Tuesday, February 03, 2009

Infrastructure versus Tax Cuts

The American Society of Civil Engineers has issued a detailed report card about the failing infrastructure in the U.S. Overall grade: the dunce's D.

As NYT columnist Bob Herbert writes today about the Economic Stimulus bill proposals ("Risking the Future"):
We’re rushing to bail out the banking industry for what? What kind of country will we have once the bankers are fat and happy again? The U.S. will still be a nation with a pathetic mid-20th-century infrastructure struggling to make it in a dynamic 21st-century world. It’s a blueprint for sustained national decline.
Meanwhile, Mitch McConnell and the diminishing Republican minority continue stalling the stimulus bill and demanding -- what else? -- tax cuts for the rich. We tried that trickle-down nonsense over the last eight years, as David Kay Johnston points out, and look what it got us:
"[T]ax cuts have not worked. The Bush tax cuts, all of them were financed with borrowed money. And where did we end up at the end of the Bush administration? If you add up all of the bailouts that the Bush administration did in the fall, the investments, the spending and the guarantees, it’s over $8 trillion. How much money is that? It is more than all of the income taxes paid by all Americans for the entire eight years of the Bush administration."
Canadian economists agree: Infrastructrure is the preferred way to create jobs and revive the economy.

Obama's big push for bipartisanship is fine as far as it goes, but not to the extent of caving in to bad ideas that have proven themselves worse than worthless.

Everyone by now should know these elementary principles of political economics, part of which is illustrated in the table, below, taken from the recent testimony of the non-partisan Congressional Budget Office director, Douglass Elmendorf:
  • Tax cuts work fast, but even in the best of circumstances the multiplier effect in the broader economy is comparatively modest.
  • These are not the best of circumstances. As Michael Sesit wrote last week for Bloomberg News, "even if you weren’t in hock up to your eyeballs, the odds are you will deposit the extra cash in the bank -- rather than spend it -- especially if you don’t feel secure about your job."
  • If we have to have tax cuts, they are better directed at lower wage citizens with little or no disposable income than the wealthy. Low-wage workers are more likely to spend the money immediately than rich people who've already hunkered down with their savings.
  • The economic impact of tax cuts are not long-lasting. Once spent, they are gone.
  • Infrastructure spending and the jobs it creates have a vastly greater multiplier effect for the economy as a whole, although it may take several months before being felt.
  • Sure, "spending hundreds of billions of dollars takes time," as David Leonhart recently wrote for the Times. But the latest CBO estimate is that"about 64 percent of the money, or $526 billion, would be spent by next September."
  • Infrastructure spending continues to boost the economy for years, and often decades, after completion.
As James Galbraith has pointed out, another advantage infrastructure spending has over tax cuts is that infrastructure spending can be directly targeted "to stabilize parts of the economy that are otherwise in severe danger of collapsing." Among these are many of the state and local governments whose "expenditures on public services... are very, very strongly affected by declining property tax revenues and the requirement that those states and localities balance their budgets if their revenues decline."

Build new schools, for example, and hire more teachers, fund state highway and bridge repairs, and you not only create jobs and stimulate the economy but you also invest in America's future for coming generations.

It's a whole lot more sensible than paying a bank to stage a $10 million Super Bowl party.

1 comment:

Anonymous said...

How does this pertain to Pensacola Beach?