Tonight on the Rachel Maddow Show, Rep. Peter DeFazio (D-OR) said the amount of infrastructure spending in the legislation is “not enough.” He argued that if the Republicans are recycling failed ideas of the past, “we don’t need to buy them off with $300 billion in tax cuts.” DeFazio said Democrats in Congress originally proposed more for infrastructure spending, but the effort was shot down by Obama advisers:
There’s a pretty good consensus among members of the House that it should be more. But the dictate from on high in the negotiations with Obama’s advisers — I don’t think the President is there — I think he’s ill-advised by Larry Summers. Larry Summers hates infrastructure, and some of these other economists — who were very much part of creating the problem. Now they’re gonna solve the problem. And they don’t like infrastructure.
They want to have a consumer-driven recovery. We need an investment- and productivity-driven recovery for this country, a long-term recovery.
Maddow noted Obama speaks “very highly” of infrastructure. “If there’s a distance between him and his advisers,” she said, then that’s a problem. DeFazio responded, “He needs to know it, and that’s why I’m speaking out.” Watch it:
DeFazio is right about the value of infrastructure. Significantly more “bang for the buck” comes from direct investment in infrastructure than from any type of tax cut. One dollar invested in infrastructure has a return of $1.59 in GDP growth, while most tax cuts don’t even return 50 cents.
DeFazio is also right about the need for a productivity-driven stimulus package, one that meets short-term and long-term economic needs. As Nobel Prize-winning economist Paul Krugman explained simply, “The one thing we know is that the good thing about federal spending is it’s actually spent, that it actually does boost the economy. And if it’s infrastructure, it also leaves you with something of value afterwards. Whereas if you do it the way the Republicans want to do it, which is always tax breaks, first of all, it might not be not be spent or it might not help the economy at all. And then, you’ve got nothing to show for when the thing is over.”
In December, Summers wrote: “Investments in an array of areas — including energy, education, infrastructure and health care — offer the potential of extraordinarily high social returns while allowing our country to address some long-standing national challenges and put our economy on a solid footing for years to come.”
And in June, he wrote: “There is now also a case for carefully designed support for infrastructure investment, as financial strains have distorted the municipal credit markets to the point where even the highest-quality municipal borrowers are, despite their tax advantage, paying more than the federal government to borrow. There are legitimate questions about how rapidly the impact of infrastructure spending will be felt. But with construction employment in free fall, there will be a need for stimulus tied to the needs of less educated male workers for quite some time.”
On the second full day of the Barack Obama administration, the Environmental Protection Agency has placed the brakes on two coal-fired power plant projects. The EPA “placed a hold on approval of Otter Tail Power’s proposed 500 MW Big Stone II coal-fired power plant in South Dakota.” The plant is sited at the Minnesota border to take advantage of South Dakota’s weaker environmental regulations. However, in a letter sent to the South Dakota Department of Environment and Natural Resources yesterday — the final day for review — the EPA said the state “didn’t meet requirements under the Clean Air Act in part of its proposed permit for the plant.”
In a joint statement, Clean Water Action and the Sierra Club said the decision “likely spells the end of Otter Tail Power’s Big Stone II coal plant”:
At a minimum, Otter Tail Power will have to go back to the drawing board and redesign the project to incorporate the best and maximum available control technology for pollution like soot and smog. Sierra Club and Clean Water Action will be pushing for EPA to set limits also for carbon dioxide, the main contributor to global warming.
The EPA’s Environmental Appeals Board yesterday stayed another coal plant, the 1,500-megawatt Desert Rock Energy Station in Navajo Nation land in New Mexico. In its decision, the board agreed to “review an air permit the EPA approved in July” for the plant.
The fate of these plants — and our climate — now rests in the hands of President Obama and his just-confirmed EPA Administrator, Lisa Jackson. If they choose to do so, they can make the official finding that carbon dioxide and other greenhouse gases endanger our health and welfare — a finding blocked for years by George W. Bush.
Megan McArdle’s dubious about the prospects for an economic stimulus given the background conditions shown in this chart:
And I’ll have to concede that that is an awful lot of debt. She also says that while stimulus “can ease the pain of a slowdown (at least in theory), as Tyler Cowen has been pointing out, the actual empirical evidence that massive government spending can shock an economy the size of ours into a permanently higher level of output is . . . well, it’s sort of hard to find a wittily apt description of something that doesn’t really exist.”
From where I sit, demands for evidence need to be put into perspective. There simply aren’t very many similar cases to analyze. The Keynesian reading of the empirical record of the Great Depression is that fiscal stimulus was working during FDR’s first term and that the recession-within-a-depression of his second term was caused by FDR’s decision to abandon stimulus in favor of an attempted return to balanced budgets. One would further note that the defense buildup associated with World War II led to economic recovery though wartime necessity eventually prompted government expenditures to suffer from diminishing returns and become macroeconomically counterproductive (it was a big war). That’s not the best empirical evidence in the world. What you would want would be a clear-cut case where we had a depression, then had a sustained stimulus, and then the depression ended. That’s not what we have. But it’s not as if there are tons and tons of examples of the industrialized American economy entering a depression to examine. There’s just the one case, complete with the policy choices that were actually made and the cataclysmic war that actually happened. Consequently, the empirical evidence supporting any prescription is necessarily going to be a bit thin.
