Lackluster Stimulus

Concerns grow about the lackluster results from stimulus funding as unemployment increases and more Americans face financial strain. Meanwhile, the real estate industry waits to be swept further down the rapids with the falls lying ahead—dropping tenant demand and rent declines threaten already dwindling cash flows in the face of frozen credit markets.

The problems with stimulus shouldn’t be a surprise. The tax cut part favored by Republicans has been stowed away in people’s savings accounts not spent. People are scared so they build nest eggs instead of spending in consumer land on things they really don’t need. Over the long term, a more frugal America will help strengthen the economy. It makes no sense to the average person to behave in a way that got us into this mess in the first place.

So the spending push must fall on the government. And as far as pushing out stimulus goes, the U.S. government lags well behind other nations, including China and the country some Americans love to hate—France.   The reason is we don’t have a national plan for major projects. China has engaged in long-term planning for national infrastructure—high speed rail, urban transit, port expansions, power systems—which will provide decades of support to economic growth. The Chinese can just speed up planning already in place. Here we fall back on the federal government sending funds to the states which spread the largesse out to counties, cities and towns for various ad hoc, disconnected projects. That takes time and is inherently inefficient. It also doesn’t address our huge needs for 21st century infrastructure systems. And we have no plan.

In fact, we learn in this morning’s New York Times that the states, as usual, short change their major urban areas where most of the country’s economic activity concentrates and plow the majority of their infrastructure stimulus into various rural backwaters. The money gets frittered away on road projects used by hundreds of people each day instead of on transport systems supporting hundreds of thousands. Indeed the stimulus amounts to earmarks on steroids, a pork barrel fest for governors and state legislatures dominated by rural interests at the expense of metros.

This bottom up approach threatens our economic viability not only in dampening any chance for a faster recovery, but also handicapping our competitiveness against other global powers with more modern infrastructure systems. The Feds must set national programs and priorities and push the states to get on board with clear guidelines and funding constraints if they don’t. The big gateway cities which generate most of our economic activity should get most of the funding. Sorry Montana and Arkansas you get a lot less and so do hinterland counties and villages in other states. There will be winners and losers, but the alternative is we all lose and that’s what’s happening now. 

Comments

[Neil from Vermont]

This makes perfect sense, but will it happen? We see federal programs again and again that aim to please everybody. Another example is the millions of dollars our small state of Vermont has received for "Homeland Security" after 9/11. Great for us local yokels, but does buying equipment for every fire department in the state really make us a safer nation? Same thing for infrastructure - let's get focused on the big picture and spend money where it will really make a difference. I shake my head with disbelief every time I fly into one of the New York airports and have no easy access to rapid transit into the city.

[Mike from DC]

Uncle Sugar could have done nothing and gotten the same or better results, and we wouldn't be an additional trillion $ in debt.