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Shovel-ready programs, cont'd

Bruce Bartlett lists five reasons public-works programs aren't effective for stimulus, and notes that we've known this since 1980. Here's the list:

● Public works programs cannot be triggered and targeted in a sufficiently timely manner to compensate for cyclical fluctuations in unemployment and economic activity. ● Even if it were possible to properly time a countercyclical program, the time it takes to construct public works would lead to a significant overlap of job generation and economic stimulus with periods of economic recovery. ● Public works programs have had a minimal impact on the unemployed. This is partly because the programs are not labor-intensive, and partly because many of the jobs created require skills the unemployed do not have. ● The duration of employment for individual workers is too short to provide meaningful economic relief, to maintain skills and work habits, or to provide on-the-job training. ● Public works are extremely costly. The cost of generating a construction job for one year ranges from $70,000 to $198,000. [Note: these are 1980 dollars; adjusted for inflation, it would be $185,000 to $525,000 per job.]

In general, he's right about that, and it's why only $100 billion of the stimulus was infrastructure investment, rather than $787 billion. But I'm not sure he's right this time. The first three problems with public-works programs are that they don't start quickly, they last a long time (and so they're still going on when we reach recovery) and they don't use the skills of the unemployed. This recession, by virtue of being uniquely long, and uniquely concentrated in the construction sector, also seems uniquely resistant to those particular concerns. Bartlett's last two points, that the jobs are short and that the cost per job is high (as you're also buying cement and steel and so forth) are more applicable, of course.

By Ezra Klein  | October 19, 2010; 2:00 PM ET
Categories:  Stimulus  
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Comments

Man, if only cement and steel were made by people.As it is I guess we must hope the cement gnomes are benign.

Posted by: williamcross1 | October 19, 2010 2:19 PM | Report abuse

For the first points you responded correctly Ezra, this recession is projected to last a long time, years, so projects that last for years are desirable.

For later points, some of these projects may not be that jobs intensive, but they are still money intensive; they put more money in peoples' hands and thus increase spending, and that increases employment. This is why the multipliers are so good in respected studies.

Finally, with regard to cost per job, are the workers doing nothing? Are the roads and broadband and schools they build worthless? Factor that in, with the high return of so many infrastructure investments, and the net-cost per job is not high – it's highly negative. Adding these jobs makes us wealth – a lot; it doesn't cost us wealth.

Posted by: RichardHSerlin | October 19, 2010 2:31 PM | Report abuse

The recession is in no way concentrated in the construction sector. Every sector of the economy is down, with a few marginal exceptions like logging that amount to a drop in the bucket.

Posted by: theamazingjex | October 19, 2010 2:32 PM | Report abuse

It isn't clear to me why "lasting a long time" or "overlapping a recovery" counts as a problem in any case. Who cares how long it lasts so long as it puts people to work today?

Posted by: pj_camp | October 19, 2010 2:40 PM | Report abuse

I might be inclined to give his comments more weight if we were prioritizing use of stimulus funds and the construction projects were classified more as "wants" instead of "needs". Given the condition of our national infrastructure, however, work to rebuild or maintain much of it is needed at some point, so it isn't a question of just creating make-work projects. Rather, the issue then should be focused on whether we should undertake the cost now or later. Ezra's demonstrated that doing it now is a relative bargain.

Posted by: reach4astar2 | October 19, 2010 3:00 PM | Report abuse

Ezra,
I might delve deeper on Points 2 and 4, which seem to contradict each other in some ways. "The projects last too long" and "The jobs are too short" don't seem to mesh cleanly.

Posted by: ctown_woody | October 19, 2010 3:43 PM | Report abuse

Also,

"The duration of employment for individual workers is too short to provide meaningful economic relief, to maintain skills and work habits, or to provide on-the-job training."

I absolutely disagree.

A series of jobs that lasts 6 months for one, or one year for another, is far better than being unemployed for two years straight for all of the things mentioned.

