Friday, August 12, 2011

Jobs, Jobs and More Jobs: The Government to the Rescue

Now that the debt crisis is behind us everyone is going to concentrate on creating jobs and jump starting the economy, after a short little five week break. The refrain is going to be the same: one side will say we need to “invest” in infrastructure to get the economy moving, the other will say we need to cut taxes to spur businesses to hire. Neither will get all that they want, it will be the other sides fault nothing is happening fast enough, and nothing much will change.
It is estimated that this country needs a Trillion dollars in infrastructure “investment” which of course under the present model would require borrowing or printing more money. Now, roads and airports are great things, and we should not have to worry about bridges collapsing under us, but there probably won’t be a big payout to this investment in terms of the overall economy. We hear how we need a jobs program like the Depression era WPA to get people back to work and kick the economy into gear by spurring demand. While the debate will rage whether those programs did anything to help the economy, what we have to realize is that it is not 1934 anymore. The problems arise in how the government spends on and manages projects today. Right off the bat, if the estimate is for a Trillion dollars, then you can be sure that the final tab will be $1.25 to $1.5 Trillion. Top down administration and giveaways to the home town crowd will always bring about serious cost overruns. If you take the Trillion dollar figure as set in stone, you would still have to realize how much would be overspent on these projects, blunting any real economic impact. Davis-Bacon prevailing union wage rules, “buy American” provisions and compliance with a myriad of Federal regulations overseen by dozens of overlapping agencies will ensure that the taxpayer pays the absolute most they possibly could for any given project. Which is the better investment: spend $100 million to build one bridge under Federal guidelines or build two bridges for the same amount without them? Are we of the opinion that the states are so hopelessly incompetent that they can not build a bridge or a road that properly serves their economy and communities without total Federal control and oversight? You saw the relative incompetence of Federal thinking in the Stimulus Bill that was initially supposed to get us working again. The President thinks it is a big laugh now, the notion of “shovel ready projects” but it shows the problem of Federal policy and planning in this regard. A “shovel ready project” in their little universe would presuppose that states and municipalities all over the country have a notion to say build a bridge, yet no money to actually build it. In the hope that Big Momma Government might someday show up and pay for this project they went ahead and: commissioned a feasibility study, an economic impact survey, an environmental impact survey, a soil survey, a general engineering survey, a right-of-way study, proceeded with public comment and taking of lands, hired engineers and architects to design said bridge, all at a cost of tens if not hundreds of thousands of dollars, and then shelved it for the day the check showed up. All of these things take months to complete, and all of the hoops must be cleared in the right order. Compliance with regulation is incredibly costly, with most large firms holding a full time staff to simply ensure that all the paperwork is in order. While this is a job, it is a job that adds nothing to the value of the work for the man-hours expended. The other difference between then and now is the mobility of people. The old projects brought people to where the work was needed. Today there will be attempts to target projects to revitalize dying communities. There will be competition to get project X or Y into one area or the other in the hopes that a factory town that has lost 50% of its population will be reborn. The project will go to the most powerful and influential Representative’s district, with no real guarantee that it is the best project for the best area. This is essentially attempting to hold back the tide with a teaspoon. There are economic realities that caused factories to shutter in these communities that won’t be changed by a road, a railhead or broadband internet. Many people have a deep seated attachment to their communities and want to stay, but we need to ask if this is a proper “investment” of the tax payers money. If the object is to get the economy rolling again, and invest in the country’s future you can not just throw money about with the Federal Government usual favor based abandon and rigid top down controls.
For the Republicans the refrain is also the same - tax cuts. Taxes are a problem, but they will as usual focus on the wrong aspect. Passing out tax breaks and subsidies to the usual rent-seekers will not get the economy rolling. This country faces a competition problem, externally and internally. Capital is incredibly fluid now, and it is going to move towards the best investment. Companies are sitting on Trillions of dollars, not hiring people, because they have stripped themselves down to the bare bones and are competing. They are not going to hire anyone in the present environment because they are unsure about the future. And why would you hire in this environment? Why would banks make loans for expansion so long as they can borrow money for free from the Fed and turn around and buy interest bearing government debt with that money? The tax breaks and loopholes that many corporations use to their advantage should be closed, but not until the tax rate structure has changed. Everyone is aware we can not compete with a top rate of 35%, hence the tax breaks and subsidies government has passed out. Simply ending the breaks and saying now pay 35% will cause the complete collapse of the system. Providing further tax cuts to companies with low tax liability will also not get anything moving. There needs to be a structural change to the system that allows entrepreneurs to flourish with less competition stifling regulation and an end to targeted subsidies that benefit the well connected, even if it is at the expense of the old firms that are sitting on the sidelines. If the object of the exercise is to get people working again, then we should be concentrating on what will get companies hiring and individuals to take the risk of starting a new business, not just a rehash of the same old playbook.
The government throwing money around for short term construction projects or passing out a tax break to the usual suspect multi-nationals isn’t the answer for this problem. If we hope to extricate ourselves from our present dilemmas we need to revamp the system. Spending, taxes and regulations need to be thoroughly examined to find what is the best combination for creating actual growth. Being fluid and open to other solutions should be the order of the day. Religious, unequivocal devotion to “your” sides orthodox thinking about how to solve what everyone admits is a unique problem would seem to be the crazy proposition.

2 comments:

  1. Creating actual growth is a known formula. Less government and free enterprise.

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  2. Very well written , researched and thoughtful. There are (obviously) a multitude of problems and issues, but ONE of the keys is the actual political system itself. Since politicians of both stripes are judged by what they do for THEIR town, city, district, state or country, they NEVER want the spigot turned down or off. No pork to their locality = loss of THEIR jobs! BOTH parties are into this system.....right up to their necks.

    Add to that the lack of term limits coupled with the reality of donors owning their vote, you have an untenable situation that will NEVER be reformed from within....much like any other large organization. We are a country who is big on instant fixes and doesn't do deferred gratification, and politicos will go for the fake and the splashy quick fixes. These factors have resulted in a crumbling infrastructure; a soon-to-be neutered (if not decimated) military; and an economy that if it were an actual consumer, would never qualify for a mortgage or a car loan. Sorry, but no panacea exists and until we can stem the tide by radically changing our system, there is no end in sight to our continuing slide into the pages of history along with other world giants who imploded under their own weight.

    Ron From Brooklyn

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