Friday, November 21, 2008

Ways to Stimulate an Economy: the Pittsburgh Plan

In case you haven't noticed, the economy is reeling. Reeling not in a 'I just ate two Burger King Whoppers', but reeling in a 'I was just forced to go to a reunion show of Backstreet Boys' reeling. Yes, it has gotten that bad and it continues to deteriorate day after day. The Dow closed below a volume of 8,000 yesterday. There is strong risk of deflation pushing the markets down further. The credit market has fallen to record lows pushing the beckoning recession deeper and deeper. Yes, things have gotten bad. How will the Obama Administration handle this hell in a handbasket present on Jan. 20th?

Now, I am not normally a commentator on policy prescriptions, but things have gotten bad enough for me to leave my normal political reality and enter into an economic one.

The Obama transition team continues to promise an economic stimulus package as its first act. This is a necessity, but what will that stimulus look like and at how large a cost? Most commentators claim the package to be anywhere between $300 and $500 million. I am inclined to agree with Paul Krugman's analysis, as he states that the larger the better (the man won a Nobel Prize for a reason, folks). If you buy any kernel of Keynesian economics, then you believe that a large influx of government spending will act as an injection that will stimulate GDP knowing government spending is one function of GDP (along with consumer spending, investment (business and household) and net exports). However, my conservative critics will remind me that the stagflation of the 80s dissproved Keynesian economics (as there was both inflation and high unemployment). But, this is not the time for a philosophical debate. Consensus is beginning to build around continued injection of government cash into a flagging economy. And I believe that a stimulus package must be large and must be targeted.

The New Deal of the 1930s will inform some of our analysis. FDR did not pull us out of the Great Depression by himself, he had the help of a stop-gap now known as World War II. FDR's policies, it can be argued, actually did not go far enough to lessen the Great Depression, because after winning the 1936 elections, he raised taxes, pulled-back on government spending and spurred on the 1937-1938 recession. It was not until massive government spending on WWII did we find our way out of the Great Depression. Knowing that we do not now have a global war on our horizon, the lesson to be learned is to not be too tempid in government's response to the crisis. This is no Great Depression, granted, but we have the opportunity now to focus on social ills knowing that our government spending is not irresponsible but as responisble as we can be. What should those programs do?

It likely that health care and a green economy will be the focus of the next stimulus package. I teeter back and forth between the benefits of a large check given to American families. Consumer spending has been falling drastically in recent months as people watch their pocket books more closely. This is bad news knowing that consumer spending makes up roughly two-thirds of our GDP. That would be a reason to give everyone a shiny check to use at their will. But, as some commentators have noted, "saving is back" and it likely that the money would be used to pay off credit card debt and not to buy a new Chevy. I think we would be better served by a more long-lasting cash influx seen through tax cuts (also, more politically feasible).

But, I believe that one target of the stimulus should be to push back against the growing unemployment rate now above 6.8%. A green economy can achieve this in the long-run, but a short-run gain can be seen through an infrastructure-works program akin to the Works Progress Administration and the Civilian Conservation Corps of the New Deal. The WPA built the infrastructure that we now use. According to the Office of Government Reports, "By the summer of 1938, 280,000 miles of roads and streets had been paved or repaired and 29,000 bridges had been constructed. Over 150 new airfields and 280 miles of runway were built [by the WPA]." Spurred on by the disaster in Minneapolis, we again need to focus on our infrastructure.

The next stimulus package must include what I will call the Pittsburgh Plan. Pittsburgh is known as the City of Bridges, even though it has the second highest concentration of urban bridges in the US to New York City. Pittsburgh and the state of PA cannot afford to repair the massive number of 'structurally deficient' bridges in the city. For comment, here is the Pittsburgh Tribune:
"The reality is they don't have the resources they need to address the entire problem," said bridge expert Kent Harries, an assistant professor of civil and environmental engineering at the University of Pittsburgh. "People are not willing to accept the level of taxation that would be required to make it enough."

In Allegheny County, nearly 32 percent of the state's 1,176 bridges are considered "structurally deficient," ranking them among the worst. The rate is higher than the statewide average of 24 percent.
Infrastructure, obviously, does not just include bridges, but also roads, schools, airports, and government buildings. Focusing on infrastructure in a massive economic stimulus package could alleviate the short-term effect on the taxpayer. Yes, it would be huge deficit spending, but the program would help finance our recovery and produce thousands of jobs in the process. The Pittsburgh Plan could cure a growing ill of our society, failing infrastructure, and act as a step to feeding a hungry economy.

From where would the workers come? Granted, we live in a more specialized and skilled labor market than we did in the 1930s, but the manufacturing sector has been shrinking for decades and those workers would find employment through the Pittsburgh Plan. Likely not helped would those being laid off from the financial sector (i.e. CitiGroup's thousands of displaced workers). But, it must be remembered that a government agency focused on infrastructure would not just utilize construction workers - a lot more goes into an agency. Other skill sets would be in demand.

The Pittsburgh Plan is just one component needed and just one idea for ways to stimulate an economy, but it serves a social and material need in our society. Infrastructure is never sexy to campaign on, as there are little voters passionate about the process, but find me one voter who would not want this scenario: their child boards their bus and turns onto the newly done road, which leads over the recently rebuilt bridge as it enters the redone parking lot outside the recently renovated school - all programs financed through the Pittsburgh Plan. The results speak for themselves, not all we need is the political will to make it happen.

- Wyatt

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