January 05, 2009
Dean Baker
The Guardian Unlimited, January 5, 2009
See article on original website
There is no doubt that the country needs a really large stimulus package and that the focus should be spending that can be initiated in the near future. We need a boost to the economy yesterday, which means that we should be looking for projects that can be started in 2009, or 2010 at the latest, not blueprints for projects that won’t be ready to go for 3 or 4 years. “Shovel ready” is the catch phrase for the stimulus package.
But just because we can do something does not mean that we should do it. Some infrastructure spending will actually be harmful to the environment and the economy over the long-term. This is stimulus that we better do without.
Specifically, there are many ready-to-go projects on the books for further highway construction. While not all highways are bad, highways that promote the pattern of sprawl that we have seen in many metropolitan areas over the last thirty years are bad.
We should not be making it easier for people to live long distances from their jobs, so that they have lengthy commutes each day. This would directly counteract efforts in other areas to reduce energy consumption and greenhouse gas emissions.
It doesn’t make sense to spend money retrofitting buildings, so that we use less energy heating and cooling them, if we’re also spending money in ways that encourage people to use more gasoline driving to and from work every day. In the same vein, it doesn’t make sense to pay money to develop more fuel efficient cars so that they can go further on each gallon of gas, and then go out spend tens of billions of dollars building highways that encourage people to drive more.
We know that some of the money in the stimulus package will not be well-spent. There is a rush to spend money and that means that some of the projects that get chosen will not be the most useful ones and the contractors who get hired will not always be the lowest-cost providers. This is a necessary cost of getting money out the door quickly.
But it is possible to prevent projects that are not just wasteful, but actually counterproductive, from being included in the stimulus package. It should not require too much analysis to identify highway projects that are likely to promote sprawl. Such projects should be excluded from a fast-track stimulus package.
That would not doom these highways from ever being constructed. There will be ongoing appropriations in future years. If it turns out that some of the projects that are excluded from a stimulus package are actually worth doing, even when their environmental costs are fully considered, funding for these highways can be appropriated as part of the normal process in 2010, 2011, or later. The point is to not let the rush to stimulus lead us to do things that we actually would rather not see done.
The amount of stimulus required to offset the impact of the collapsing housing bubble and the plunging stock market is substantial, but there are good ways to spend large amounts of money. The huge shortfalls incurred by state and local governments are an obvious place to start. The National Conference of State Legislatures has identified close to $200 billion in budget shortfalls in the 2009 and 2010 fiscal years. Since state governments are required under their constitutions to balance their budgets, these deficits are leading to large cutbacks and tax increases. These cutbacks and tax increases will worsen the recession.
There is a wide range of “green” initiatives that President-elect Obama can include in the stimulus package in addition to weatherizing buildings. For example, he could provide subsidies to public transportation agencies to cover the cost of lower transit fares. He could also pay people (presumably mostly lower-income people) to turn in older, more polluting cars and get them off the road. Such measures can both help reduce greenhouse gas emissions and boost the economy.
The other obvious way that Obama can boost the economy is with health care spending. Some of the money going to the states will be through state Medicaid programs. However, Obama could usefully spend much more money subsidizing Medicare for people who do no currently have insurance. This will be an important down payment on health care reform.
There are other ways in which President Obama could spend more money on stimulus. As Keynes noted more than 70 years ago, if we can’t find ways to spend money, we can always pay people to dig holes and fill them up again. This is of course wasteful, but paying people to dig holes will put money into the economy.
Digging holes and filling them again is obviously wasteful, but it is a better route than letting the economy slide even deeper into a recession. It is certainly better to have wasteful spending than to spend money on items than can actually do harm, like building highways that promote sprawl. In other words, the construction of the road to hell should not be part of the stimulus package.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer. He also has a blog on the American Prospect, “Beat the Press,” where he discusses the media’s coverage of economic issues.
