Investment Economy

Collapsing Bridges, Sinking Levees. It’s (Past) Time to Invest

Eric Lotke — Thu, 31 Jul 2008 07:47:02 -0700

Last year on August 1, the I-35W bridge in Minneapolis collapsed during rush hour. Thirteen people died and more than 100 were wounded. A school bus carrying 52 children teetered on the brink but did not fall.

This bridge is not alone. Our nation’s infrastructure is deteriorating, dying of old age and neglect.

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Bridges and roads. The U.S. Department of Transportation reports that nearly 25 percent of bridges in the U.S.—over 152,000 bridges—are “structurally deficient or functionally obsolete.” Heavier vehicles, like school buses and delivery trucks, are forced to take lengthy detours for safer bridges. Nearly one in four miles of urban interstate is in “poor” or “mediocre” condition.

Levees and waterways. Earlier this year, thousands of homes and millions of acres of crops were destroyed after heavy rains overwhelmed obsolete levees along the Mississippi River. In 2007, the American Society of Civil Engineers found more than 150 levees to be at high risk of failing due to poor maintenance. Over a quarter of the dams overseen by the Corps of Engineers have exceeded the lifespan for which they were designed and need major repairs to ensure their safety.

Water and steam. A steam pipe explosion in Manhattan last year launched a tow truck 12 feet in the air, killing one person and injuring dozens more. The blast opened a 40-foot-diameter crater and spread toxic asbestos, closing off 40 square blocks for five days. Almost every state—from California, Hawaii, and New York to Alaska and North Carolina—has reported record breakdowns in water infrastructure. In the words of one expert, “an epidemic of breaking pipes is causing unprecedented havoc.”

These are just illustrations of the deadly danger of letting our infrastructure go unmaintained. America’s electric power grid, dams, water treatment plants, airports, and railways are all in dire need of repairs and improvements.

The solution is obvious. Repair and rebuild. Rebuilding our infrastructure provides jobs—good jobs that can never be outsourced—and an economic shot in the arm that we desperately need. The U.S. Department of Transportation estimates that every $1 billion in federal highway investment creates 47,500 new jobs and generates more than $2 billion in economic activity.

The “greatest generation” built the Interstate Highway System and laid the groundwork for decades of economic expansion. Now it’s our turn to rebuild the highways and add high-speed rail to boot. We’ll be faster, safer and more efficient. Yes, it will cost money, and yes, we’re running deficits. But this is no time to run scared. These are long-term investments and they will pay off over time.

Don’t fall for the “pay as you go” trap or fear the “tax and spend” label. Real people are smarter than that. A new poll by Time Magazine and the Rockefeller Foundation finds 83 percent of the public supports “increasing government spending on things like public works projects to help create jobs.” Support is at 83 percent among the baby-boom generation who built the interstates, and a surprising 90 percent among the young generation Y who are watching them fall apart.

Let’s invest now to turn the economy around.

New Unemployment, Old Solutions

Eric Lotke — Fri, 06 Nov 2009 09:09:34 -0800

Today’s unemployment data contain gloomy news. Gloomy, but expected. The interpretation of the data is even worse.

First, the data. Unemployment rose to 10.2 percent last month, breaking the double digit barrier. Most people expected it to happen, though the job loss (190,000) was a bit worse than most economic forecasts (175,000). We can maybe be happy that the October job loss wasn’t as high as September (263,000), but this modest deceleration doesn’t mean much to the 15.7 million people without work, the 9.3 million people working part-time but looking for full-time, or the 3.2 million people who are discouraged or marginally attached to the work force and barely even looking anymore. Nearly 20 percent of the workforce isn’t where it wants to be.

In other words, it’s bad. You don’t need me or the Bureau of Labor Statistics to tell you that.

The interesting part is where it’s bad and what to do about it.

The biggest job losses in October were in construction (62,000) and manufacturing (61,000). In the last year, these sectors have lost over 2.5 million jobs between them. Job losses in these sectors hurt worse than most other sectors. Manufacturing jobs have a bigger economic “multiplier” than other sectors, creating more jobs and more economic activity around them. Manufacturing creates jobs “downstream,” as production workers buy sandwiches from restaurants; and “upstream,” as steelworkers and coal miners work to provide raw material. The benefits of construction obviously count for more and last longer than just the construction itself. Anybody who doesn't live in a cave knows that.

