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October 8, 2010

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Paul Krugman: The End of the Tunnel

Posted: 08 Oct 2010 01:17 AM PDT

Why are we so reluctant to spend money on infrastructure projects? There are many projects where the social benefits exceed the costs -- the need is high and the costs are low -- and the projects would have the additional benefit of helping to lift us out of the recession:

The End of the Tunnel, by Paul Krugman, Commentary, NY Times: The Erie Canal. Hoover Dam. The Interstate Highway System. Visionary public projects are part of the American tradition, and have been a major driver of our economic development.
And right now, by any rational calculation, would be an especially good time to improve the nation's infrastructure. We have the need: our roads, our rail lines, our water and sewer systems are antiquated and increasingly inadequate. We have the resources: a million-and-a-half construction workers are sitting idle, and putting them to work would help the economy as a whole recover... And the price is right: with interest rates on federal debt at near-record lows, there has never been a better time to borrow for long-term investment.
But American politics these days is anything but rational. Republicans bitterly opposed even the modest infrastructure spending contained in the Obama stimulus plan. And, on Thursday, Chris Christie, the governor of New Jersey, canceled America's most important current public works project, the long-planned and much-needed second rail tunnel under the Hudson River. ...
 Of the $8.7 billion in planned funding, less than a third was to come from the State of New Jersey... Even if costs were to rise substantially, as they often do on big projects, it was a very good deal for the state. But Mr. Christie killed it anyway.
News reports suggest that his immediate goal was to shift funds to local road projects and existing rail repairs. There were, however, much better ways to raise those funds, such as an increase in the state's relatively low gasoline taxes — and bear in mind that whatever motorists gain from low gas taxes will be at least partly undone by pain from the canceled project in the form of growing congestion and traffic delays. But, no, in modern America, no tax increase can ever be justified, for any reason.
So this was a terrible, shortsighted move... But that's not the whole cost. Canceling the tunnel was also a blow to national hopes of recovery, part of a pattern of penny-pinching that has played a large role in our continuing economic stagnation.
When people ask why the Obama stimulus didn't accomplish more, one good response is to ask, what stimulus? Leaving aside the cost of financial rescues and safety-net programs like unemployment insurance, federal spending has risen only modestly — and this rise has been largely offset by cutbacks at the state and local level. Many of these cuts were forced by Congress, which has refused to approve adequate aid to the states. But as Mr. Christie is demonstrating, local politicians are also doing their part.
And the ideology that has led Mr. Christie to undermine his state's future is, of course, the same ideology that has led almost all Republicans and some Democrats to stand in the way of any meaningful action to revive the nation's economy. Worse yet, next month's election seems likely to reward Republicans for their obstructionism.
So here's how you should think about the decision to kill the tunnel: It's a terrible thing in itself, but, beyond that, it's a perfect symbol of how America has lost its way. By refusing to pay for essential investment, politicians are both perpetuating unemployment and sacrificing long-run growth. And why not? After all, this seems to be a winning electoral strategy. All vision of a better future seems to have been lost, replaced with a refusal to look beyond the narrowest, most shortsighted notion of self-interest.
I wish I could say something optimistic at this point. But at least for now, I don't see any light at the end of this tunnel.

Summers: Infrastructure Spending Needed

Posted: 08 Oct 2010 01:08 AM PDT

Larry Summers echoes the call for infrastructure spending.:

Summers calls for infrastructure spending, by Alan Rappeport, FT: Larry Summers ... said the US must ramp up spending on domestic infrastructure to drive the economic recovery. ...Mr Summers called it a "short-term imperative and a long-term macroeconomic imperative" that the US government increase infrastructure investment. He said that a combination of low borrowing costs, cheap building costs and high levels of unemployment in the construction sector made this the ideal time to rebuild roads, bridges and airports. ...
Acknowledging resistance to government spending at a time of high deficits, Mr Summers said that public support for investment demand needed to grow and said that the US needed focus on technology that creates new opportunities as "productive investment." He said that the Obama administration would concentrate its efforts on technology that reduces healthcare costs and improves energy efficiency. ...

