Sunday, January 6, 2008

Fixing our infrastructure will jump start the economy!

The unemployment rate surged to 5 percent in December as the economy added a meager 18,000 jobs, the smallest monthly increase in four years.

The private sector actually lost 13,000 jobs.

The swift deterioration in the job market indicates that troubles once confined to real estate and construction are spilling into the broader economy, threatening the ability of American consumers to keep spending.

In response, President Bush has proposed making his high end tax cuts permanent.

This is not surprising. Cutting the taxes of the wealthy has been the singular policy proposal of this administration for any and all problems.

When President Bush was running for office in 2000, he proposed high end income tax cuts, the elimination of the inheritance tax, and cutting investment income taxes because the country was running a projected $5.2 trillion dollar surplus. He proposed a $1.3 trillion cut (25% of the total projected surplus) because he: "...trusted the people, not the government."

Shortly after he assumed the Presidency, in March 2001, the economy fell into a recession. But Bush's response was the same medicine-high end tax cuts- for an entirely different ailment.

In May 2001, as gas prices began to soar for the first time under his administration, President Bush proposed, you guessed it, high end tax cuts as the solution which Congress ultimately passed

President Bush, and all of the Republican candidates competing to replace him, are wrong when they argue that making tax cuts that have disproportionately benefited the wealthy permanent will stimulate the economy.

The 2001-2003 jobless recovery and the relatively anemic job growth that followed suggest that high end tax cuts are not an effective stimulus precisely because the wealthy are the least likely to immediately spend their tax cut windfalls, although that is precisely what is needed to jump-start the economy.

Making high end tax cuts permanent, moreover, would not increase spending this year when a stimulus is needed. It wouldn’t affect the economy until 2011 since that is when the tax cuts are set to expire.

Making the tax cuts permanent, however, would increase the country’s deficit for years, increasing interest payments on the debt that will have to be paid by future generations and reducing the funds available for needed social investments in education, job training, research and development, science, medicine, medical care, energy and infrastructure.

On Sunday the New York Times called for an economic stimulus package to revitalize the failing economy.

The Times argued that middle and low (income or payroll) tax cuts would be effective since that money would be spent immediately.

Equally if not more, effective than targeted tax cuts, would be a plan to significantly increase investment in the nation’s failing public infrastructure — highways, bridges, rail systems, water works, public schools, port facilities, sewers, airports, energy grids, tunnels, dams and levees.

California’s experience in early 90’s demonstrates what a well-timed shock of public spending can do for a depressed economy.

California was mired in a severe recession when an earthquake rocked Southern California in January, 1993. It was the costliest in U.S. history. Sixty-one people died. More than 9,000 were injured. The quake destroyed more than $15 billion of property, including 21,000 housing units. It devastated highways in the nation's most auto-dependent region.

The federal government responded with disaster relief. The immediate infusion of $9.5 billion in emergency assistance and public works funds revived the depressed economy. Less than six months after the earthquake, Southern California's economy was growing and generating jobs for the first time since 1990.

The tragic collapse of the Interstate 35W bridge in Minneapolis, while not a natural disaster like the Los Angeles earthquake, is the canary in nation's failing infrastructure mine. Our nation's infrastructure is crumbling.

A study released in May by the Urban Land Institute and Ernst & Young found that 83 percent of the nation’s transportation infrastructure was not capable of meeting the country’s needs over the next 10 years. The American Society of Civil Engineers, in its latest national report card, gave transportation infrastructure a D. It estimates that government should be spending $320 billion a year over the next five years — double the current outlay — just to bring up to par what already exists.

A public infrastructure investment program would address one of the nation's biggest problems, create high wage jobs, save lives, decrease business's cost of transportation and stimulate the economy! If tied to local hiring and job training, it could help address the unacceptably high rates of black unemployment which are rising as the economy slows.

Other ideas should be on the table as well. The nation has a shortage of low and moderate income housing particularly in fast growing suburban areas experiencing labor shortages. We are falling further behind our international competitors in developing a high speed communications infrastructure. And we lack modern high speed train and energy efficient (light rail) transportation systems.

Before we waste valuable national resources by making President Bush's inefficient high end tax cuts permanent, we should examine the more effective economic stimulus tools in our policy tool box. It is after all, our money (and country for that matter) and as someone once said, in a different context, we know better than a lame duck politician what to do with it.

6 comments:

Roger Bybee said...

Drained by tax breaks for corporations and the wealthy, along with the Iraq War, spending for infrastructure has fallen substantially in recent years.

These cutbacks are demoralizing when we see how Milwaukee's park system has declined. But they are also extremely dangerous when you consider the collapse of freeway bridges, as Mike Rosen noted.