But manufacturing and construction are losing more jobs than any other sector. Health care and temporary jobs are the only positive — if we can cheer sickness or a temp job.

Source: Bureau of Labor Statistics

This isn’t just a temporary blip. Construction is sinking from the burst of the housing bubble and general economic doldrums. Manufacturing is suffering from long term structural declines and a trade policy that favors imports over domestic production.

The solution leaps out from the data. These two sectors respond most clearly to public sector investment. During this downturn, we can build roads, rail lines and bridges. During this downturn, we can fix school roofs and turn temporary trailers for overcrowded schools into permanent classrooms for eager students. During this downturn, we can build the windmills and install the solar cells to move us towards energy independence. During this downturn we can rebuild a productive economy for the future.

Source: Bureau of Labor Statistics

Maybe a quarter of the 800 billion stimulus package pushed in this direction. We need more. First, we need more stimulus. Good old-fashioned Keynesian stimulus during the downturn. Put people to work laying those rail lines and fixing those school roofs.

Second, we need to make sure the money stays in our own economy. We can’t ask American taxpayers to foot the bill or expect American workers to cheer when the windmills of the new energy economy are imported from Spain. It’s no gift to our economy to fix the water main with pipes imported from China that were dumped in US markets at below market costs, driving our own domestic pipe industry out of business. We can do better. We need to do better.

I’ll close with the thing we don’t need, the interpretation I warned against in the beginning. The Associated Press story about today’s unemployment data put it this way: “A robust economic recovery won't be sustainable if consumers don't pick up their spending.”

Wrong wrong wrong. The debt-driven consumption economy was the problem. The solution is not for consumers without jobs to start spending again. The solution is to rebuild our economy. From the ground up. The old fashioned way.

Making It In America: Building The New Economy

Eric Lotke — Wed, 28 Oct 2009 10:06:30 -0700

Key progressive leaders participating in the October 29, 2009 "Building the New Economy" conference in Washington address the issues raised in this report and discuss what it will take to ensure that the new economy that emerges from the wreckage of the old will provide Americans with good jobs.

Download and read the full report »

Executive Summary

We can’t pull out of the present downturn and return to the economy of the past—a high-consumption, low-wage economy based on asset bubbles and foreign borrowing. We need to look ahead. Our response to the current crisis must plant the seeds for the economy of the future.

The contours of the new economy are starting to take shape. Barack Obama set a different tone with an inaugural address that promised a “new foundation for growth.” Some of this is happening already: Construction crews are fixing bridges, filling potholes and laying new airport runways; work has started to improve our nation’s electric grid and create new, renewable sources of energy, and Congress is working on the biggest boon for college student financial aid in a generation, shifting $87 billion in subsidies from banks to students over the next decade.

Outside of government, we hear talk of sustainability, about returning to a real economy based on production, not consumption, and manufacturing, not finance. Celebration over cheap Chinese imports is giving way to alarm over the loss of jobs, currency manipulation, low environmental standards and dangerous workplaces that lower Chinese costs and give Chinese imports an unfair advantage.

But the opposition to reform is fierce. Wall Street is mobilizing against financial reform and regulation. Obama’s decision to impose tariffs on Chinese tires was called “economic vandalism," and modest “buy American” provisions in the Recovery Act met accusations ranging from “counterproductive” (U.S. Chamber of Commerce) to “the worst instincts of Congress” (The Wall Street Journal). And federal budget deficits generate concern across the political spectrum.

The next economy must be built on a solid platform. We need to rebuild our infrastructure, renew our manufacturing base and educate our people. America needs an industrial policy to help fit these pieces together. From workforce development to component manufacture, we need a strategic collaboration between the private sector and the government to reach our shared national goals. We need an opportunity for stakeholders to come together to remove obstacles, allocate resources, and create rules that work for everyone involved.

This report makes the case for that policy and explains what should be the key elements.

Good deficit, bad deficit.

Eric Lotke — Fri, 08 May 2009 11:16:17 -0700

Obama has introduced his budget, and people are hyperventilating about the deficit. Piling “debt on the backs of our kids and our grandkids,” declares House minority leader John Boehner (R-Ohio). "Bloated," exclaims Democrat Evan Bayh of Nebraska.

