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Thread: We cannot dig, build, or pave our way out of economic malaise

  1. #1
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    We cannot dig, build, or pave our way out of economic malaise

    I know the President and some people here think spending on infrastructure will stimulate the economy but I think this article explains why it doesn't.

    [QUOTE]Road to Nowhere
    We cannot dig, build, or pave our way out of economic malaise.
    Veronique de Rugy from the December 2011 issue


    “There is no more persistent and influential faith in the world today than the faith in government spending,” wrote economist Henry Hazlitt in his classic book Economics in One Lesson. Our economy is doing poorly; the government can fix it. Our roads are crumbling; the government can fix them. Better still, according to the faithful, pouring money into roads, bridges, rails, buildings, and high-speed Internet lines will fix our economic problems and create jobs.


    American public works are hardly in perfect condition, and economists have long recognized the value of infrastructure. Highways, bridges, airports, and canals are the conduits through which almost all goods are transported. But the kind of infrastructure spending the government has been indulging in since 2008 is unlikely to produce much of a stimulus—certainly nothing with the scale and speed the administration is banking on as the 2012 elections approach.


    The economist Mark Zandi of Moody’s Analytics, one of the most influential stimulus enthusiasts out there, claims that when the government spends $1 on infrastructure, the economy gets back $1.44 in growth. But economists are far from a consensus about the returns on federal spending. Some find large positive multipliers (meaning that every dollar in government spending generates more than a dollar of economic growth), but others find negative multipliers (meaning every dollar in spending hurts the economy). As Eric Leeper, Todd Walker, and Shu-Chum Yang put it in a recent paper for the International Monetary Fund, “Economists have offered an embarrassingly wide range of estimated multipliers.”


    An additional complication is that, according to stimulus advocates such as former Obama administration adviser Larry Summers, spending is stimulative only if it is timely, targeted, and temporary. Current stimulus spending on infrastructure isn’t any of those things, as I found in a recent paper co-authored with my Mercatus Center colleague Matt Mitchell.


    By nature, infrastructure spending fails to be timely. Even when the money is available, it can take months, if not years, before it is spent. That’s because infrastructure projects involve planning, bidding, contracting, construction, and evaluation. According to the Government Accountability Office, as of June 2011 only 62 percent ($28 billion) of Department of Transportation infrastructure money from the 2009 stimulus had actually been spent.


    The only thing harder than getting money out the door promptly is properly targeting spending for stimulative effect. Data from Recovery.gov, the administration’s online clearinghouse for information about stimulus spending, shows that stimulus money in general and infrastructure funds in particular were not targeted to those areas with the highest rates of unemployment. Keynesian theory of the type many in the Obama administration favor holds that the economy can be stimulated best by employing idle people, firms, and equipment.


    Even properly targeted infrastructure spending may have failed to stimulate the economy, however, because many of the areas hardest hit by the recession were already in decline. They were producing goods and services that are not, and will never again be, in great demand. The demand for more roads, schools, and other types of long-term infrastructure in fast-growing areas is high, but these areas are more likely to have low unemployment relative to the rest of the country.


    [B]Perhaps more important, unemployment rates among specialists, such as those with the skills to build roads or schools, are often relatively low. And it is unlikely that an employee specializing in residential-area construction can easily update his or her skills to include building highways. As a result, we can expect that firms receiving stimulus funds will hire their workers away from other construction sites where they were employed, rather than plucking the jobless from the unemployment rolls. This is what economists call “crowding out.” In this case labor, not capital, is being crowded out.
    [/B]

    New data from Garett Jones of the Mercatus Center and Dan Rothschild of the American Enterprise Institute show that a plurality of workers hired with stimulus money were poached from other organizations rather than coming from the ranks of the unemployed. Based on extensive field research—more than 1,300 anonymous, voluntary responses from managers and employees—Jones and Rothschild found that less than half of the workers hired with stimulus funds were unemployed at the time they were hired. Most were hired directly from other organizations, with just a handful coming from school or outside the labor force. So much for putting idle resources to work. Jones adds that during recessions most employers who lose workers to poaching choose not to fill the vacant positions, leaving unemployment essentially unchanged.


    There is no such thing as temporary government spending, which stimulus spending needs to be in order to work. Infrastructure spending in particular is likely to cost the American people money for a very long time. The stimulus was layered on top of the $265 billion average annual expenditure on infrastructure and capital investments and the $2.9 trillion nominal increase in infrastructure spending during the last 10 years.


