Stimulus You Can Believe In

Was the stimulus a waste?

That’s the question as we approach the “fiscal cliff” of January 1, 2013, when the automatic spending cuts of the deficit compromise and the tax hikes associated with the expiration of George W. Bush’s tax plan kick in. Certainly with 5 million jobs still missing and GDP running at 2%, it’s hard to say that the economy is strong. Proponents of the stimulus say it would have been worse without it; skeptics point to the additional trillions of debt we’re saddled with, and there’s not much productive discussion in between.

It’s true that government spending can boost the economy in the short run, but the long-run effect depends on how the money is spent. If the government crowds out a private actor and does something that the private sector was already doing, then no additional growth will result. But if the government does something that only government can do, and it makes a permanent change that private actors can access—then that’s spending with a purpose.

The poster-child for productive stimulus spending is infrastructure improvement like the interstate highway system. Only the government is capable of compelling the land sales necessary to put in an efficient transportation system. This is a huge help for the general economy, but the highways have already been built. Are there other opportunities like this out there?

Candidate A for increased Federal spending would be the “Chicago Bottleneck.” That’s the portion of rail line that goes through Chicago from around the country. Chicago is the nation’s most important rail hub, serving six of seven national lines. A quarter of all freight traffic goes through Chicago. And rail transportation is growing dramatically. It will likely double in the next 20 years.

But it can take days for freight trains to get across the city—days of lost productivity, days of wasted fuel and increased pollution. The crossings and switching stations are antique and desperately need upgrading. And improving them will permanently improve the performance of the rest of the economy. It’s a big job, and one that government is well suited for. Best of all, it’s the kind of temporary, self-limiting stimulus that could jump-start economic growth and then get out of the way as the private sector picks up.

This is the kind of short-term spending that can improve the economy’s long-term performance. It would lower transportation costs and reduce energy use. Fixing the Chicago Bottleneck could help fix our economy.

By | 2012-05-09T06:53:23+00:00 May 9th, 2012|Global Market Update, Recession|0 Comments

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