With all the hyperventilating, we are forgetting what’s most important. Deficits aren’t necessarily bad. Sometimes deficits can be good.

• Credit card debt for a plasma TV? Bad.
• Low interest loans for a college diploma? Good.

• Buying a second car you don’t need? Bad.
• Borrowing for a house when the kids are born? Good.

Deficits have taken almost mythical hold of our imagination. The word “deficit” has become a stand-in for words like waste and irresponsibility – so running a deficit is nearly synonymous with irresponsibility. But deficits are not necessarily irresponsible. Economists consider deficits simply one economic variable to be taken into consideration among many others.

• Every successful business starts with a loan. Entrepreneurs earn their ulcers looking at their loan schedules, not expecting a profit until the third year. But still they borrow. It's necessary to succeed.

The Obama budget shows deficits in the trillions. Maybe that’s okay. The US had a budget deficit for most of our stunning boom after World War II.

Our deficit might appear less frightening if we think not in terms of dollars, but as percent of GDP. The U.S. is a gigantic economy, so national numbers become frighteningly large.

Our deficit this year is $1.7 trillion. That’s big. But our economy is $14.2 trillion. That’s even bigger. Put them together and our deficit is 12% of our GDP. It is high, but not extraordinary by historical or international standards. It is like a person who earns $30,000 with a $3,500 deficit at the end of the year. It’s a lot. But it can be managed. Indeed, if the deficit bought some education or a new set of tools, it might not be irresponsible at all; it might even be worth it.

Source: OMB history, 1930-2008; CBO projections, 2008-10

Even if we look at the accumulated debt, not the annual deficit, the U.S. level of debt is lower than most advanced industrial countries’ – and during the current crisis, many other countries are, like the U.S., deliberately raising their deficits. In 2008, France’s public debt was 64 percent of its GDP; Germany’s was 63 percent. Japan sets the scale at 170 percent.

Source: CIA

Obama seems to understand this. He’s at his best when he talks about cutting waste, but “what we will not cut are investments that will lead to real growth and prosperity over the long term." Energy, health care and education are usually at the top of the list.

He’s at his worst when he promises to cut the budget deficit in half by the end of his first term. First, it creates an impossible expectation. Second, it accepts deficit reduction as more fundamental than it needs to be.

The conclusion: Don’t panic. Our deficit is high and it deserves attention. But at this time of crisis, deficit spending to make sensible investments and put people to work is both necessary and affordable. It can turn our troubles around, and build the resources that we need for the future – clean energy, an educated workforce and a 21st century infrastructure. Build, and build big.

Robert Wade - A Change of Financial Regimes

Susan Ozawa — Tue, 17 Feb 2009 09:05:28 -0800

A Change of Financial Regimes Robert Wade, Development Studies Institute, LSE Speaking at the 2nd Workshop: "Developing Joint UK Policy Responses to the Financial and Economic Crisis" organized by the Bretton Woods Project and School of Oriental and African Studies, Research on Money and Finance, Dec 15th, 2008.

Wade makes the case for industrial planning on a global scale.

Prisons. A stable and growing part of the economy.

Eric Lotke — Fri, 12 Dec 2008 06:21:34 -0800

Two things happened yesterday. First, I published this major post about the role prisons play in the U.S. economy. Later yesterday evening, the Bureau of Justice Statistics released new data about people in prison. Any surprise? The number continued to rise.

Yes, crime continues to decline; and yes, “soft on crime” was absent from this year’s election debate. But still the U.S. locks up more and more people.

We have 2.3 million people behind bars. 1 out of every 100 adults overall. 1 out of 9 black man in his twenties. Our rates of incarceration are seven times historical and international norms, and we spend about $200 billion every year on the crime control industry. But still we build.

Part of the problem (and the solution) is in criminal justice policy – sentencing and parole practice, in particular. We can and should find smart, cost-effective ways to keep people safe. But part of the problem is also in economic policy. Not just the recession, which will probably push crime up soon enough, but in the role that prisons play in rural economies.

Rural America has been struggling for years. Prisons are often offered as a quick fix. Instant jobs with government benefits.

No, they don’t work well for economic development in the long run. And yes, many of the best jobs go to people from out of town. But it isn’t presented that way by rural politicians looking for rural votes from people who are genuinely looking for work.

