Thursday, August 4, 2011

Congress and the President are Bankrupt of Big Ideas to Grow the Economy --- What About Infrastructure?

Although I believe in free market capitalism (with limited constraints such as child labor laws, food safety regulations, anti-trust laws, etc.), I don't think the private sector, solely on its own, is up to the task of upgrading our Country's infrastructure from deteriorating and dangerous to efficient, safe and productive.  And that's where we need Federal government participation with private enterprise to stimulate growth in our economy.

I continue to hear the President and some members of Congress talk about ways to grow our economy --- but, for the most part, these are small, on-the-margin ideas.  While the President and others have talked about improving our infrastructure, nothing has happened because that is a long-term idea that doesn't move the vote-my-current-economic-state electorate in the very next election.  As a result, Congress and the President are hamstrung (a self-inflicted malady) when it comes to a big-ideas growth vision for the long-term well being of our Country.

If we want significant, long-term growth to enhance the standard of living of our children and grandchildren, we need to focus on infrastructure spending now.  Here's a recent comment from a NYTimes reader (mickeyrad, Centerville, Iowa) that gives rationale to the concept:

"Did anyone see Pete Orzag on Charlie Rose’s show last night? Here is 'the brain' – propeller head, Obama called him – of the administration. He essentially says, Keynesian spending does not work because you borrow and spend to create jobs but you have to keep borrowing and spending to maintain those jobs. Apparently he’s never heard of 'priming the pump'. And this is 'the brain' of the Obama administration.

To me, Keynesian economics is most easily seen in infrastructure spending. Take the Metro system in Washington DC – it cost billions, but private developers put up hundreds of billions building all those office buildings, condos, and shopping areas near the Metro stops. The same is true for the interstate system. The government spent about $425 billion (in 2006 dollars), but private business put up trillions building sites along the interstates and at junctions.

The TVA cost hundreds of billions – it’s hard to find the exact cost. It is still generating tons of electricity. It had $11.26 billion in revenue in FY 2009; $726 million in net profits. 12,457 people work at the TVA today.

All this construction creates jobs. Permanent jobs are created in private industry. People buy food, gas, clothing, cars, houses, refrigerators, everything. The 12,457 people working at the TVA create over 37,000 jobs in a multiplier effect.

That’s Keynesian economics. The government started the building, and spending, but was soon overcome by 100 times the private building and spending. You spend $500 billion on infrastructure, you get a few trillion in related building, businesses, and multiplier effect."