So to pull a bit of the old burden-shifting, what’s the stimulus-skeptics’ alternative prescription? At this point in time just about everyone—liberal or conservative—agrees that it’s generally preferable to eschew fiscal stimulus and let monetary policy do the heavy lifting. The pro-stimulus analysis begins not with the idea that fiscal stimulus is awesome, but with the observation that we’ve already done a great deal of rate-cutting, can’t cut rates any deeper, and all signs are of the situation getting worse. Is the anti-stimulus idea to do nothing and hope for the best? To beg for the world’s surplus countries (Germany, Japan, China, oil producers, Switzerland, etc.) to do giant stimulus while we sit around? Are there “unconventional” monetary policy tricks Bernanke needs to be trying? I don’t mean those as rhetorical questions. But we do face an actual situation that’s rather urgent and calls for decisions to be made. The Republican Study Committee’s alternative to the stimulus plan is permanent income tax cuts, which isn’t a serious answer to the question. What do the smarter stimulus skeptics of the blogosphere advise as an alternative?
One day before President Obama ordered the closing of Guantanamo Bay, Rep. John Murtha (D-PA) said he would be willing to facilitate the process by bringing some of the detainees into his district. “Sure, I’d take them,” Murtha said. “I mean, they’re no more dangerous in a prison in my district than they are in Guantanamo.”
Fox News’s Glenn Beck called Murtha a “clown” yesterday because of the proposal. But Diane Gramley, president of the American Family Association of Pennsylvania, may have won top prize for the most absurd reaction. Calling the idea “ludicrous,” Gramley’s main complaint seems to be that the al Qaeda suspects will indoctrinate the other American inmates:
“I don’t think the average murderer or rapist hates all Americans or hates what America stands for like the terrorist prisoners from Guantanamo,” said Gramley, who lives in Venango County. “You intermix them with the prison population, and there’s the very real possibility they would influence those individuals in prison.”
While one local chamber of commerce president said he does not “see any downside” to Murtha’s idea because it would mean bringing jobs to the area, Pentagon officials are eying other military prisons in South Carolina, Kansas, and California.
But Kansas Gov. Kathleen Sebelius (D) and Sen. Sam Brownback (R-KS) have expressed strong reservations at housing former Gitmo detainees in their state. South Carolina Sen. Jim DeMint (R) said the Obama White House “should be ready for a fight” if it decides to move the terror suspects to South Carolina. “Transferring detainees from Guantanamo Bay to U.S. soil will endanger American lives,” DeMint said.
However, defense experts have stated the opposite, that the Guantanamo debacle has led directly to American casualties in Iraq and Afghanistan. But also, former Gitmo detainees will be locked in maximum security prisons and would pose no more danger than some of America’s most dangerous inmates:
– CNN senior analyst Jeffrey Toobin noted, “We have a legal system in this country that has tried Zacarias Moussaoui. It has tried the blind sheik. We have had terrorism trials. These people are in prison. Our legal system is completely capable.”
– “We have thousands of prisoners incarcerated who are as evil, violent and uncontrollable as I imagine any of the terrorist detainees are,” said Joseph Bobak, a local PA professor of criminology and forensic science.
Petey’s asked me a couple of times if the Second Avenue Subway project in New York shouldn’t qualify as a stimulus-eligible shovel-ready project. I think the issue here is that the project is too shovel-ready and the funding and work is already in place. And I think you can’t just do it faster because of the limited supply of tunneling machines—they’re trying to minimize “cut and cover” construction since this is a very built-up area, and the equipment for this kind of boring isn’t something you can pick up at a hardware store. But if that’s wrong, then, yes, this is definitely the kind of thing that deserves to be in line ahead of new highway construction in terms of infrastructure money.
Still, I mostly don’t have a problem with there not being huge new transit construction in a stimulus bill. New need to reform the overall infrastructure policy for the long run, not just for an economic emergency. But what really does deserve hefty stimulus funding is transit operating expenses which would be both fast-acting, progressive in distributional impact, environmentally sound, and high-multiplier. What’s more, unlike new construction it’s the kind of thing you could phase out relatively easily when it becomes unnecessary.
Utilities are the most effective delivery channels for making homes, commercial buildings, and industry more energy-efficient, but the vast majority operate under a regulatory regime that penalizes utilities for promoting efficiency. Indeed, those regulations actually motivate utilities to encourage their customers to overuse electricity, because not only do they make more profits then, but if demand rises enough, they can get the Public Utility Commission (PUC) to approve a new power plant and higher rates — and thus more profits.
I have been assuming that Democrats would wait until the mother of all energy bills later this year to make their big push toward decoupling. But it turns out that Dems have decided to make it one of the conditions for the multi-billion-dollar energy efficiency block grants in the stimulus (see “Details of Obama’s green stimulus plan released“).
That is an outstanding idea. E&E Daily (subs. req’d) has the details:
Today, Sen. Charles Grassley (R-IA), the ranking Republican on the Senate Finance Committee, said he could “buy into 90 percent” of the emerging plan but “opposes the nearly $90 billion in aid to states for Medicaid because some governors would use the money to mask poor decisions in other portions of their budgets.”
But allowing sates to plug their budget holes with federal funds is sort of the point. While Medicaid is one of the largest drains on every state’s budget, giving governors some latitude to use the funds balance the budget, keeps the government running and reduces other painful cuts in essential services or tax increases.