President Obama has recently proposed a new stimulus package as part of his initiatives to boost growth. His proposal consists of $50 billion spending on the country’s infrastructure, with roads, railways and airports being his main focus.
Opponents of this program claim that it will take years before infrastructure spending boosts the economy. They call into question the effectiveness of this effort, and whether it would become a permanent source of growth. (As it has been the case, recent stimulus packages have raised growth and made a small decrease in unemployment; but the programs, being too small and too short-lived did not last long, and changes in growth and unemployment are now fading out with it.)
Supporters, on the other hand, defend that some of the infrastructure projects could be started immediately, and that the effectiveness on this program relies on not only the immediate creation of jobs, but also in the long term modernization of transportation systems.
Acknowledging the two sides of the argument raises different questions and concerns. It is not that spending in infrastructure is a bad proposal; it’s just that it does not address the major problem that is hurting the economy: a collapse in private demand. How exactly does spending in infrastructure solve this issue?
Certainly hiring people to build roads will momentarily diminish unemployment and allow those newly hired to spend in the economy; but once the projects are finished, builders will again be left without jobs. The everlasting tradeoff between short-run and long-run solutions seems to be underestimated here.
While it is true that the depth of the labor market crisis calls for rapid solutions (or as congressional officers understand it, rapid spending on huge stimulus packages), this rapid spending leaves many questions unanswered: How much infrastructure is necessary? Is the overall value added by improving roads where there is high unemployment being maximized? Or would it be better to build roads in areas that might have relatively less unemployment, but greater demand for infrastructure? Are we really solving this and the next generation’s unemployment issues by creating jobs in construction?
It is certainly impossible for either the private or public sectors to spend effectively a large amount in a short period of time, and obtain the expected results. Good spending takes a lot of planning. By focusing on the wrong things we are in serious danger of missing the opportunity to do the right things to help the economy recover from its worst market crisis since the Great Depression.