That’s why I proposed a grant program by the federal government to help states cover transitional costs to move from prison economies to more productive purposes. It would help the rural economies, where people would rather find work without razor wire fencing, and it could free states to redirect their own resources out of prisons and into other state uses – from schools to roads to hospitals.

It’s just one thing. But it’s not only the change we need. It’s something that needs to change.

Good Building, Bad Building

Eric Lotke — Thu, 11 Dec 2008 11:16:13 -0800

China has opened a new subway system every year for the past six years. The U.S. has opened 40 new prisons and jails. Who’s setting up to lead in the 21st century?

“Expanding prisons mean more jobs,” explained the Fayetteville Observer over the summer.

The rural North Carolina community was celebrating the $19 million expansion of a $90 million prison that opened in 2003 and immediately filled to capacity. Such growth is a boon for rural, economically distressed counties. “Prison jobs bring added payroll, boost housing markets and draw new retail customers to poor parts of the state,” observed the Observer.

The good news is that public investment can work. The bad news is that better choices must be made. We need to distinguish between prisons for crime control and prisons as a jobs program, between building for the future and building for the past.

"We're always looking for ways to bring jobs to Wilkes County," said state senator Jim Whitehead of Georgia, when funding fell into place for a new pre-release center.
“This is the biggest thing to happen to Stewart County since I’ve been here,” said the chair of the county board when the private, for-profit Corrections Corporation of America opened a new 1,524 person detention center. “Everything’s been leaving rather than coming in the 10 years I’ve been here. The biggest thing this will do is provide jobs for the county and the area.”
Push state to build prison here,” editorialized the Altoona Mirror in central Pennsylvania, three weeks before the election. “What would the area do to obtain 600 well-paying jobs in what could be termed a recession-proof industry? It's not a rhetorical question. Those jobs could happen. But it's important that our local and state leaders don't drop the ball.”

President-elect Barack Obama is planning a massive new public works program. He wants to employ 2.5 million people rebuilding our roads and schools and bridges. That’s great. It’s more than great. We need the projects, we need the jobs, and the proposal is on the order of magnitude of the problem.

Part of the program could be a reconsideration of the role prisons play in our rural economy. That role seems to have taken on a life of its own.

“When folks here heard the governor wanted to close the 137-year-old Pontiac Correctional Center, sucking hundreds of jobs from the area, they mobilized in a way that only small towns can. They held rallies and a parade. Streets were lined with blue-and-white 'Save Our Prison' signs and residents were outfitted in T-shirts to match.” The local ABC news affiliate described it as “a struggle for their economic lives,” as the state considered closing the town's second-largest employer to help fill a $700 million hole in the state budget.

States are truly struggling. Forty-one states have already reported budget problems for the current or upcoming fiscal year, and it’s likely to get worse. States are starting to cut benefits and services ranging from health care to public schools and early childhood education.

But one budget item is never questioned: prisons.

Even as states spend nearly $50 billion on prisons every year and counties spend over $20 billion on jails, we build additional locked capacity. Even with U.S. incarceration rates at seven times historical and international norms, we build. Even as crime continues on its 15-year descent to levels not seen in 40 years, we find money to build even more.

The sacrifices we make to build these prisons are astonishing. Between 1987 and 2007, state spending on prisons increased by 40 percent (as a percent of the general fund). State spending on higher education decreased by 30 percent. We are financing our prisons by cutting our colleges.

We continue to build even though prisons are often disappointing for economic development. The best jobs go to people from out of town, and dollars spent on prisons have little “multiplier” effect. They don’t generate future additional dollars of economic activity, as do dollars spent on transportation, schools and so forth. Every dollar invested in highway construction generates $2.50 of gross domestic product in the short term. Raising teacher wages by 10 percent is associated with a 5 percent decrease in drop-out rates. But still we shortchange our schools and other rural enterprise, and build new prisons.

The solution is to recognize that prisons have an economic logic of their own. The Pentagon budget is understood as a combination of military necessity and commercial interests. We need to understand the appeal prisons offer to struggling rural communities in the same way.

The challenge is to break the link between prison as industry and prison as crime control. The challenge is to show a way out for governors and legislators who want to reduce the burden of the corrections budget but genuinely cannot because of the immediate and legitimate trouble it causes to their constituencies.