Yet the vast unmet need for restoring our infrastructure---roads, bridges, parks, schools, and other public institutions--potentially presents us with a tremendous opportunity to provide meaningful, well-paying work to the vast armies of workers displaced (or denied any opportunity) by the flight of jobs to places like Mexico and China.

However, there are two principal barriers we will confront in trying to enact a New Deal-style public-works program:
1) The continuing flood of public dollars into subsidies for corporate boondoggles like $25 million for a Manpower parking structure, about $15 million for the Harley-Davidson Museum, or $33 million for Pabst City. Moreover, 62% of Wisconsin corporations earning more than $100 million in annual revenues pay no state corporate income taxes.
2) The aggressively-promoted right-wing argument that economic development ought to be left to the private sector, with the public sector relegated to a passive role of rubber-stamping corporate plans--whatever the impact on jobs and the environment--and heaping on financial "incentives." In this era, too many politicians of both parties have become comfortable with this role.

But this "junior partner" status for the public sector has left Milwaukee and other cities to be haphazardly re-shaped by private developers. The result is often an ugly melange of clashing architectural styles in areas attracting private investment.

However, far more destructive is the withholding of major investment in Milwaukee's Inner City, apart from a few scattered projects. The continuing neglect of the central city and the consignment of poor African-Americans, Latinos, and whites to lifes of ongoing misery.

Ultimately, there has been no place for democratically crafting a broad vision of the city we seek to create, as private developers have held all the cards and made all the key decisions.

A major public-works program would both put thousands of unemployed to work and restore the public's democratic voice in shaping the city.

Roger Bybee

Anonymous said...

Well, I know what to do with my money better than some tax and spend liberals. I like the middle tax cut, but how is this going to be paid for. I thought that all of the tax cuts for the wealthy were going to be used to pay for: health care, fixing AMT, etc.

Michael Rosen said...

.I'm glad you like the idea of a middle class tax cut.

It would not only be good for you, but for the country since the middle class would receive and spend the money immediately.

Unfortunately, President Bush has proposed making all of his tax cuts, more than 50% of which went to the richest 1%, averaging close to a very unmiddle class $1 million a year, permanent. These tax cuts, incidentally, are responsible for 51% of the nation’s deficits. If made permanent they would add more than $3 trillion to the deficit over the next ten years. Yet, making them permanent would have no impact until 2011.

I’d call Bush’s proposal a windfall for the rich rather than a stimulus.

Eliminating the very high end tax cuts (on incomes over $250,000, on capital gains and dividends which are now taxed at a lower rate than income and the repeal of the estate tax) would substantially reduce the deficit and provide funds to fix the AMT which President Bush and his advisors currently calculate into their projections, minimizing the size of projected deficits. Or it could be used to help provide healthcare for the more than 47 million who do not have it or strengthen Social Security.

But that is a different discussion. The main point is that the economy is staggering and it needs a stimulus. We could kill two birds (fix the infrastructure and jump start the economy) with one stone- investment in the infrastructure.

Haymaker said...

"Infrastructure spending will boost the economy" is a fallacy of socialism.

Michael Rosen said...

Haymaker,

Infrastructure investment has been a basic feature of capitalist economic expansion since Dewitt Clinton proposed building his “big ditch,” the Erie Canal, which established New York City as the nation's economic center by linking it to the agrarian heartland.

From canals, to railroads, to the Tennessee Valley Authority and Hoover Damn, to the Civilian Conservation Corps and Works Progress Administration (which built Hart Park in Tosa among other projects) to the interstate highway system, infrastructure investment (federal investment) has been a key to growth in our mixed market economy.

There are four major components to our economy-consumer spending, private investment, government purchases and net exports. When consumption and private investment decline as they currently are, it is incumbent on the government to act in a countercyclical way.

Short term, middle and low income tax cuts boost spending because almost all the money is immediately spent unlike the upper income tax cuts, much of which are saved. When demand (consumer spending and private investment) declines, as it currently is, investment in the infrastructure is simply another very effective way of increasing demand and stimulating economy growth. Frankly, it has nothing to do with socialism. Only the most rigid ideologue, with distaste for reality, would deny this!

John P said...

You are right this is not socialism, but raising the cap on social security without any increase in benefits for those people is!. I believe all of the major democratic candidates support this except for Clinton.

As a conservative, I am not for not taxing the rich, I really do not care about the rich. I think taxes are too high for EVERYONE. We should be talking about cutting government spending, and elimanting wasteful programs and pork projects. This latest federal budget was full of them.

Infrastructure is an important aspect and should be a top priority, therefore, other spending should be cut. I do not agree with the war in Iraq, and think it is costing us way too much money and lives. However, that does not mean that I support wealth distribution, and higher taxes on the rich to lower the taxes on the middle class. I am in the middle class by the way. Why our individual rights so important to the left when it comes to a fetus and someones property, but it is perfectly fine to take someones money?