President-elect Obama's call for enormous new investment in national instructure has the potential, as Steve Coll recently noted, to both stimulate the economy in the short run and strengthen it for the long haul. But as the situation in California illustrates, the economy cannot get the full benefit of that infrastructure package unless the stimulus package also includes a large dose of direct aid to state budgets.
In every respect but one, California is ideally positioned to take advantage of Obama's infrastructure plans. With its congested freeways, crumbling levees, and burgeoning population, it has boundless infrastructure needs. It has existing voter authorization to issue tens of billions worth of state bonds to cover the state's share of cost for projects. It has a bountiful supply of workers, now idled by the collapse of housing construction, to retrofit buildings for energy efficiency or to repair schools and public buildings. It has a vigorous corps of entrepreneurs and venture capitalists to spur a wave of green infrastructure investments, contributing new ideas and technologies to the effort.
It has everything to carry out an infrastructure stimulus program except cash.
I just came across the Transportation for America campaign. It's a coalition of some great organizations who recognize the strategic importance of building out a 21st century transportation network for the United States.
In a nutshell, T4A is advocating the following:
Build a world-class rail and transit network that puts us ahead of the rest of the developed world, not behind.
Help communities meet the soaring demand for homes in neighborhoods that require less driving and have access to high-quality transportation options;
Restore, and then keep our existing highways and public transportation networks in tip-top shape.
This is important.
My colleagues in the Smart Globalization program here at New America recently hosted former Senator Majority Leader Tom Daschle and CEO Leo Hindery to talk about how our health care crisis is creating a massive competitive disadvantage. Our transportation infrastructure is doing the same thing.
There is an old truism that goes, "where you stand depends on where you sit." This was the case for former Treasury Secretary and former Goldman Sachs chief Robert Rubin and his policy of "Rubinomics" that elevated a few short- and medium-term macro indicators (e.g. annual budget deficit, Fed Funds Rate, S&P 500, etc.) above long-term economic health.
Similarly, his successor, current Treasury Secretary and also former Goldman Sachs chief, Hank Paulson. In Paulson's case, stability of the macroeconomic status quo is the highest priority and thoughts of longer-term, broad-based domestic prosperity are given short shrift.
If you're a banker in Wall Street these policies make complete sense. If you're the next President of the United States, however, that kind of narrow thinking is insufficient.
That is a long introduction to my critique of T. Boone Pickens' new energy plan. In today's Wall Street Journal, the renowned oil executive offered up his plan to, as he puts it, "escape the grip of foreign oil." While Pickens' proposals rightly establish the scale of the problem -- "Now our country faces what I believe is the most serious situation since World War II" -- the package of solutions is clearly designed by an Energy executive, and is not ready for consideration by the next president.
During the design of the fiscal stimulus plan in early 2008, the mantra was that it must be "timely, targeted, and temporary." Larry Summers, in his recent piece in the Financial Times, acknowledged that these principles may have been flawed and that a longer term stimulus plan that includes infrastructure investment will be necessary.
At the time, people feared that the economy would recover quickly and any stimulus that went beyond the summer would add to inflationary pressure. Many now fear that the economy will be stagnant for much longer and that the stimulus checks will only provide a temporary boost to consumption, after which, the economy will enter a longer period of stagnation or even recession.
During the formulation of the stimulus plan, the New America Foundation Economic Growth Program and Bernard Schwartz advocated investing in infrastructure to give Americans jobs with high incomes and make businesses more competitive. Now, Summers agrees that infrastructure investment should be a component of further fiscal stimulus.
Larry Summers - What we can do in this dangerous moment (June 30, 2008)
The current governor and the once (and future?) governor have had a warm relationship, campaigning together for municipal finance protections and against changes in the state's three strikes law. But Monday, during a long Schwarzeneggerian soliloquy at a Riverside event to promote his rainy day fund proposal, the governor took a shot at Brown in response to a question from a Southern California Gas official about the state's infrastructure problems. Here's the direct Arnold quote in the transcript, in full context:
"Well, California for 40 years has not really rebuilt our infrastructure in water, so we have now the stuff that was done under Governor Brown from the '60s. Not Jerry Brown, but Pat Brown, because Jerry Brown did not build infrastructure. They stopped building infrastructure when Reagan came in and so Pat Brown was the last one that built infrastructure. And so, since then our population has gone from 18 million to 38 million but we haven't built any new infrastructure. So, you still have the same water delivery system, we still have the same amount of reservoirs that are now between 50 and 75 percent down. We're running out of water, so there's a major problem."
This blog took a shot last week at senate Republican leader Dave Cogdill yesterday for the hypocrisy of going after ballot initiatives as part of reform proposals. But Cogdill and his Assembly counterpart Mike Villines at least are offering a number of reform ideas. It's a long, piecemeal rollout, as they tackle contracting, education, and budget reform. Given the power of labor and the fact they're the minority party, few of these ideas have much chance of passing. But it's good that they're raising issues--California desperately needs a serious, wide-ranging debate about the structure of its government, its budget system, and its tax system. Here's the latest set of proposals. Of these ideas, the ones that have the best chance of making it are the ones calling for more government transparency (requiring public agencies to publish their expenditures on the Internet in a searchable form), the elimination of some state mandates to local school districts in bad budget times, and the speeding up of voter-approved infrastructure projects.
US News & World Report (04/11) asks Sherle Schwenninger about economic policy and the U.S. government.
The National Interest (04/10) quotes Steve Clemons on the subtlety of realist politics.
Bloomberg (03/24) quotes William Hartung on the benefits to contractors in Iraq.
In each formulation of American grand strategy since World War II -- until we inexplicably stopped such planning in 1992 -- the President and Congress relied on the power of the American economy to do the strategic heavy lifting. Sixteen years, however, is far too long for even the American economic engine to coast without a strategic re-alignment, and the stimulus, bailouts, subsidies and even military operations that naturally ensued have forced even Martin Wolf of the FT to declare the "dream of global free market capitalism" dead. Writing in the upcoming issue of The Nation, Sherle Schwenninger, looks to the architects of the New Deal and finds three lessons essential for re-tooling the American economic engine and bring market capitalism back home to America's shores.
America needs $1.6 trillion in public investments to get our infrastructure up to date, according to the American Society of Civil Engineers. New America's Economic Growth program, led by Sherle Schwenninger, argues that not only is it necessary, but in a time of recession, infrastructure-based stimulus is the best way to revive the economy.
So it's heartening to see that with rust-belt states coming up on the primary horizon, more presidential candidates are supporting public investment.