Thursday, February 12, 2009

Apparently, It's Never a Good Time to Invest in Our Future

In late December, I initiated a series of posts (here and here) discussing how a severe economic crisis can open up opportunities to change the way industries work and to revise our basic assumptions about how the government can affect our lives. "A crisis presents a rare opportunity to shake off the conventional wisdom and to gather the political will to create better ways of doing things." We have now experienced our first major legislative battle of the Obama presidency, and the possibility of overcoming old assumptions seems further off than ever.

Among many disappointing aspects of the debate over the stimulus bill, perhaps the most worrying is the claim that we should not vote for infrastructure investment because such spending cannot be done fast enough to stimulate the economy. It is, in fact, simply not true to say that infrastructure spending cannot happen quickly. Sadly, decades of our willful failure even to pay for basic maintenance of roads, water systems, and so on have left us with a backlog of projects that could be started almost immediately if the spending were approved. The American Society of Civil Engineers estimates that we need to spend $2.2 trillion over the next five years just to repair and upgrade our existing infrastructure.

Even so, it is true that there are many new infrastructure projects that could take years or decades to plan and build. My hope had been that we could turn the proverbial lemons into lemonade during this crisis by authorizing large-scale public investment projects (such as high-speed rail) that would be not only wise investments purely in dollar terms but would also have enormous environmental and social benefits. Under non-crisis conditions, such projects have never gotten far in Congress because of the combination of reflexive anti-government ideology and the short-term thinking inherent to our political system. As we now face the possibility of global depression, it seemed at least possible that we would think big and start to fund some of these far-reaching projects that could change the world that we pass on to future generations.

Instead, we could not even get enough money to fix crumbling school buildings. Why? Because opponents of the bill stuck to their story that infrastructure spending is too slow, so the only spending that should even be included in a stimulus bill is that which will be immediately stimulative, no matter its long-term pay-off. Admittedly, there is a certain logic to this, because we surely want to know when a stimulus bill that has some price tag on it ($829 billion, or whatever) will actually affect the economy. There is no reason, however, why Congress cannot pass a bill and include that information in the bill itself. We would also want to know whether the spending on longer-term projects will be soaking up labor and capital when -- knock wood -- the economy is prosperous again. If that is our concern, however, then we even more urgently need to choose projects that will pay off even if they displace some amount of private economic activity.

In other words, because we fail to invest in sensible long-term projects during prosperous times, we need to use a crisis as an excuse to initiate projects that would be sensible under any circumstances. That is exactly the opposite of what seems to be happening. We now seem to be saying that, because some public investments do not kick in soon enough, then we should ignore their long-term benefit to the economy and get back to them "later." Forgive me for suspecting that later will never come.

This situation is a variation on Keynes's famous description of a stimulus program in which the government would bury tubes of money in abandoned mines. Private enterprise would then spring forth to create jobs "efficiently" in the money-retrieval industry. Keynes was being sarcastic, of course, and he was careful to say that he would prefer that the government instead finance sensible projects like improved housing for the poor; but if the "captains of industry" insist that the government must not build anything useful, then it is better during a downturn to spend money on something stupid than not to spend it at all.

And here we are. We cannot invest during good times, precisely because times are good. We cannot invest during bad times, precisely because times are bad. We have stumbled onto a perfect plan for long-term decline.

-- Posted by Neil H. Buchanan