Initially, I was inclined to look forward to a stimulus package that was heavy on infrastructure investments. These are said to have a reliably high multiplier effect and they also have solid long-term payoff—if done right—beyond the short-term stimulative effect. Then I was brought back down to earth by the reality that there’s an unfortunately limited supply of so-called “shovel-ready” projects that could be done within the next two years. But Paul Krugman asks the reasonable question of why the stimulus time horizon is so short, noting that Obama’s economics team is predicting that their plan will leave elevated unemployment all throughout 2011 and 2012:
As far as I can tell, Mr. Obama’s planners have focused on investment projects that will deliver their main jobs boost over the next two years. But since unemployment is likely to remain high well beyond that two-year window, the plan should also include longer-term investment projects.
And bear in mind that even a project that delivers its main punch in, say, 2011 can provide significant economic support in earlier years. If Mr. Obama drops the “jump-start” metaphor, if he accepts the reality that we need a multi-year program rather than a short burst of activity, he can create a lot more jobs through government investment, even in the near term.
Still, shouldn’t Mr. Obama wait for proof that a bigger, longer-term plan is needed? No. Right now the investment portion of the Obama plan is limited by a shortage of “shovel ready” projects, projects ready to go on short notice. A lot more investment can be under way by late 2010 or 2011 if Mr. Obama gives the go-ahead now — but if he waits too long before deciding, that window of opportunity will be gone.
Broadening the window will increase the number of projects that can be completed within the time frame. In particular, it will increase the number of such projects because if you commit in February of 2009 to the money being available in 2011 and 2012 that means you can spend 2009 and 2010 getting the project shovel-ready. And, indeed, it means you can have some stimulus spending in 2009 and 2010 specifically focused on dreaming up and readying new projects. I wouldn’t dogmatically insist that the two-year time horizon is wrong—I’ve been assuming it’s right—but Krugman’s point that the Obama team’s own projections seem to imply it’s wrong seems sound.
I do, however, have some qualms with tying the case for infrastructure investments so closely to arguments about stimulus. There’s a case for enhanced infrastructure spending that’s entirely separate from this. And part of that case involves the idea that infrastructure spending should get different budgetary treatment and ought to be accounted for the way businesses account for their capital expenditures—on a depreciation scale—in a way that would better insulate decision-making from the year-to-year issue of managing the budget.