    What are we getting for all that money? Waste, for one thing. Infrastructure spending tends to suffer from massive cost overruns, fraud, and abuse. A comprehensive 2002 study by Danish economists Bent Flyvbjerg, Mette K. Skamris Holm, and Søren L. Buhl examined 20 nations on five continents and found that nine out of 10 public works projects come in over budget. Cost overruns routinely range from 50 percent to 100 percent of the original estimate. For rail, the average cost is 44.7 percent greater than the estimated cost when the decision was made. The figure is 33.8 percent for bridges and tunnels, 20.4 percent for roads.


    According to the Danish researchers, American cost overruns reached $55 billion per year on average. This figure includes famous disasters such as the Central Artery/Tunnel Project (CA/T), better known as the Boston Big Dig. By the time the Beantown highway project—the most expensive in American history—was completed in 2008, its price tag was a staggering $22 billion. The estimated cost in 1985 was $2.8 billion. The Big Dig also wrapped up seven years behind schedule.


    Strangely, lawmakers are blindsided by these extra costs every time—even when the excesses take place under their noses. Take the Capitol Hill Visitor Center in Washington, D.C. This ambitious three-floor underground facility, originally scheduled to open at the end of 2005, was delayed until 2008. The price tag leaped from an estimate of $265 million in 2000 to a final cost of $621 million. How can eyewitnesses to this waste still believe such spending is good for the economy?


    The biggest mistake made by infrastructure spending enthusiasts is to assume that it is the role of the federal government to pay for road and highway expansions in the first place. In a 2009 paper, Cato Institute urban economist Randal O’Toole explained that, with very few exceptions, roads, bridges, and even highways are inherently local projects (or state projects at most). The federal government shouldn’t have anything to do with them.


    [B]Taxpayers and consumers would be better off if these activities were privatized. If states are not ready for privatization, they can do what Indiana did a few years back, when it granted a 99-year lease for its main highways to a private company for $4 billion. The state was $4 billion richer, and it still owned the highways. Consumers in Indiana were better off, because the deal saved money and the roads got better since the private company committed to spending $4.4 billion in maintenance. Experience in other countries has shown that privatization leads to more construction, innovation, and reduced congestion.
    [/B]

    A certain amount of public spending on public works is necessary to perform essential government functions. But federal spending on roads, rails, and bridges as a means of providing employment or creating economic growth is an expensive fantasy.


    Contributing Editor Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University, writes a monthly economics column for reason.


    [/QUOTE]

  2. #2
    [QUOTE]Before Gov. Mitch Daniels leased the Indiana Toll Road to private investors in 2006, professional trucker Randy Nace would occasionally use the tollway even though it carried a $14 toll. Several toll increases later, with truckers set to pay $35.20 starting Friday, July 1, residents like Nace are reminded of why they fought so hard against the privatization deal.


    The 151 percent toll increase realized during the first five years of the Indiana Toll Road lease was part of a guarantee to the investors. After this year, investors will continue to increase tolls at or above the rate of inflation, likely around 3 percent.[/QUOTE]

    [url]http://www.landlinemag.com/todays_news/Daily/2011/Jun11/062711/062711-01.shtml[/url]

  3. #3
    these bridges, tunnels and roads have to be rebuilt either way. might as well do it now when many are out of work.

  4. #4
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    [QUOTE=bitonti;4232540]these bridges, tunnels and roads have to be rebuilt either way. might as well do it now when many are out of work.[/QUOTE]

    But like the article states the people that are out of work aren't qualified to do those jobs. How do you reconcile that with your point?

  5. #5
    [QUOTE=Trades;4232547]But like the article states the people that are out of work aren't qualified to do those jobs. How do you reconcile that with your point?[/QUOTE]

    the article doesn't state that all the qualified bridge builders are employed. it says they are lower rates of employment, that's still not zero.

    My support for bridges and roads isn't to solve the economic downturn. it's to build bridges and roads. economic arteries of the nation are used every day. private corporations and local cities cannot rebuild a bridge. It's a 9 figure investment hundreds of millions of dollars that's the federal gov't's domain, whether we like it or not.

    the thread title says we cannot build or pave our way out of malaise and I agree. we can't tax cut or cut gov't services our way out of it either. eliminating the EPA or the dept of energy won't solve it.

    there is no silver bullet for a major crisis the scale we saw in 2008. it will take 5-10 years to recover that's how it works for major downturns. Doesn't matter what the gov't does we won't solve it with policy.

    but it is possible to build infrastructure that people will use for generations to come... like the hoover dam.

  6. #6
    Oh please! We have a project on hold for an oil pipeline from Canada that would employ more than 20K people for multiple years. Obama has the deal on hold. We have a plant in SC for Boeing that would employ 5000+ high level engineers and an additional 35,000 people in support companies. The Obama admin is suing them and attempting to block it.

