OK - so that implies that the tax cuts need to be in perpetuity to create that growth. That is, you have to cut taxes by $135 billion not just this year, but going forward every year to sustain it. I'm not sure that's the method used for spending. If it is, then spending $1 every year to grow GDP by $1.40 is just dumb, because that $1.40 in GDP would only generate about $0.35-$0.40 in taxes each year while you're spending $1 - so the taxpayers would actually be losing money on the deal. But if that is the multiplier, then government spending as a stimulus would certainly be dumb. (an answer may be in that article - but i'm too lazy to scan it right now) One quibble here - the math would change in that much of the stimulus effect is based on psychology. So if you're starting at a 90% tax rate and go down to 85%, the individual person sees a 50% increase in their remaining income (10% to 15%) - that's a much bigger psychological impact than, say, if you went from 30% taxes to 25% - in that case, the person's disposable income goes from 65% to 70% - that's only a 7.5% increase, if that makes sense. Oh I understand - I'm not terribly familiar with how the multipliers are affected and don't really know whether tax cuts or spending are efficient or not, so this is all good information.
The tone of that blog also seems to treat “government spending” as though it was the all the same, and some kind of scary boogieman. Different kinds of government spending will have different impacts on the economy, of course, so what kind of spending is he talking about? He references a couple of papers so I had a quick look at the first, and what it’s talking about is military spending, including a close look at government spending on the military during WWII. http://woodwardhall.wordpress.com/2008/12/11/measuring-the-effect-of-infrastructure-spending-on-gdp/ This is a puzzling thing, because that was a completely different context than the one we’re in now. During WWII people were asked to consume less, to NOT by new cars and other good, because everyone was conserving for the war effort. Factories were taken over by the military to produce tanks and planes and other instruments of war. I’m not surprised that the multiplier was that low during the war, or that after he war the pent up demand caused buying spree. In our situation now, however, government spending on needed infrastructure - and we’ve already shown that there is over a trillion dollars of it that needs to be done – should not have a significantly different impact than any other form of private sector investment. Think of governments as companies that we hire to manage our countries. Right now they are borrowing money to make some needed upgrades. They are building assets and repairing and thereby increasing the value of other assets. They are doing it at a very good time, when the money is cheap and the resources they need will be plentiful and cheap as well. The multipliers in this scenario shouldn’t be any different than if an oil and gas company was doing upgrades, and many of the very same subcontractors will likely end up being hired. I’ll have to have a more complete look at the first paper and a look at the second paper later, but I suspect that this is a case of the original blogger trying to compare apples to oranges by looking at two very different contexts and trying to equate them.
i need to stop watching the news or something....the more i watch the more i think we're all screwed. that is unless you are a CEO of an investment bank...then you just get money handed to you.
I was looking for a less-biased report on the infrastructure situation. I didn't find a general one, but here's one from Reason on the highways. The highlights: 24% of bridges are deficient, but that's the best it's been since they started measuring in the 1970s. 50% of urban Interstates are congested. 5% of urban Interstates are in poor condition, down 40% since the 1980s. 2% of rural Interstates are in poor condition. <1% of other rural arterials are in poor condition. 10% of rural roads are too narrow. Texas has the largest and 12th best road system. New Jersey has the worst. Overall road quality correlates very positively with maintenance spending, mixed with capital spending, and very negatively with administrative spending.
Under the Lend Lease Program wouldn't the US government be indirectly paying for those factory orders?
Lend-Lease didn't start until 1941, after the US already had a bunch of Europe's gold. The US was out of Depression in 1940.
It seems to me as Grizzled notes that certain type of government spending could have profound multipliers on the economy. I haven't seen it quantified but consider how much of a benefit to our economy has come from the Interstate Highway system. Given the size and scope of the highway system I have a hard time imagining that we would have the highway system that we have now without a both signifigant federal government spending and federal management. I have a hard time seeing states from CA to FL on their own coordinating to build I-10 or funding it. I have a even harder time seeing a private conglomerate doing so. The other example is DARPANET which paved the way for the Internet. It seems to me that the investment in DARPANET has paid off immeasurably. I have some leeriness regarding government spending and worry about the increasing debt, waste and mismanagement but I can also see some big positives out of government spending and how that could be both the solution to the current crisis but also something that could vastly improve the country. I guess what I'm wondering about is out of all of this new spending we are going to get another Interstate Highway system or even a TVA out of it.
Levees in New Orleans failed. Bridge in Minnesota collapsed. Are our dams, bridges, and levees really that safe? It seems that more people have died during the Bush administration from poor infrastructure than under Clinton.
