Sunday, December 14, 2008

Stimulus and Response

If there's going to be an orgy of federal "infrastructure spending," as a means of stimulating the economy, let's at least spend the money smartly, argues Joel Kotkin in this sensible piece in today's Washington Post. "Don't just stand there, spend something" seems to have become the consensus economic recovery strategy in Washington, all too conveniently. "Subsidy-side economics" might best describe Obama's program. But Kotkin argues that we should forego flashiness and fads, opting for practicality over pie-in-the-sky, if we want to get the most bang for our bucks.

I hope some of president-elect Obama's advisors are reading The Post this Sunday.

Make Sure All That Spending Is Well Supported
By Joel Kotkin

It's the new buzzword: infrastructure.

President-elect Barack Obama has promised billions in infrastructure spending as part of a public works program bigger than any since the interstate highway system was built in the 1950s. Though it was greeted with hosannas, his proposal is only tapping into a clamor for such spending that's been rising ever since Hurricane Katrina hit New Orleans in 2005 and a major bridge collapsed in Minneapolis last year. With the economy now officially in recession, the rage for new brick and mortar is reaching a fever pitch.

But before we commit hundreds of billions to new construction projects, we should focus on just what kind of infrastructure investment we should -- and shouldn't -- be making. More important, we should think beyond temporary stimulus and make-work jobs and about investments that will propel the economy well into this century.

After all, it's not that we stopped spending on infrastructure over the past decade. It's that mostly, we haven't spent on the right things.

New York City, for example, has wasted billions on its bloated bureaucracy and on constructing new sports stadiums and other ephemera deemed necessary to maintain Mayor Michael Bloomberg's "luxury city." Meanwhile, many of its subway and rail lines have deteriorated. Over the decades, brownouts and blackouts, caused in part by underinvestment in energy infrastructure, have become common during periods of high energy use in the summer.

Similarly, California Gov. Arnold Schwarzenegger has extolled the Golden State as "the cutting-edge state . . . a model not just for 21st-century American society but the world." Yet California's once envied water-delivery systems, roadways, airports and schools are in serious disrepair.

Many even more hard-pressed communities -- Cleveland, Pittsburgh, Philadelphia, Baltimore
and New Orleans -- have similarly wasted limited treasure on spectacular new convention centers, sports arenas, arts and entertainment facilities and hotels while allowing schools, roads, ports and other critical sinews of economic life to fray.

Convention centers and other tourist attractions create reasonably high-paying construction jobs in the short term, but over time, they create an economy dominated by lower-wage service jobs. Take New Orleans. It was once one of the nation's great industrial and commercial centers. But then the city turned its back for decades on its diverse economic base and invested not in levees, port development and basic infrastructure but in the arts, culture and tourism. The tourism and convention business surged, but the result was a low-wage economy. Nearly 40 percent of New Orleans households, or twice the national average, earned less than $20,000 a year in 2000.

Other places have followed a similar trajectory of folly, heavily subsidizing luxury condominiums, restaurants and other amenities to help lure the so-called creative class. Michigan Gov. Jennifer Granholm's 2003 plan to turn her state around focused on creating "cool cities" aimed at attracting hip, educated workers to Detroit and other failing urban centers. Instead of sparking an economic revival, Granholm has presided over a mass exodus of younger workers who can't find jobs in her state.

Perhaps no place epitomizes misplaced priorities better than Pittsburgh. Widely hailed in the media as a poster child for the urban "renaissance," Pittsburgh has suffered a precipitous decline in population: Its 310,000 residents are less than half its 1950 peak. It now shares with parts of the former East Germany the gloomy demographic of having more residents die each year than are born.

Like other cities, Pittsburgh has sought to revive itself with billions in new stadiums, arenas and cultural facilities. Meanwhile, its roads and bridges are in a constant state of disrepair. Most recently, the city embarked on a scheme to create a 1.2-mile, $435 million transit tunnel under the Allegheny River to connect downtown's heavily subsidized towers with taxpayer-funded pro sports stadiums and a new casino. This "tunnel to nowhere," derided by a local columnist as the nation's "premier transit boondoggle," will no doubt be the sort of thing many states and localities will seek federal infrastructure funds for, justifying them on the basis of both short-term economic stimulus and some kind of "green" agenda.

