No One Agrees with Amity Shlaes
While Amity Shlaes is suggesting a cut in the capital gains tax to spur investment, the nation’s Governors met with Obama yesterday to discuss infrastructure projects. The Washington Post takes a look at some of the complexity in pumping money through the states:
In a recession that lasts only a few months, economists say spending on infrastructure would do little to revive the economy; public works projects typically take years to get underway. Even with projects that are ready to go — meaning they have been designed, engineered and have cleared environmental and other bureaucratic hurdles — only about a quarter of the overall cost is spent within the first year, according to the Transportation Department.
Because this recession is projected to extend well into 2009, many economists see infrastructure spending as a viable way to put people to work and keep money circulating domestically. Unlike tax rebates, which might be spent on foreign goods or used overseas, money for road projects would be used to hire U.S. workers and to purchase domestic gravel and steel.
The need for infrastructure improvements is enormous. Federal transportation officials have estimated that the nation should spend $225 billion a year to modernize and maintain its crumbling roads, bridges and transit systems.
There is one place where Shlaes is right. We don’t need a new New Deal with grandiose projects. We need a practical stimulus package to accomplish infrastructure repairs that were put off during the boom years:
Aides said Obama’s transition team is trying to craft a strategy for prioritizing projects at the national level, relieving state officials of that responsibility. But the best candidates for stimulus spending are likely to be the least glamorous projects, the ones unlikely to thrill members of Congress, several transportation officials said: Bridge repair. Bus purchases. Filling potholes.
“It’s not as if people are going to say: ‘You know what? We got some money. We’re going to go build a bridge.’ For one thing, bridges take 13 years, start to finish,” said Janet Kavinoky, a transportation expert with the U.S. Chamber of Commerce. “The dollars are for real basic work that needs to be done to maintain the system we already have.”
>
Source:
Haste Could Make Waste on Stimulus, States Say
LORI MONTGOMERY and MICHAEL D. SHEAR
Washington Post, December 3, 2008
http://www.washingtonpost.com/wp-dyn/content/article/2008/12/02/AR2008120203491.html
December 3rd, 2008 at 10:52 am
“Federal transportation officials have estimated that the nation should spend $225 billion a year to modernize and maintain its crumbling roads, bridges and transit systems…..”
OK, but that is kind of like Hank Paulson saying,”I know what’s wrong, and I know how to fix it”..
I always feel better if someone not in the government (whose job depends on what we do) makes the evaluations..
December 3rd, 2008 at 11:02 am
@Bruce in TN: I think it depends largely on who in the government is making the evaluations.
Amity Shales is a partisan hack. Plain and simple. WSJ further taints the credibility of it’s Op-Ed page, much of which is as ridiculously partisan (if not more so) as the NYTime is on the left.
December 3rd, 2008 at 2:34 pm
“best candidates for stimulus spending are likely to be the least glamorous projects”
Again one of these “whao-did-I-wake-up-from-an-idealogog-nightmare-into-a-reality-based-universe” experiences. They are looking at facts and thinking before they make decisions. This is getting out of hand; Colbert and Stewart are toast, unless congress wakes up and put an end to this.
December 4th, 2008 at 6:45 pm
Marion:
Did Schlaes personally offend you at a cocktail party or something? Why do you continue to smear her. Lot’s of people agree with her and disagree with Krugman and Keynesian economics. Why wouldn’t a capital gains tax cut help? Why would deficit spending help? All you have to do is answer these questions. “Everybody is saying it” is not an answer.
December 4th, 2008 at 7:05 pm
A capital gains tax won’t do anything about the problem we face. What investment will you make if your capital gains tax goes to zero? None. The world faces a serious demand problem caused by the over-capacity created by the credit bubble. If that demand is not replaced with deficit spending by the goverment, we’ll face debilitating deflation as we did in the 30s. WW2 created demand through government spending and resolved the depression.
Right now, no one is lending because no one can borrow and put the money toward a productive use.
Why attack Shlaes? Because the stimulus is crucial. A meaningful opposition would focus on how the stimulus is used, not on wasting everyone’s time arguing whether we ought to have one. Her arguments, in that respect, are pernicious and should be treated with scorn because they’re a detriment to action in a very serious situation.
PS: The problems we face are a direct result of the wanton tax cutting of the Bush administration. The only positive side of that is we so neglected our communities that at least there is something to spend the stimulus on. Just think of the trillion dollars as our paying back the unnecessary tax cuts of eight years ago.
December 6th, 2008 at 5:07 pm
Marion:
I am sorry if you think people opposed to Keynesian solutions are wasting everyone’s time. The point I and many others make as critics of Keynesian theory, is that it is fundamentally flawed. The problem is not to prevent devaluation but to let it happen so that the economy can quickly recover. We’re fine with a safety net, but bad economic decisions shouldn’t be revived by spending (really, inflation) because the credit bubble cycle will start over again, resulting in a more severe crash. The reason people aren’t spending is that their housing credit card has been cut off and they are afraid of the future and want to save money. The problem with massive deficit spending is that it will result in permanent stagnation.
If you look at the situation in Japan in 1991 you will see a credit bubble resulting in a real estate boom and its subsequent crash. The government engaged in massive deficit spending, propping up of banks and insurance companies, and had a “fed funds” rate of nearly zero. The result: ten years of stagnation.
Also, ask yourself why the crash and recession following 1929 lasted 10+ years when other similar crashes lasted 18-24 months? Hasn’t there got to be a reason. And maybe it had to do with government policy?
So, I think Schlaes’ criticism, as well as many others, raise valid concerns that you should think about. I still challenge the Keynesians to show when has massive deficit spending worked. By the way, there are good empirical studies showing that people were worse off during WWII and it wasn’t until the ’50s that we got to pre-1929 prosperity.
December 10th, 2008 at 10:07 am
Qualifications I Can Believe In
I hadn’t realized that Amity Shlaes is a “senior fellow in economic history at the Council on Foreign Relations.” I kind of wonder what it takes to get made a senior fellow in economic history at the Council on Foreign Relations. She’s got a bachelor’s degree in English and her columns once won a prize from a libertarian organization for some articles that “compared the failing economy of high-taxed and over-regulated US state of Maine to the success of the increasingly economically liberal Ireland; and showed that US workers benefit from taking responsibility for their own pensions.” That’s it.
I have a really, really, really hard time imagining the CFR doing something comparable for a liberal with so little in the way of relevant qualifications or track-record outside an ideological cocoon. Just saying. Where’s my fellowship?
http://yglesias.thinkprogress.org/archives/2008/12/qualifications_i_can_believe_in.php