You are correct on the dates. I'm skimming the Wikipedia entry on the Great Depression and there is an argument that the Great Depression only ended with the start of the War and Europeans buying weapons. [rquoter]By 1936, all the main economic indicators had regained the levels of the late 1920s, except for unemployment, which remained high. In 1937, the American economy unexpectedly fell, lasting through most of 1938. Production declined sharply, as did profits and employment. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938.[14] The Roosevelt Administration reacted by launching a rhetorical campaign against monopoly power, which was cast as the cause of the depression, and appointing Thurman Arnold to act; Arnold was not effective, and the attack ended once World War II began and corporate energies had to be directed to winning the war.[15] By 1939, the effects of the 1937 recession had disappeared. Employment in private sector factories recovered to the level of the late 1920s by 1937, but did not grow much bigger until the war came and manufacturing employment leaped from 11 million in 1940 to 18 million in 1943. [16] Another response to the 1937 deepening of the Great Depression had more tangible results. Ignoring the pleas of the Treasury Department, Roosevelt embarked on an antidote to the depression, reluctantly abandoning his efforts to balance the budget and launching a $5 billion spending program in the spring of 1938, in an effort to increase mass purchasing power. Business-oriented observers explained the recession and recovery in very different terms from the Keynesians. They argued the New Deal had been very hostile to business expansion in 1935–37, had encouraged massive strikes which fiscal stimulus required to end the downturn of the Depression was, and it led, at the time, to fears that as soon as America demobilized, it would return to Depression conditions and industrial output would fall to its pre-war levels.[17] The incorrect prediction by Alvin Hansen and other Keynesians that a new depression would start after the war failed to take account of pent-up consumer demand as a result of the Depression and World War.[18][/rquoter] It looks somewhat mixed regarding the effect of government spending that it caused some problems but also helped too. For that matter it does look like the war time boom was almost totally due to government expenditures.
In the Libertarian world, the government should not do anything, you should be responsible for maintaining the road in front of your house.
Are you suggesting that the ASCE is biased? Them's fightin' words coming from a chem.. Why don't we look at Houston as a case study. Here's an article that suggests 6 projects, some of which I suspect you won't agree with, but some of which you might think are worthwhile. http://houstonstrategies.blogspot.com/2008/11/six-federal-stimulus-infrastructure.html In Calgary we need one long leg of our LRT built, and extending a couple of more would help a lot with traffic congestion and future growth. What state is the state of the Houston LRT? We also need to complete a leg of our circle drive. This will keep the big trucks out of the city and keep them from chewing up our streets and adding to our traffic problems. Does Houston need any projects like this? I've also read, although I don't have the link handy, that Houston need more power plants and an improved electrical grid. Is this true?
I think the whole country needs to upgrade our electrical grid - and in particular, connecting the various pieces (for example, Texas is pretty separate from everything else). Unfortunately, I don't know that the bill that went through the House really invests in this kind of stuff as much as it should. I'm hoping the Senate bill is better.
ASCE is biased towards creating work for Civil Engineers. I totally get it, but I personally think we should base our infrastructure decisions on truly independent analysis. In the blog you linked, the one that I definitely agree with is the freight rail bit. That being said, from what I remember from the railroads (at least the ones I was invested in, the problem with expanding freight rail isn't needing money or subsidies, it's needing land. At least last year, two of the railroads whose stock I had bought (BNSF and NS), were expanding, and wanted to expand in other areas, they just needed land to lay tracks. 290 Congestion is a miserable problem, but I'm not sure adding a toll road and changing an interchange helps much. I admittedly don't know much about this. Just from my dealings with local utilities (I had a substation within the gates of a plant I worked at.), the power companies claim that Texas benefits from being separate from the East and West grids. I hear a lot of talk about adding capicitance so that we can rely more heavily on wind power, but that has sucked for Germany. Even with a more modern grid, the brown outs have really hurt industrial development.
If the first couple of weeks are any indication, I'm going to make a fortune on "Don't Blame Me, I Vote For McCain" bumper stickers.
Yeah - I don't know many details either. I've just heard power could potentially be cheaper and more reliable with a better connected system. Looks like I was wrong about House bill on this part, though. At least according to this: http://www.platts.com/Metals/News/6090255.xml The bill also targets $32 billion to upgrade the country's energy transmission, distribution and production systems, which would also require a lot of steel. I don't know if this is the electricity grid in particular, but this is the kind of stuff I think any stimulus should be focused on.
I thought they were making 5 lanes in each direction, which would help outbound traffic, but I can still see traffic being completely stopped going to 610. Katy Freeway has improved greatly after they opened it all the way.
In all honesty I don’t think there has been a shortage of civil engineering work, at least work that has needed to be done, in a very long time. There has been less money to do it than work that needed to be done for a very long time. I haven’t searched for any more links yet, but what about the other infrastructure issues I raised? Are any of them needs in Houston? How are your water supply and sewage systems? Are there any public buildings that need to be renovated, or built? Remember, you’re not likely to be able to build them as cheaply as you can now a couple of years down the road. You don’t want to build anything you don’t need, of course, but if is something on the books to be built in the near future it may well be a lot cheaper to build it now when money is cheap and contractors are hungry. This is a time when you can really take advantage of this economy to get some things done at bargain basement prices. What does Houston need? What would make Houston a better place and therefore pay off down the road by supporting business in general, and/or just improving the quality of life for the citizens of Houston? How can you get maximum value for the money that’s about to be spent? Now is the time for some forward thinking and community discussion about these issues.
I don't think McCain's strategy for addressing the economic crisis would've been substantially difference.