    Either our government is mindbogglingly stupid or they are actively and knowingly sabotaging our Businesses and MFG sector. I tend to believe the former.

  7. #7
    [QUOTE=Trades;4232547]But like the article states the people that are out of work aren't qualified to do those jobs. How do you reconcile that with your point?[/QUOTE]

    Yet, You choose ignore what has happened since Indiana leased the highways to 2 foreign companies

  8. #8
    [QUOTE=chiefst2000;4232584]Oh please! We have a project on hold for an oil pipeline from Canada that would employ more than 20K people for multiple years. Obama has the deal on hold. [/QUOTE]

    there are environmental concerns with the pipeline they aren't holding it up just to screw with people.

  9. #9
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    [QUOTE=cr726;4232594]Yet, You choose ignore what has happened since Indiana leased the highways to 2 foreign companies[/QUOTE]

    Sorry I didn't reply to you fast enough. If that is the case and not just a worst case how is it any different than $12 for a passenger car to get into Manhattan from NJ on a government bridge? Why should tax payers subsidize trucking? How do those tolls compare with other tolls for truckers in other states? How have conditions improved/decreased since the private companies took over?

  10. #10
    [QUOTE=Trades;4232612]Sorry I didn't reply to you fast enough. If that is the case and not just a worst case how is it any different than $12 for a passenger car to get into Manhattan from NJ on a government bridge? Why should tax payers subsidize trucking? How do those tolls compare with other tolls for truckers in other states? How have conditions improved/decreased since the private companies took over?[/QUOTE]

    You tell me if they improve or not, your op-ed piece states private leasing of highways is a great thing.

  11. #11
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    [QUOTE=Trades;4232547]But like the article states the people that are out of work aren't qualified to do those jobs. How do you reconcile that with your point?[/QUOTE]

    Malarkey

    It is a 3 week training course to get a CDL or heavy machinery license.

    This is rightwing BS.

    [URL="http://www.equipmentoperator.com/training/class-dates.php"]www.equipmentoperator.com/[/URL]



    The current economy is bad because money is not being spent. Spending is needed to create a good economy and the economy does not care if the money comes from the private sector or from the public sector.

    Cash is king.

  12. #12
    [QUOTE=bitonti;4232606]there are environmental concerns with the pipeline they aren't holding it up just to screw with people.[/QUOTE]

    And your answer for the Boeing plant in Charleston SC?

  13. #13
    [QUOTE=Buster;4232791]Malarkey

    It is a 3 week training course to get a CDL or heavy machinery license.

    This is rightwing BS.

    [URL="http://www.equipmentoperator.com/training/class-dates.php"]www.equipmentoperator.com/[/URL]



    The current economy is bad because money is not being spent. Spending is needed to create a good economy and the economy does not care if the money comes from the private sector or from the public sector.

    Cash is king.[/QUOTE]


    My wife and I went on a cruise last week. An American flagged company with over 50 ships.
    There was a crew of 850. I noticed not too many Americans crew members - cruise director, marketing director, piano player, a couple in customer service, one in the casino. I chatted with one of the ship's officers - an Italian. He said there were about 20 American crew members. The company found Americans did not like to work hard and were generally lazy. The crew memebers I saw were all going a hundred miles an hour and were all polite (very non American attitude). In addition every crew member spoke English and some spoke 2 or 3 languages other than their own.
    We've seen all this before. There are jobs out there. We have lots of people unwilling and/or unable (basically due to poor preparation) to compete.

  14. #14
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    [QUOTE=palmetto defender;4232837]My wife and I went on a cruise last week. An American flagged company with over 50 ships.
    There was a crew of 850. I noticed not too many Americans crew members - cruise director, marketing director, piano player, a couple in customer service, one in the casino. I chatted with one of the ship's officers - an Italian. He said there were about 20 American crew members. The company found Americans did not like to work hard and were generally lazy. The crew memebers I saw were all going a hundred miles an hour and were all polite (very non American attitude). In addition every crew member spoke English and some spoke 2 or 3 languages other than their own.
    We've seen all this before. There are jobs out there. We have lots of people unwilling and/or unable (basically due to poor preparation) to compete.[/QUOTE]

    So in 2006 Americans were hardworking go-getters and now Americans do not like to work hard and are generally lazy

    Is that your point?

    You should be an economist!

    It isn't that the economy is bad and demand is down it is a virus that has made our fellow formally employed citizens lazy!

    Brilliant!