HERE'S HOW: As our new federal leaders develop plans for stimulus and infrastructure investment, they should self-consciously direct resources to break the link between prisons and the dependent rural economies. They should create a grant program to help states transition from prison economies to more productive uses.

People are ready for this kind of change. Way back in 1999, when there were half a million fewer people in American prisons and jails, John DiIulio, one of the main movers behind the prison explosion, said we had reached a point of diminishing returns. But we can’t change course; the transition costs are too high:

Drug treatment and prevention programs are cheaper in the long run, but they cost money up front to start.
Cost savings to some are job losses to others. Especially when the programs go to scale and entire prisons are shut down or construction projects avoided. What should people do in the interim?

That’s where federal assistance can come in. Part of the infrastructure/investment/stimulus money can be directed to cover transitional costs out of the prison economy. A few billion dollars of federal money in the short term can help states break the prison hammerlock, and free them to redirect tens of billions of state dollars to other purposes – from schools to roads to hospitals.

That’s the proposal: a federal grant program that helps states manage transitional costs in the short run. Much like the federal VOI/TIS Justice Department grant program helped build prisons in the 1990s, a transition grant program can help to unbuild them in the 2000s (perhaps best administered by the Commerce Department). Let the laboratories of democracy experiment over techniques, but the federal government can help ease the transition.

It’s a modest investment for the federal government that can yield substantial dividends quickly. But it needs to be consciously identified as a goal. Left alone the prison autopilot will continue to rise.

Falling Apart, Falling Behind

Eric Lotke — Thu, 04 Dec 2008 09:53:40 -0800

Previous posts and our report have discussed how America is falling apart. Collapsing bridges, high unemployment, and so forth. In this post I discuss how we are falling behind.

China recently announced an economic stimulus package worth $586 billion, roughly 7% of its gross domestic product and the largest in its history. The Washington Post describes the plan as response to “increasing social unrest due to factory closings and rising unemployment.”

The plan is being compared to the New Deal. It will “ease credit restrictions, expand social welfare services and launch an infrastructure spending program that would include the construction of new railways, roads and airports.”

This is on top of China’s already aggressive plans to expand high-speed and freight rail nationwide. China has opened at least one new subway system every year for the past six years.

Meanwhile Europe announced a stimulus plan worth $256 billion, or 1.5% of the European Union’s gross domestic product. Every member state will define its own part, but they are generally heavy on public works.

"The goal of the fund is to mobilize workers, jobs and resources," said Spain's Prime Minister, Jose Luis Rodriguez Zapatero. The lion's share of Spain’s $14 billion plan is for new construction and upgrades of existing public buildings, infrastructure, parks, schools and sports facilities

Denmark is ahead with an economy built around “flexicurity,” a generous system of carefully monitored unemployment benefits and training for displaced workers, designed to smooth transitions caused by international trade. The system costs fully 5% of Danish GDP, but former Prime Minister of Denmark, Poul Nyrup Rasmussen, thinks it’s worth it. “Active labour market policies help the unemployed to find work and increase their skills through training in periods between jobs. The idea is to make the journey from the old job to the new job as short, as easy and as productive as possible.”

With new leadership, the U.S. might well snap out of its doldrums. Our leaders no longer think the economy is fundamentally sound, nor do free market ideologues reject government intervention out of hand. The recovery packages are still under construction. But we are closing in on the change we need.

A Consensus Emerges: Build, and Build Big

Eric Lotke — Wed, 26 Nov 2008 11:19:01 -0800

Everybody is saying the same thing. Stimulus plans don’t mean tax rebates worth a few tanks of gas and a restaurant dinner. Stimulus plans means new roads and bridges, aid to states so they won’t lay off nurses and teaching assistants, and a down payment on a new energy economy with windmills and commuter rail.

Most importantly, people have turned the corner on money. Stimulus will take real money, measured in hundreds of billions of dollars and percents of GDP. Low estimates put the investment at $300 billion. High ones reach $700 billion. Paul Krugman, with his hot new Nobel prize in economics, recommends “figure out how much help [you] think the economy needs, then add 50 percent.”

The former but not future Treasury Secretary Lawrence Summers has changed his tune. No longer should stimulus be “targeted, timely and temporary.” Now it should be “speedy, substantial and sustained.” If he changes the first S to “strategic,” he’ll sound just like the Campaign for America's Future. "Strategic" points towards energy and education, investments that pay back over time.

