Misplaced Policy Thinking – $1 trillion infrastructure build

As the stock market celebrates  and is downright giddy over the prospect of a massive fiscal expansion through a one trillion dollar infrastructure build,  we are less sanguine and propose a different and more long term policy track.
The U.S. doesn’t have  the skilled labor and experience to do such a large infrastructure spend and will have to depend on Chinese and foreign firms and labor to implement the program,  just as U.S. built out its railroads in 1830-60’s with Chinese labor.
The big infrastructure build this decade in the SF bay area was the rebuild of the SF Bay Bridge, done by a Chinese firm, by the way.

Bridge Comes to San Francisco With a Made-in-China Label – NY Times

SHANGHAI — Talk about outsourcing.

At a sprawling manufacturing complex here, hundreds of Chinese laborers are now completing work on the San Francisco-Oakland Bay Bridge.

Next month, the last four of more than two dozen giant steel modules — each with a roadbed segment about half the size of a football field — will be loaded onto a huge ship and transported 6,500 miles to Oakland. There, they will be assembled to fit into the eastern span of the new Bay Bridge.


Furthermore,  the U.S. is at full employment and only 936K  (as of Ocotober 2016)  of the labor force is employed in heavy construction and civil engineering.  You can’t take an unemployed banker and have him/her build a bridge or hospital.  This is not like the WPA and CCC during the great depression where the unemployed built campgounds, for example.

If implemented, expect big inflation in a few years.  The markets are already beginning to price it in with the collapse of the global bond markets and huge rally in the dollar.

The U.S. will thus have to rely heavily on immigrant labor and foreign firms for its $1 trillion infrastructure build out.  Exactly the opposite of what Trump has campaigned on. Ironic, no?

Finally,  many construction jobs will be automated in 10 years anyway and most, if not all new,  jobs will be in software and coding.  We have been writing, no, warning about this for years.

The idea of paying families that lose their jobs to automation and robots, say, $50k per annum, is already being discussed in the private sector and policy circles, commonly known as the “universal basic income“.

The brave new world of robots and lost jobs

A look at the numbers suggests that the country is having the wrong economic debate this year. Employment security won’t come from renegotiating trade deals, as Donald Trump said in a speech Monday in Detroit, or rebuilding infrastructure, as Hillary Clinton argued in Warren, Mich., on Thursday. These are palliatives.

The deeper problem facing the United States is how to provide meaningful work and good wages for the tens of millions of truck drivers, accountants, factory workers and office clerks whose jobs will disappear in coming years because of robots, driverless vehicles and “machine learning” systems. – David Ignatius, Wash Post, Aug 11, 2016

Instead of a one off massive infrastructure program, the U.S. should massively revamp its education system,  teaching coding to second graders and continue through graduation.  And ramp its vocational training for those not inclined to take a software job.   But this faces violent opposition from the special interests – not excluding the public sector and teachers unions — and will take political vision, will and courage.  We need a new Sputnik moment and we better get on with it.  Quickly.

The Japanese spent the U.S. equivalent of almost $20 trillion of infrastructure build from 1991 to 2009,  building bridges to nowhere and got them nothing — well maybe staved off a greater depression —  but a debt of over 200 percent of GDP and are now on the verge of blowing up.

Japan’s Big-Works Stimulus Is Lesson

Moreover, it matters what gets built: Japan spent too much on increasingly wasteful roads and bridges, and not enough in areas like education and social services, which studies show deliver more bang for the buck than infrastructure spending.

“It is not enough just to hire workers to dig holes and then fill them in again,” said Toshihiro Ihori, an economics professor at the University of Tokyo. “One lesson from Japan is that public works get the best results when they create something useful for the future.”

In total, Japan spent $6.3 trillion on construction-related public investment between 1991 and September of last year, according to the Cabinet Office. The spending peaked in 1995 and remained high until the early 2000s, when it was cut amid growing concerns about ballooning budget deficits. More recently, the governing Liberal Democratic Party has increased spending again to revive the economy and the party’s own flagging popularity.

NY Times, Feb 5, 2009

Enough of this same old archaic, not thought out policy making,
Yes it would be nice to have a first class and brand new “trophy” infrastructure to, say,  one up the Chinese,  but not at the expense of the future of our children. We prefer trophy children over trophy airports. Yes, fix and modernize LaGuardia and JFK; and in no way  are we saying we don’t need to improve are infrastructure and restructure the way we pay for it.
But. economics is all about making choices.  Staying at the Best Western instead of the Trump Casino Hotel while in Vegas is fine with us if it provides a better future for our children.  $1 trillion dollars?   Come on, folks, get real.

It’s about time we start to think outside the box, don’t you think?

This entry was posted in Economics, Fiscal Policy, Uncategorized and tagged , , . Bookmark the permalink.

2 Responses to Misplaced Policy Thinking – $1 trillion infrastructure build

  1. You want “thinking outside the box”? How about the Ten Steps to Prosperity (https://mythfighter.com/2014/11/09/a-brief-reference-what-you-need-to-know-when-discussing-economics/), starting immediately with Step #1: Eliminate FICA.

    That is if you really want “Outside the box”?

  2. davidwmolson says:

    More disturbingly profound is that a ‘good wage’ will in years ahead have to be defined downward. There are many reasons for this, including competition from other countries where ‘middle class’ is a lower range of income than it is here. Our middle class lives a very comfortable life compared to the middle class of our parents and grandparents.
    — (Resentment and antagonism over this, and over ‘inequality’, will probably lead to some ‘Luddism’ and some ‘leveling’.)

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.