    :rolleyes:

  15. #15
    [QUOTE=palmetto defender;4232837]My wife and I went on a cruise last week. An American flagged company with over 50 ships.
    There was a crew of 850. I noticed not too many Americans crew members - cruise director, marketing director, piano player, a couple in customer service, one in the casino. I chatted with one of the ship's officers - an Italian. He said there were about 20 American crew members. The company found Americans did not like to work hard and were generally lazy. The crew memebers I saw were all going a hundred miles an hour and were all polite (very non American attitude). In addition every crew member spoke English and some spoke 2 or 3 languages other than their own.
    We've seen all this before. There are jobs out there. We have lots of people unwilling and/or unable (basically due to poor preparation) to compete.[/QUOTE]

    Norwegian?

  16. #16
    [QUOTE=Buster;4232899]So in 2006 Americans were hardworking go-getters and now Americans do not like to work hard and are generally lazy

    Is that your point?

    You should be an economist!

    It isn't that the economy is bad and demand is down it is a virus that has made our fellow formally employed citizens lazy!

    Brilliant!


    :rolleyes:[/QUOTE]


    Americans have been lazy a long time. In my career (now retired) as a corporate exec at various levels I had the opportunity to observe workers at many levels. This goes back almost 40 years. Sadly, I always found foreign workers - from plant workers to executives - harder working when they came from other divisions positioned in foreign locations and from ones relocated to the U.S.
    When were Americans go getters in 2006? The malaise has gone on a long time. There will always be a core group of hustlers and hard workers. The base group is deteriorating in quality.

  17. #17
    [QUOTE=cr726;4232911]Norwegian?[/QUOTE]


    No. Wasn't aware Norwegian Lines was American flagged, although a good line. My ship was built in Scandinavia though - like many these days. Sad when we can't even build our own ships.
    We now get all our military sidearms from foreign companies. The main gun on the M1 tank is German. Many of the parts on the Boeing 787 are produced elsewhere.

  18. #18
    [QUOTE=palmetto defender;4232961] Sadly, I always found foreign workers - from plant workers to executives - harder working [/QUOTE]

    let the foreign workers immigrate to America, problem solved.

  19. #19
    [QUOTE=bitonti;4233016]let the foreign workers immigrate to America, problem solved.[/QUOTE]

    The Bitonti Plan for America:

    1. Higher Taxes on All Taxpayers, Especially the "Wealthy", defined as anyone who makes over 200K/year household, or who posesses in assets over 1 million net. No changes to current non/minimal taxpayors.

    2. More Government, speciificly more Govt. spending on Social Welfare Programs, Vast increases in Government Regulation on Industry and Energy, increased subsidies to "Green" Energy Companies and more Government spending on Any and All Infrastructure.

    3. Take infrastruture and public services (Police, Fire, Trash, etc) away from the States, make them Federal (because as has been said repetedly, the States just can't handle it, just can't pay for it, and the Fed is better, period).

    4. Open the Borders, eliminate all "illegal" immigration laws. Anyone who wants to come, can.

    5. Unlimited Govt. power to pass "mandate" Laws, making private citizens uy whatever products, private or Goverment, the State feels should be bought by all.

    6. Cut Millitary Spending by at least 50%, terminating all development and purchasing of conventional weapns such as tanks, planes or guns, as they are not needed and a Conventional War is an impossabillity.

    Is there more Bit, or is this matrially it for the "Bit Plan"? I want to make sure I understand it fully.
    Last edited by Warfish; 11-14-2011 at 03:23 PM.

  20. #20
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    [QUOTE=Warfish;4233090]The Bitonti Plan for America:

    1. Higher Taxes on All Taxpayers, Especially the "Wealthy", defined as anyone who makes over 200K/year household, or who posesses in assets over 1 million net. No changes to current non/minimal taxpayors.

    2. More Government, speciificly more Govt. spending on Social Welfare Programs, Vast increases in Government Regulation on Industry and Energy, increased subsidies to "Green" Energy Companies and more Government spending on Any and All Infrastructure.

    3. Take infrastruture and public services (Police, Fire, Trash, etc) away from the States, make them Federal (because as has been said repetedly, the States just can't handle it, just can't pay for it, and the Fed is better, period).

    4. Open the Borders, eliminate all "illegal" immigration laws. Anyone who wants to come, can.

    5. Unlimited Govt. power to pass "mandate" Laws, making private citizens uy whatever products, private or Goverment, the State feels should be bought by all.

    6. Cut Millitary Spending by at least 50%, terminating all development and purchasing of conventional weapns such as tanks, planes or guns, as they are not needed and a Conventional War is an impossabillity.

    Is there more Bit, or is this matrially it for the "Bit Plan"? I want to make sure I understand it fully.[/QUOTE]

    Warfish,
    Please stop posting straw-man arguments and post what you believe.
    Thanks

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