Although some new spending on efforts such as developing alternative fuels could improve efficiencies, many "green" projects seem destined to devolve into little more than expensive boondoggles. A recent program passed by the Los Angeles City Council, for example, calls on the city-owned utility's ratepayers to subsidize installing solar panels on office buildings. This plan, heavily promoted by labor lobbyists, mandates that the project be carried out by the

Department of Water and Power, whose employees are among the most well-paid public workers in the nation. By some estimates, it would raise the price of electricity by as much as 8 percent. But it will do nothing to slow the continued flight of industrial and other employment from Los Angeles or its suburbs.

A "red-green" tilt to infrastructure programs -- essentially marrying the labor and environmental lobbies -- also seems sure to raise spending on public mass-transit projects. Some transit or rail spending can, of course, promote efficiency and productivity. A significant incentive to increase rail freight, for example, could boost productivity in the critical manufacturing, agriculture and energy industries because rail can generally carry far more goods on less fuel than long-haul trucking.

Spending on upkeep of transit systems in older centralized cities such as New York, Washington and Chicago also seems logical. But with few exceptions -- the heavily traveled corridor between downtown Houston and the Texas Medical Center, for instance -- ridership on most new rail systems outside the traditional cities has remained paltry, accounting for barely 1 or 2 percent of all commuters. Such projects are almost absurdly expensive on a per-capita basis; the Allegheny Institute, a Pennsylvania think tank that pursues free-market solutions to local questions, estimates that the cost to the taxpayer of each trip through the new Pittsburgh tunnel could be as much as $15.

Infrastructure investment requires a strong litmus test. Where the cash goes should be determined chiefly on the basis of how the spending will enhance the nation's productive capacity and raise incomes across the board. This also means looking beyond traditional brick and mortar investments to critical skills shortages. Businesspeople nationwide complain repeatedly of a chronic shortage of skilled blue-collar workers and technicians. More than 80 percent of 800 U.S. manufacturing firms surveyed in 2005 reported "a shortage of qualified workers overall." Nine in 10 firms said that they faced a "moderate-to-severe shortfall" in qualified technicians.

In sharp contrast to sports stadiums and convention centers, programs in skills training for U.S.-based industries such as aerospace, energy, machine tools and agricultural equipment tend to create high-wage jobs, which have expanded over the past decade even as the overall number of industrial positions has declined. Many industrial companies are increasingly desperate for skilled workers and often consider locating wherever they can be found. These companies also produce many jobs that, though not located on the factory floor, are critical to the nation's competitive edge. For example, the Manufacturing Institute estimates that manufacturers employ one-fourth of all scientists and 40 percent of engineers.

A forward-looking infrastructure program would also target places that would most benefit from new roads, bridges, ports and other critical facilities, including underperforming regions such as the Great Plains, Appalachia and rural Pennsylvania, as well as the depressed Great Lakes area.

These areas offer cheaper labor and housing, prime locations and access to natural resources. Making them more accessible to markets and more energy efficient could replicate the great New Deal success in modernizing much of the South and West.

Perhaps most critical, we need to look at how to combine new physical investments with new initiatives in skills training, incubating small companies and promoting better ties with local universities and research facilities. This "infrasystems" approach has been implemented successfully in places as diverse as North Dakota's Red River Valley, the area around Wenatchee, Wash., and in various Southern locales such as Charleston and Savannah.

The call for more spending on infrastructure represents a unique opportunity to rebuild our productive economy and create long-term middle-class jobs. But if the effects are going to last, the trick is to concentrate on the basics and forget the flashy, feel-good kinds of projects that have characterized many "infrastructure" investments in recent years.

Joel Kotkin is a presidential fellow at Chapman University and executive editor of He is finishing a book on the American future.

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