There are so many problems with infrastructure spending as a stimulus that it’s difficult to know where to begin. As for corruption, don’t forget that a trillion dollars in infrastructure spending all at once is going to stretch thin the ranks of the people doing the oversight. Also, the need to get the money out fast probably means fast-tracked bid/tender/approval processes. The Tony Rezkos of the world are going to make out like bandits.
Another form of corruption which is even more important is that the money will undoubtedly be allocated based on political pull and deal-making rather than where it will do the most good for the country. All the little piggies are lining the their noses up to the trough already. The ‘stimulus’ bill is going to be rewritten several times as it goes from body to body. Which one of those versions is the efficient one? Can all of them be equally efficient? The answer is that none of them are going to be efficient. Any plan to spend a trillion dollars, cobbled up in a few week’s time by 535 laymen in a rush, is going to be a mess.
Then there’s the problem that doing all this at once is going to bid up the price of raw materials and labor. When you’ve got 100 bridges being built at one time, you get one price for steel If 10,000 of them are being built, you’ll get quite another price.
And for those firms that have specialized skills in high demand by all the infrastructure projects (and there are quite a few of these), they are going to be in a position where they can simply bid high, because there will be high demand for their services. If your job requires an extremely large crane or gigantic earth moving equipment, be prepared to pay top dollar for it.
If they start 1 trillion in infrastructure projects, you can expect to pay probably double that if you want to actually complete the projects that were started, because a lot of them will go way over budget.
Then there’s the problem that always vexes Keynesians - knowing how to time the stimulus. This recession has already been going on for 12 months, and current forecasts are for the economy to start growing slightly again in Q2 09. The stimulus money will just be trickling into the economy around then - Obama’s office says most of the stimulus money will be into the economy by Q3 2010 - a year and a bit after the recession is already predicted to be over.
This same thing happened with Bush’s tax cuts. The economy looked bad in 2000, and Bush campaigned on tax cuts, and got them. But by the time they were implemented, the economy was already growing again at a decent pace, so the tax cuts wound up contributing to a boom instead of ending a recession. That’s even more likely to happen with infrastructure, because it takes so long to get the money into play.
The next problem is that spending a trillion bucks is very hard to do in the short term. The infrastructure projects ‘ready to go’ don’t amount to more than 100-200 billion, and even those would still have to undergo a long period of hiring, training, surveying, architecting, etc before you could hire large numbers of workers. The first year of the stimulus money therefore is likely to be spent giving money to a small number of fairly wealthy people who are already employed, thus bidding up their salaries. That would be civil engineers, mechanical engineers, architects, lawyers, money managers, geologists, and the like. They’ll be doing all the heavy lifting before these projects break ground.
Then there’s the additional problem that the workers that need jobs are not really employable in most infrastructure projects. There’s really not a lot of use for a retail sales clerk on a bridge construction crew. Even among the trades, the ones that are hurting were the ones in the home construction business. Some of those guys could move to big engineering projects, but some can’t.
I think some infrastructure spending is a good idea. Particularly, the projects on the books which are national in scale (to minimize regional pork distortions), and of widely accepted utility. There might be a hundred billion dollars worth of these - maybe more. One of my favorites is an upgrade to the electrical grid. It seems pretty clear that the energy of the future will increasingly be distributed using electricity, but even if demand for electricity doesn’t go up, the grid can be made much more efficient with ‘smart metering’. A program to put smart meters in homes could be very useful, cut down on pollution and fuel consumption, and save money. And that’s a program that could be halted at any point if need be, with benefit still going to the portion that was built. So it’s pretty low risk.
Do a few things like that. But a widescale crash program to build out huge amounts of infrastructure at once is bound to be a boondoggle.