Increasingly, even the deficit hawks recognize that this is not the time to worry about deficits. This is the time for action. To paraphrase FDR, when the house is burning, you don’t fret about the cost of the hose.

Over the weekend, president-elect Barack Obama started to define what the New York Times labeled a Vast Economic Stimulus Plan.

“We’ll be working out the details in the weeks ahead, but it will be a two-year, nationwide effort to jumpstart job creation in America and lay the foundation for a strong and growing economy. We’ll put people back to work rebuilding our crumbling roads and bridges, modernizing schools that are failing our children, and building wind farms and solar panels, fuel-efficient cars and the alternative energy technologies that can free us from our dependence on foreign oil and keep our economy competitive in the years ahead.”

He is exactly right, and he’s been saying this since the campaign.

In June he told the U.S. conference of Mayors:

“Now is not the time for small plans. Now is the time for bold action to rebuild and renew America. We’ve done this before. Two hundred years ago, in 1808, Thomas Jefferson oversaw an infrastructure plan that envisioned the Homestead Act, the transcontinental railroads, and the Erie Canal. One hundred years later, in 1908, Teddy Roosevelt called together leaders from business and government to develop a plan for a 20th century infrastructure. Today, in 2008, it falls on us to take up this call again – to re-imagine America’s landscape and remake America’s future. That is the cause of this campaign, and that will be the cause of my presidency.”

Back then he was estimating expenditures in the $150 billion range – and nowadays that's rounding error. But back then the Dow was at 12,000 and 1.5 million more people had jobs. It’s nice to see him up the ante.

The American people are behind this too. A June survey by Hart Research showed a country that wants more than quick stimulus. Nearly two-thirds (63 percent) of voters think the economy is facing “long-term, structural economic problems.” Only one-third (30 percent) say it is a “short-term economic downturn.”

Investing in physical infrastructure is among the most popular of long-term solutions. A June survey by Rockefeller Foundation found 82 percent support for “increasing government spending on things like public-works projects to help create jobs.” Reconstruction will take time and exceed the limits of a single budget cycle – but for long term solutions to long term problems, you don’t “pay as you go.” You invest over time.

We discussed all of this last week at our conference on Real Investment in America. I wrote all about it in our snazzy new report, The Investment Deficit.

Build, baby, build. The consensus is emerging.

With A Compass, Not A Roadmap

Eric Lotke — Wed, 26 Nov 2008 07:14:55 -0800

The complaints are starting on the new Obama administration. Some are concerned that he filled his administration with former Clinton hands, reflecting the old school (if more competent), not the change we need.

“What worries me is there is not one person in the senior group who is the outsider to this club,” cautioned Robert Kuttner of the American Prospect. “Where is the diversity of opinion in this economic team?”

David Sirota of our own Campaign for America's Future observes that some terrific progressives have been appointed to high-level positions in the Administration, but they are political jobs, not substantive ones. They are “positions that are focused on selling policy, whatever that policy may be. “ In contrast, the “policy advisers who actually craft policy are almost all right-of-center, Establishment choices.”

Discontent is coming from the other direction as well, as Democrats increase estimates of the cost to revive the economy. During the campaign Obama pledged roughly $150 billion in spending over 10 years to create new jobs for clean energy and rebuilding schools. Now Congressional Democrats are estimating immediate expenditures in the $700 billion range. The GOP has created a spendometer to track the continuing increases.

Obama himself dodges questions about cost. “It is going to be of a size and scope that is necessary to get this economy back on track,” he said in his November 24 press conference. “I don't want to get into numbers right now.”

The question for progressives is whether to demand the details or question his choices.

Both seem premature. Political change happens with a compass, not a roadmap. Obama has clearly indicated which way he wants to lead: in the direction of clean energy, massive public investments, an exit from Iraq and “affordable, accessible health care for all Americans.” These are important and fundamentally progressive goals.

Digby sees a positive side to the appointments to political -- if not substantive -- positions. Simply using progressive language drives our country in a positive direction.

Let’s trust that those old Clinton hands will have the skills and experience to navigate the changing terrain. Obama’s job is to set a direction. Our job is to push him forwards and keep him on course.