Posted by: RichardHSerlin | October 19, 2010 4:02 PM | Report abuse

The oldest reference to a ready-to-go stimulus I could find was a Senate bill from 1921:

"Plan to Combat Unemployment by Reserving Public Works"

"To prepare for future cyclical periods of depression and unemployment by systems of public works," That is the stated purpose of Senate Bill No 2,749 introduced in the United States Senate November 16, 1921, by Mr. Kenyon. The bill affirms that -

"A sound economic policy requires that a larger percentage of the public works and projects of the United States be undertaken and prosecuted during a period of major industrial depression and unemployment, when labor and capital are not fully employed in private industry, that a smaller percentage of such works and projects should be undertaken and prosecuted during a period when private industry is active and competing for the same men and material with resulting business strain and over extension, and that the prosecution of such works and projects should be utilized as a stabilizing force during a period of over expansion as well as during a period of depression."

http://chrismealy.blogspot.com/2009/01/shovel-ready-from-1921.html

Posted by: chrismealy | October 19, 2010 4:19 PM | Report abuse

Last time I looked, Ezra, this country was doomed to 10% unemployment forever. Under these conditions, it doesn't matter when the project becomes 'shovel ready.'
Just to add I've never understood the term 'shovel ready.' The feasibility studies, the compiling of competing bids and their evaluation all require people, and those people draw salaries, often higher than those of construction workers. So there are stimulative effects occurring long before ground is broken.

Posted by: RZ100 | October 19, 2010 5:02 PM | Report abuse

--*Are the roads and broadband and schools they build worthless?*--

In a word, yes, otherwise people would by investing in those things of their own free will.

What happens instead, via incompetent government, is that money is stolen from those who would use it in their own ways in projects in which they do find worth, and is redistributed to those folks who are favored politically, but otherwise can't demonstrate much real worth.

It is the massive mis-allocation of resources, the taking from folks who would use it in all sorts of ways valuable to themselves, but who will no longer be able to do so, that will deepen and prolong the economic troubles we are in.

Posted by: msoja | October 19, 2010 5:14 PM | Report abuse

1-Enough money and things happen fast
2-Then the Fed puts on the brakes if needed
3-Based on the 1980 unemployed
4-Construction takes time and roads are always in need of repair-bullshit
5-Meaningless

Posted by: endaround | October 19, 2010 5:37 PM | Report abuse

These reasons only apply to traditional public works carried out by private contractors. They do NOT apply to WPA-style direct job creation:
1. WPA-style programs can be started up very quickly, and wound down very quickly. The Civil Works Administration, precursor to the WPA, created 4.27 million jobs in three months, and then shut itself down completely in three months.
2. WPA-style programs hire the unemployed directly, use labor-intensive methods, and use basic techniques and tools to channel unskilled labor.
3. WPA-style programs can be run as long or as short as is required, and are much cheaper than Barlett estimates. Economists estimate that direct job creation actually costs only $35,000 per job.
http://realignmentproject.wordpress.com/2010/07/15/the-curse-of-self-liquidation-direct-job-creation-vs-traditional-public-works-a-job-insurance-supplement/

Posted by: StevenAttewell | October 19, 2010 9:17 PM | Report abuse

I'm with endaround: What does point 5 even mean?

"Public works are extremely costly. The cost of generating a construction job for one year ranges from $70,000 to $198,000."

What does it mean to "generate a job"? If a construction job pays, say, $50,000, where does this other money go? Does it evaporate? Or does it also go to recipients who will stimulate the economy in some way?

Construction companies exist, so I assume it's possible to profit from construction. Perhaps a government-run project is not as efficient as a privately run one, but, on the flip side, the government isn't taking a profit, enabling it to put more money into the hands of workers, etc.

I'm not convinced these numbers aren't just pulled out of thin air, anyway.

Posted by: dpurp | October 19, 2010 10:29 PM | Report abuse

"Bartlett's last two points, that the jobs are short and that the cost per job is high (as you're also buying cement and steel and so forth) are more applicable, of course."

Except that the work in question needs to be done sometime anyway. So we might as well do it now, when it acts as stimulus to a depressed economy, rather than sometime when unemployment is low, and major public sector investments would crowd out private investment.

Not to mention, we'd get more bang for the buck by doing it now than we'd ever be likely to again.

As the Slacktivist says, our high unemployment and our serious infrastructure needs are two problems that are each other's solution.

Posted by: rt42 | October 19, 2010 10:36 PM | Report abuse

--*WPA-style programs hire the unemployed directly, use labor-intensive methods, and use basic techniques and tools to channel unskilled labor.*--

At least they did eighty years ago, right?

If you want a good laugh, get 200 men and tell them you want them to build a highway overpass by hand. For minimum wage.

Posted by: msoja | October 19, 2010 11:53 PM | Report abuse

Msoja - $35,000 per job works out to $12.50 an hour. Not super, but it's a living wage in most places.

Posted by: StevenAttewell | October 20, 2010 5:04 AM | Report abuse

Intel is spending $8 billion to create 800-1000 jobs: http://www.businessweek.com/news/2010-10-19/intel-to-spend-up-to-8-billion-on-factory-upgrades.html. That's $8 million per job.

Posted by: icebloke | October 20, 2010 6:13 AM | Report abuse

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