning and review project.
The bridge collapsed on August 1, 2007, five bidders expressed their intent as of August 9, bid submitted by September 18, the contract awarded on September 19. The cost was projected to be $300 to $350 million, but the winning was for $234 million, and that included penalties for failing to complete construction within 15 months and rewards for completing it ahead of schedule. Public hearings were held in August on the requirements for the bridge, and the design required to include more lanes and capacity for future light rail.
The first concrete was poured on December 17, 2007 with the contract calling for completion by December 24, 2008, and the bridge was completed on September 18, 2008, three months ahead of schedule.
The bridge is high tech with monitoring sensors so the bridge performance can be monitored, and the bridge automatically deiced.
Now what I want someone to explain is how a project can be done in about one-third the normal time for replacing a bridge with lots of planning, and done for a price that is lower than normal, and delivered ahead of the accelerated schedule.
Perhaps marketplace can investigate and explain how the government did the impossible when it came to this quarter billion dollar infrastructure project?
Let's see, the claim is made that quick infrastructure project are wasteful, can't happen quickly, blah blah....
So, according to the Tyler Cohen's of economic theory and ideology, the I-35W bridge that collapsed less than 18 months ago after replacement was delayed until 2020 because the half billion dollar replacement cost would have required tax increases, must be years from starting with the price tag sky rocketing, with no one available to do the work.
Well, Tyler needs to leave the ivory tower and take a drive over the bridge he knows can't exist. The replacement bridge was completed some months ago, taking far less than the projected three years for a normal lots of planning and review project.
The bridge collapsed on August 1, 2007, five bidders expressed their intent as of August 9, bid submitted by September 18, the contract awarded on September 19. The cost was projected to be $300 to $350 million, but the winning was for $234 million, and that included penalties for failing to complete construction within 15 months and rewards for completing it ahead of schedule. Public hearings were held in August on the requirements for the bridge, and the design required to include more lanes and capacity for future light rail.
The first concrete was poured on December 17, 2007 with the contract calling for completion by December 24, 2008, and the bridge was completed on September 18, 2008, three months ahead of schedule.
The bridge is high tech with monitoring sensors so the bridge performance can be monitored, and the bridge automatically deiced.
Now what I want someone to explain is how a project can be done in about one-third the normal time for replacing a bridge with lots of planning, and done for a price that is lower than normal, and delivered ahead of the accelerated schedule.
Perhaps marketplace can investigate and explain how the government did the impossible when it came to this quarter billion dollar infrastructure project?
After the scientists and engineers invent and design, and before the "sun does most of the work", someone has to plan and schedule production, fabricate the parts of a solar panel, assemble it, test it, package it, ship it, receive it, advertise it, sell it, deliver it, install it, and so on. Then there are trainers, data-entry workers, maintenance, supervisors, managers, the food service workers in the factory cafeteria, and so on. Few of these jobs are done by scientists or engineers. Delivering broadband access to all will similarly employ people with many different skills, from ditchdiggers to technicians.
Well, he may not know how manufacturing industries work, but at least the professor is equally ignorant about who is at risk of unemployment; I was there when my former employer laid off engineers in multiple rounds of cutbacks, as well as some of the few scientists, including PhD's (myself among them, eventually).
Who is Tyler Cowen kidding? "The whole point of solar energy is that the sun does most of the work?" Has he ever tried to figure out the correct amount of panels to install so the most power possible is generated? Has he designed their layout so they are efficient? Has he installed those panels?
Maybe he has and he thinks it's easy. So I've got news for him. There are many types of "green" jobs out there that will put people back to work from manufacturing turbines for wind mills (talk to folks who used to make parts for cars about whether spending money on re-training them is a good idea) to bringing recycling onshore and to communities that have been gutted by industry in the past (see what Oakland, CA is doing to stimulate this kind of industry).
These are just some of the types of jobs that will be created in the new "green" economy and will help turn this country's economic situation around. Yes, it will take spending now, but the cost will bring great returns in the not-so-distant future.
Charles Redell
Associate Editor
Sustainable Industries
"We are on the brink of a new paradigm, and this requires the boldest leadership we can find."
Maybe. It appears we need some help, and that more govt. spending is the type of help that will be attempted. However, even if this works, we must acknowledge that too much spending (esp. govt.) has been a significant cause to our problems. Cumulative deficit spending is very bad!
Second, we must produce locally, which means maunfacturing goods in the US, and our own citizens buying those goods.
I am writing in response to Mr. Cowen's statement "A new technology could be invented by scientists, and designed by engineers, but those are exactly the people who already have jobs and are least likely to lose them." Wrong, wrong, wrong ... Where do you get the notion that scientists are magically protected during an econimic downturn? Research/Development is one of the first things companies and the FED cut back on during an economic downturn. During a downturn, if it does not affect the immediate bottom line it gets scrubbed. I know several people that have been laid off. I know university professors that have given up on applying for research grants. Please check a few facts before making such sweeping statements.
The problems with the US economy seem so obvious to me that I am surprised when I hear economic scholars like professor Cohen preaching on the error of spending our way out of the current situation. The no. 1 economic problem in the US, and by unfortunate extension, the rest of the world, has been the enormous waste of resources on the Iraq campaign. Year after year the Bush administration has poured not just American resources (assets), but the resources borrowed from every other nation on earth, to support a wasted project. If Iraq had been transformed and the middle east had become a major contributor to the world economic order, this investment might have been worthwhile. If those assets had been used to rebuild New Orleans, or to raise a new industry around green technology, the US would be leading the world to incredible prosperity.
It is still not too late to change course. If the new administration prints truck-loads of money, directs its use toward building a new auto industry focused on electric cars charged by power plants fueled by renewable energy, the world will lean toward prosperity once again.
Americans are demoralized by the decline in America's industry--as represented by GM, Chrysler, and Ford. What I believe Americans are looking for is not a tax break, but the restoration of America's productive vitality. We need Obama to set this in motion, then let the rest of us build momentum.
Tax breaks that go to the bottom of the tax bracket will go to immediate expenditure for food, housing, clothing, and other non-discretionary spending. Professor Cohen's comments that it would or should be saved, is short-sighted.
We are not living through a short corrective phase in this economy. We are on the brink of a new paradigm, and this requires the boldest leadership we can find. I hope Obama and his cabinet live up to expectations.
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