The Stimulus Act Bargain

A point was made a few months ago about the Recovery and Reinvestment Act of 2009 (a.k.a. Obama’s economic stimulus plan) that really made a lot of sense to me. Most of us probably recall the tragic I-35 bridge collapse in Minneapolis in 2007. The cause of the bridge was due to a faulty design– the use of under-sized gusset plates– and an excessive amount of concrete overloading the bridge. The Federal Highway Administration advised shortly thereafter that there were about 700 other U.S. bridges of similar construction and asked states to inspect them. The Society of Civil Engineers recently gave our U.S. infrastructure an overall “D” grade, indicating that in many cases, our roads, bridges, and other vital infrastructure are in dire need of upgrades. I fear we will have more I-35 bridge scenarios in the future because our current national political dialogue is overly focused on deficits, repealing the health care bill (which will increase the deficit), and other distractions.

In “Infrastructure: the best deal in the economy,” Ezra Klein noted how many argue that government should be run more like a business. He then asked rhetorically,

So imagine you are CEO of the government. Your bridges are crumbling. Your schools are falling apart. Your air traffic control system doesn’t even use GPS. The Society of Civil Engineers gave your infrastructure a D grade and estimated that you need to make more than $2 trillion in repairs and upgrades… There’s good news… Because of the recession, construction materials are cheap. So, too, is the labor. And your borrowing costs? They’ve never been lower. That means a dollar of investment today will go much further than it would have five years ago — or is likely to go five years from now. So what do you do? If you’re thinking like a CEO, the answer is easy: You invest. You get it done.

Obama’s stimulus plan did precisely that, although many economists have argued that the stimulus act’s overall size, and its investment in infrastructure did not go far enough. But given the political climate at the time, that was probably the best the administration could do. Klein goes on:

When the feds checked in on the [stimulus act’s infrastructure improvement] funds, what they found shocked them. The project costs were coming in at 18 to 20 percent less than estimated. The Transportation Department then looked at the share that went to the Federal Aviation Administration for runway repairs. The money that the FAA had thought would complete 300 projects was going to finish 367 projects — about 20 percent more than projected.

But what about the debt, you might ask? Well, what about it? Delaying a dollar of needed infrastructure repairs is no different than racking up a dollar of debt. “You run a deficit both when you borrow money and when you defer maintenance that needs to be done,” [the chairman of the National Economic Council] said. “Either way, you’re imposing a cost on future generations.”

When we delay maintenance, infrastructure deteriorates even further, thus increasing future repair costs. It is key to understand here that an improved national infrastructure makes our economy healthier in the long run. Without adequate infrastructure, future economic growth will certainly be stunted. The problem goes beyond crumbling roads and bridges, but also applies to antiquated power grids, limited broadband Internet access, outdated air traffic control systems, and decaying schools. While passing the stimulus act in the middle of a recession may have been unpopular, as I pointed out in an earlier post about recession economics, severe recessions are just about the only time it is in fact advisable for governments to incur large debts.

I’m glad the administration had the courage to do what was right at a time when it was politically unpopular to pass the stimulus plan. However, more investment in our infrastructure is needed and there is no better time to do it than now.

3 Replies to “The Stimulus Act Bargain”

  1. Saving lives through improving infrastructure or saving money?! Never understood why there was even a choice to be made! When I drive across some bridges in VA, I literally hold my breath in hopes they don’t collapse while I’m driving across them. Call it unnecessary if fear if you like but they are failing apart and no one seems to care until its too late! This was a good read,

Leave a Reply