I think energy and healthcare technology should be part of the infrastructure development effort, but a broader based call that includes key needs such as "our roads, our rail lines, our water and sewer systems" might find a more receptive audience.

"The Secret Big-Money Takeover of America"

Posted: 08 Oct 2010 12:57 AM PDT

Big-money politics is not your friend:

The Secret Big-Money Takeover of America, by Robert Reich: Not only is income and wealth in America more concentrated in fewer hands than it's been in 80 years, but those hands are buying our democracy as never before – and they're doing it behind closed doors.
Hundreds of millions of secret dollars are pouring into congressional and state races in this election cycle. The Koch brothers (whose personal fortunes grew by $5 billion last year) appear to be behind some of it, Karl Rove has rounded up other multi-millionaires to fund right-wing candidates, the U.S. Chamber of Commerce is funneling corporate dollars from around the world into congressional races, and Rupert Murdoch is evidently spending heavily.
No one knows for sure where this flood of money is coming from because it's all secret. But you can safely assume its purpose is not to help America's stranded middle class, working class, and poor. It's to pad the nests of the rich, stop all reform, and deregulate big corporations and Wall Street – already more powerful than since the late 19th century when the lackeys of robber barons literally deposited sacks of cash on the desks of friendly legislators.
Credit the Supreme Court's grotesque decision in Citizens United vs. the Federal Election Commission, which opened the floodgates. ...
In the meantime we face an election that marks an even sharper turn toward plutocratic capitalism than before – a government by and for the rich and big corporations — and away from democratic capitalism.
As income and wealth has moved to the top, so has political power. That's why, for example, it's been impossible to close the absurd tax loophole that allows hedge-fund and private-equity managers to treat much of their income as capital gains, subject to a 15 percent tax... Why it proved impossible to fund expanded health care by limiting the tax deductions of the very rich. Why it's so difficult even to extend George Bush's tax cuts for the bottom 98 percent of Americans without also extending them for the top 2 percent – even though the top won't spend the money and create jobs...
Right now we're headed for a perfect storm: An unprecedented concentration of income and wealth at the top, a record amount of secret money flooding our democracy, and a public in the aftershock of the Great Recession becoming increasingly angry and cynical about government. The three are obviously related.
We must act. We need a movement to take back our democracy. (If tea partiers were true to their principles, they'd join it.) ...

 

links for 2010-10-07

Posted: 07 Oct 2010 11:02 PM PDT

The Protectionist Instinct

Posted: 07 Oct 2010 12:15 PM PDT

Trying to stir things up a bit with a quick post between classes (Hayek is credited for the insight in a part I left out):

The Protectionist Instinct, by Paul H. Rubin, WSJ: As unemployment remains high and the election nears, many politicians are again campaigning against free trade and its cousin, outsourcing. Polls show voters are increasingly skeptical of the benefits of free trade. There is no area where the beliefs of ordinary citizens are more at odds with the views of professional economists. ...
There are two aspects of our evolved psychology that help explain beliefs about trade. First, humans tend towards zero-sum thinking. That is, we do not intuitively understand the possibilities of economic growth or the benefits of trade in achieving it.
Our ancestors lived in a static world with little intertribal trade and virtually no technological advance. That is the world our minds understand. This doesn't mean that we can't grasp the crucial concept that trade benefits both parties to a transaction—but it does mean that we must learn it.
Positive-sum thinking doesn't come naturally. By analogy, we learn to speak with no teaching, but we must be taught to read. Understanding the mutual benefits of exchange is like reading, not speech.
Second, we evolved in a hostile world. Our ancestors engaged in constant conflict with neighbors, much like present-day chimpanzees. We developed strong in-group and out-group instincts, and for many aspects of behavior we still have such feelings.
These feelings are benign when applied to something like rooting for local sports teams, but are more harmful when applied to international trade. They are most harmful when they generate actual warfare. Yet the metaphor of a "trade war" shows how close to the surface harmful instincts are.
These two sets of beliefs interact to explain our natural (mis)understanding of trade. We believe that the number of jobs is fixed (a result of zero-sum thinking) and that as a result of trade these jobs go to foreigners, whom in a deep sense we view as enemies. Both beliefs are incorrect, but both are natural. ...

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