More on the stimulus

Richard Green, director of the Lusk Center and, as I said yesterday, one of my favorite colleagues (I seriously do have fantastic colleagues–I really enjoy being in a policy school) tries to help me understand why the stimulus is going do what we hope it will via this very useful discussion paper. I recommend highly.

I will maybe take up further arguments tomorrow, depending on how far I get on this manuscript I’m working on.

WSJ on no more stimulus

The Wall Street Journal surveys 54 economists throughout the year. The latest results show that most economists in their survey suggest waiting. I can’t imagine this is a particularly random sample of economists, given the WSJ. Make sure you click through the charts because somebody in information presentation did some beautiful work here.

My super-smart economist colleague, Richard Green, disagrees, and then goes on to explain why the plan to help out distressed mortgage holders is also too timid.

Caveat: The following are mostly my impressions–I don’t have research that backs me on these ideas.

I’ve always maintained that the stimulus would disappear like a stone into water–and I think a second would do the same– and I am less sanguine about the rebound effects than the wait-and-see guys polled by the WSJ. I’m not sure where this “mother of all joblessness recoveries” is coming from. The transportation sector is, of course, happy to suck up as much money as we throw at it. I wonder about this sector as a source of growth anyway. Public transit advocates widely claim multiplier effects of investing in public transit, but in terms of construction, I bet the sector has become even more capital-intensive over the past three decades than just about any other. And if travel is ubiquitous, as it is in many places, the idea that you will open new markets with infrastructure investment doesn’t hold water–not that the way it did back in 1930. If that’s the case, the money goes to the contractors and, to a much more limited degree, to skilled workers. I don’t see contractors really doing anything besides sitting on those gains for awhile, which might provide some cash for other sectors. Maybe. But getting that money into the hands labor through job creation? I don’t see it happening. What I see instead coming are massive government layoffs, adding to joblessness rolls.

Cities and the Stimulus

One of my fantastic students from Virginia Tech, Eric Howard, posted this piece from today’s New York Times on Facebook. The NYT author argues that:

Two-thirds of the country lives in large metropolitan areas, home to the nation’s worst traffic jams and some of its oldest roads and bridges. But cities and their surrounding regions are getting far less than two-thirds of federal transportation stimulus money.

The reporter goes on to quote outrage from mayors. They also get information from one of my favorite experts, Rob Puentes at Brookings. As usual, Rob has a very good point here: this package isn’t just about business as usual revenue allocation–which has always had a strong rural bias due to the structure of the Federal representative system (as Owen D. Gutfreund points out). This rural strength made way more sense 150 years ago than it does now.

So, of course all of these smart people are right in that cities aren’t treated very well in the stimulus, as they aren’t treated very well in Federal politics in general.

However, we have to ask ourselves: would it really be sensible to hand out this money on a per capita basis either? The main argument for cities and against suburbs and small towns is an economy of scale argument. Those arguments underpin the “costs of sprawl” research. Urbanization and density of human settlement lower the cost of providing infrastructure because of all the sharing we city folk do: the same sidewalk can serve thousands per day instead of a handful of people per day, as in a low-density settlement.

Thus, cities should somewhat expect to receive less per person than other places. The key point is just how much less per person should we expect urban infrastructure to cost, given all this sharing. The problem with sharing, of course, is that sharing leads to congestion after a certain point in population growth, thereby raising costs for everybody and requiring either dispersal of population or additional infrastructure.

While planning and planners are hard-wired to think in terms of increasing density, building duplicate systems (ie increasing capacity) in congested areas is only one means of cost sharing: the other, more macro-scale approach is to direct more growth to areas with excess capacity or price congested facilities and shift more of the revenue generation burden back onto users instead of looking for Federal funds.
This latter approach is, I think, where we are ultimately heading with infrastructure finance in the new urban world. Do we have compelling arguments for why the Federal government should be involved in urban infrastructure if all they going to do is return revenues to source (the per capita/population distribution argument). Anti-federalists can and do make strong arguments for local funding of intracity systems, like metro rail systems, while Federal dollars should go to intercity and interstate projects.

So while the NYT and urban mayors are probably right in that this distribution of funding is skewed, they haven’t really told us what the right distribution would look like, other than to say that cities are important and they need more money. Of course they are and they do, but it isn’t as though some of the poorest places in this country aren’t places like the Central Valley rather than places like Los Angeles, and it’s not as though Boston doesn’t depend on connectivity between rural Florida and Boston for all parts of the freight and US food system.