Wednesday, December 10, 2008

Infrastructure stimulus

Amity Schlaes recommends that we look at Japan's efforts to pull itself out of its economic crisis by increasing infrastructure spending just as President-elect Obama is proposing for the United States. There are some instructive lessons there.
Worst, though, was the failure on jobs. Unemployment fell in many nations in the 1990s. In Japan, the '90s were a lost decade: The unemployment rate more than doubled and surpassed the U.S. rate -- an unthinkable occurrence just a few years earlier.

Even today, Japan is having trouble climbing out of its cement pit. At its high, in the mid-1990s, infrastructure spending accounted for 6 percent of its gross domestic product, double what the United States allocated for infrastructure in the '90s and still higher than what politicians are considering spending today. In estimates of national debt, the world's second-largest national economy is near the top of the list, perched between Lebanon and Jamaica. Last year, Japan's public debt was far greater than the size of its economy, a burden that makes its demographic challenges more difficult to address.

What lessons should the United States take away? It is wrong to assume that construction will guarantee a two-fer for the economy -- shining structures and redemptive growth. The private sector is often better than politicians at guessing what the market needs
And Larry Kudlow points out that we have actually been spending big-time on infrastructure in recent years.
A lot of people on Wall Street are praising Obama’s infrastructure plan for roads, highways, tunnels, schools, green tech, and other build-outs. But they don’t know that in 2008 alone the U.S. spent $114 billion on infrastructure, following $102 billion in 2007. Didn’t do much for growth did it?

Over the past five years infrastructure spending domestically for non-defense comes to nearly $500 billion, with another $500 billion spent on defense-related infrastructure. But an academic study from the University of Chicago argues that government spending does not stimulate jobs and growth, and in fact crowds out private investment. Infrastructure spending also doesn’t create permanent new businesses, jobs, or incomes.
Meanwhile, hearing that there are billions of federal pork, er money to be distributed for infrastructure the nation's mayors have presented a list of their preferred projects. And guess what? There list, as Robert Poole demonstrates, looks a whole lot like of wish list of pork.
On Monday, the U.S. Conference of Mayors went to Capitol Hill to ask for a handout, or as they put it: "We are reporting that in 427 cities of all sizes in all regions of the country, a total of 11,391 infrastructure projects are 'ready to go.' These projects represent an infrastructure investment of $73,163,299,303 that would be capable of producing an estimated 847,641 jobs in 2009 and 2010."

A wish list that is 11,391 projects strong! What vital infrastructure projects would cash-strapped taxpayers get for their $73 billion? Here's a sampling:

- Hercules, Calif., wants $2.5 million in hard-earned taxpayer money for a "Waterfront Duck Pond Park," and another $200,000 for a dog park.

- Euless, Texas, wants $15 million for the Midway Park Family Life Center, which, you'll be glad to note, includes both a senior center and aquatic facility.

- Natchez, Miss., "needs" a new $9.5 million sports complex "which would allow our city to host major regional and national sports tournaments."

- Henderson, Nev., is asking for $20 million to help "develop a 60 acre multi-use sports field complex."

- Brigham City, Utah, wants $15 million for a sports park.

- Arlington, Texas, needs $4 million to expand its tennis center.
Why the federal government should be paying for sports parks across the country is a total mystery. Poole presses the mayors and those discussing an infrastructure stimulus to prioritize their lists with an eye to what projects would actually help the overall economy.