Fiscally Responsible Stimulus With Front-Loaded Infrastructure Investments

Light rail construction in Seattle (cc photo by Oran Viriyincy)

Light rail construction in Seattle (cc photo by Oran Viriyincy)

On a call with bloggers earlier today to talk about job creation policies, Nancy Pelosi outlined a smart idea for “front-loading” infrastructure projects so as to give them a stimulative effect in the short-term while also coping with valid concerns about the medium-term fiscal situation. Imagine a $100 million, five-year project. You could do that by taxing and spending $20 million a year each year for five years. Or you could do it like this:


That way you get job creation punch when it’s needed, but you’re not contributing to long-term fiscal problems.

I note that this would also work with my pet stimulus cause, mass transit operating subsidies.* You could spend $800 million a year (these are made up numbers) for two years on such subsidies, then in year three you hike the federal gas tax to raise $1 billion in new revenue annual. Over ten years, that’s deficit neutral. Then starting in the 11th year, you hike the subsidy level up to equal the revenue that’s coming in.

* I like mass transit operating subsidies because they both help with the state/local budget mess, provide direct employment (to, e.g., bus drivers) and also (by avoiding fare hikes) put money into the pockets of a broad group of people. They can also be implemented extremely quickly.