The new new deal

After much speculation Obama has released the outline of his economic recovery plan that, according to Politico, is based on:

ENERGY: “[W]e will launch a massive effort to make public buildings more energy-efficient. Our government now pays the highest energy bill in the world. We need to change that. We need to upgrade our federal buildings by replacing old heating systems and installing efficient light bulbs. That won’t just save you, the American taxpayer, billions of dollars each year. It will put people back to work.”

ROADS AND BRIDGES: “[W]e will create millions of jobs by making the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s. We’ll invest your precious tax dollars in new and smarter ways, and we’ll set a simple rule – use it or lose it. If a state doesn’t act quickly to invest in roads and bridges in their communities, they’ll lose the money.”

SCHOOLS: “[M]y economic recovery plan will launch the most sweeping effort to modernize and upgrade school buildings that this country has ever seen. We will repair broken schools, make them energy-efficient, and put new computers in our classrooms. Because to help our children compete in a 21st century economy, we need to send them to 21st century schools.”

BROADBAND: “As we renew our schools and highways, we’ll also renew our information superhighway. It is unacceptable that the United States ranks 15th in the world in broadband adoption. Here, in the country that invented the Internet, every child should have the chance to get online, and they’ll get that chance when I’m president – because that’s how we’ll strengthen America’s competitiveness in the world.”

I'm a bit underwhelmed. While making public buildings more energy efficient seems admirable enough, it strikes me as rather desperate when Obama brags about how many people will be employed screwing in lightbulbs. With regard to schools I think our main problem there are far more deep rooted than inefficient heating systems or a lack of cutting edge computers. Is this really the reason that children in less developed countries regularly kick our butts on international standardized tests?

Expanded broadband access is fine -- depending on how this is done. If Obama promotes a revamp of government policy that encourages more competition that's one thing, but if taxpayer dollars are being spent so that little Jimmy can play Medal of Honor online I fail to see how that will boost the economy. Ditto for medical records.

These are all rather marginal measures, with the real meat of the proposal found in the proposed infrastructure spending, er, "investment." The thing about spending on roads and bridges, etc. to boost one's economy is that this has already been tried by Japan without much success as Amity Schlaes points out:

The spending yielded painfully little for the rest of the economy. The Nikkei stayed down. The country's standard of living failed to keep pace with the rest of the world's. The average Japanese's purchasing power had been moving closer to that of the average American, Ronald Utt of the Heritage Foundation has noted. But in the 1990s the Japanese saw few advances. The gap between America and Japan widened again.

Worst, though, was the failure on jobs. Unemployment fell in many nations in the 1990s. In Japan, the '90s were a lost decade: The unemployment rate more than doubled and surpassed the U.S. rate -- an unthinkable occurrence just a few years earlier.

Even today, Japan is having trouble climbing out of its cement pit. At its high, in the mid-1990s, infrastructure spending accounted for 6 percent of its gross domestic product, double what the United States allocated for infrastructure in the '90s and still higher than what politicians are considering spending today. In estimates of national debt, the world's second-largest national economy is near the top of the list, perched between Lebanon and Jamaica. Last year, Japan's public debt was far greater than the size of its economy, a burden that makes its demographic challenges more difficult to address.

For a more in-depth look at this topic I would recommend the excellent book Dogs and Demons. The lack of job generation is only the most obvious defect in Japan's enormous infrastructure spending, with other results including increased corruption in government (typically kickbacks on contracts), "white elephant" projects that are not only unused by now must also be maintained and environmental degradation.

Indeed, the book discusses how national parks were paved over with roads that went unused, and in one example how concrete barriers placed on beaches to halt erosion were actually later found to speed up the process.

They say the definition of insanity is doing the same thing over again while expecting a different outcome. From the looks of things our sanity is about to be tested.

Infrastructure spending has its uses and there are plainly areas of the country where growth is being held back because of it. But such projects should take place after much deliberation and planning -- simply pouring concrete for its own sake is the answer to nothing. And it's not as if Washington hasn't already dispensed plenty of money for roads and bridges, with $500 billion spent over the past five years.

Really bold action here would be taking a look at the earmark process, in which political concerns rather than actual infrastructure needs determine where money is spent. So far I haven't heard much from Obama here.

To truly improve the competitive position of the U.S. we should be willing to look at areas such as tax reform, systemic changes on education policy and market-based health care reform that de-links coverage and employment. But that's a lot more difficult than changing the lightbulbs in our public buildings.

This doesn't strike me as the bold change people had hoped for.