Making the case for another stimulus package

In the aftermath of the 2008 Lehman collapse, most banks froze lending and, in fact, requested their money back. At one point, 74.5% of the banks said they were tightening their lending standards. This caused a full-blown banking crisis, in which money was leaving the economy at an alarming rate. In human terms, there was a lot of distress — after all, every dollar going to repay the bank’s call notice is a dollar that doesn’t go into the purchase of goods and services.

In response to the 2008 crisis, the government entered into an emergency spending program. This was much derided in some partisan circles, but my thinking was that we needed stimulus to avoid an economic collapse.

That being said, the stimulus program had a slapdash feel to it, with all the talk of shovel-ready. Shovels? The people who needed economic help were mortgage brokers, printers, restaurateurs, construction companies, and the like. The “shovel” designation might have helped the construction guys in the short term, but somehow the economic stimulus package seemed to miss the point that the larger economy — all the rest of us — needed stimulus and confidence. Except for a tax rate cut (which I miss dearly, now that it has expired) there was not a lot of stimulus for the majority of Americans.

Five years later, I’d like to make the case for another stimulus package. Not because the economy is in the tank now, but because it will be again if we don’t get our act together. Yes, I am talking infrastructure.

• Roads. I’ve had two nighttime flat tires in the past year due to potholes. In one case, I was en route to a youth hockey tournament, and my passenger was not appreciative of the delay, to say the least. Then I needed to pay for a tow, a new run-flat, and a rim. The new joke in some quarters is that only the drunks drive straight. Drivers who pay attention to the road are weaving.
• Bridges. Are we waiting for another Minneapolis-style bridge collapse? The streaks of rust, crumbling cement, and peeking curls of rebar tell us bridges that need help can be found every few miles, and in every American city. I once mused out loud that our bridges are worse than Brazil’s, and a man next to me corrected this. “Brazil’s bridges and roads are beautiful,” he said. So, at least we have something to aspire to — Brazil.
• Air travel. Communications, radar, gates, and weather systems are overloaded. Time waits for no man, unless the man is changing planes in Chicago, where a key domestic route, for example, averages 71% on-time and 8% canceled flights. And that’s considered good! The chairman of United never would have passed Miss Howe’s 4th grade class, where timeliness was prized, but I guess he understands the term “butts in seats.” He just adds the words “and waiting…”
• Cyber security. By all accounts, attacks on the private sector are costing $100 billion per year, including losses by theft of intellectual property. Experts say that the real risk is in cyber attacks is in the area of electricity generation, water distribution, petroleum refining, and air traffic control. If these areas are not protected, experts say that a determined enemy — the known ones are Russia and China — can actually interfere with key economic drivers. I would add a joke here, but the prospect of life without running water is too frightening to jest about.

(Continued)

Before we debate the costs of the materials and labor, let’s agree that the cost of U.S. government borrowing is at an all-time low. At this writing, it is about 3% for a 30-year loan. A businessperson would see the opportunities in the growth of the economy — and the dangers that lie in not investing in the basics — and would go for it. The timing for favorable financing is compelling.

That’s what I’m advocating. Let’s borrow at 3% and invest in 30-year assets.

The business case is found in the reduced cost of transport (all those flat tires and lost time waiting for tows); the cost of diverting traffic away from crumbling bridges; the lives saved that would otherwise be lost to traffic and bridge accidents; the time recovered from avoiding delayed or canceled flights, and missed air connections; and perhaps, most importantly, ensuring against catastrophic loss of electricity, water, and other key services.

Are these benefits greater than the 3% cost? Almost certainly. So, why don’t we do it? I think the answer lies in a misunderstood accounting measurement system — the deficit.

But we just agreed (well, I just agreed) that economic benefits would cover the investment — and please note that I’m not counting the economic stimulus of the projects themselves. Aside from that, let’s stipulate that the way we account for the deficit is as a statement of funds flows — what comes in, what goes out. By that measure, many Americans long-term deficit is, say, 25% of income, simply because they bought a house using credit. However, buying a house as an investment makes sense if the investment is a tangible asset, which the deficit doesn’t measure.

So, let’s get on with this infrastructure investment. We’re ready for shovels.

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