Massive Infrastructure Spending is a Win-Win-Win-Win-Win (redux)
In Pennsylvania, it would take 15 years for the state to pay for current bridge repair needs, $600 million per year. But if the federal government was the intermediary, selling Treasuries to fund all $8.7 billion of work in the next few years, all the work would be done in the near-term, employing tens of thousands of workers idled by the private sector. Paying off the debt could be accomplished by a combination of taxes collected on the construction projects, reduced unemployment benefits, and Pennsylvania’s annual bridge budget, which would pay off the debt in 15 years or less.
Here’s what’s changed since I wrote this:
- Unemployment’s fallen a lot as residential construction has recovered significantly. February’s level of 15.7% is not as high as it seems because it fluctuates seasonally, and is lower than it’s been in February since 2008 (though much higher than the 2/08 level of 11.4%). So while we have missed the huge and FREAKIN’ OBVIOUS opportunity to take advantage of construction labor utilization at a 75-year low, it would still be possible for government to hire construction workers at fairly low wages and without crowding out private sector investment.
- Federal government borrowing costs have fallen since August 2011 to 2.0% for 10 years (from 8/11’s 2.3% level) and 2.8% for 20 years (from 3.3%). In real terms, these borrowing costs are -0.5% and 0.25%, respectively. Ask any businessman what he would do if he could borrow for 10 years for half a point less than expected inflation.
- The infrastructure backlog remains about the same: enormous and desperate. Last year Pennsylvania Governor Tom Corbett said that bridges and other transportation infrastructure “is not a budget item. It is too large for that. Transportation must be confronted as its own distinct and separate topic.”
Here’s the bottom line, which remains the same: we have an enormous infrastructure backlog nationally; we have below average construction labor utilization, which means government engaging this labor will have less of an impact on private business than usual; and we have federal government borrowing costs at an all-time low, actually below the expected rate of inflation for 10-year bonds.
Not only would a huge (say a trillion dollars) infrastructure stimulus still be a win-win-win-win-win, it’s a no-brainer.
I’d love to hear from some Republicans about why this is a bad idea.