Posted by on 23 September, 2011 at 3:00 pm. 18 comments already!

President Barack Obama wants to improve infrastructure. His $447 billion “jobs bill” has in it $50 billion for infrastructure repair/improvement, and $10 billion to start a National Infrastructure Bank. So the questions are, Why were infrastructure improvements not paid for by the last stimulus? What happened to the money for infrastructure in his $787 billion stimulus bill? To answer these questions, let’s examine both stimulus bills, stimulus spending, and infrastructure spending.

Stimulus Spending

Obama’s original $787 billion stimulus bill left America’s economy in disarray. Having learned nothing from this failure, Obama recently unveiled another stimulus bill – the American Jobs Act, proposed to cost $447 billion. “Obama spent $787 billion of our money on his first stimulus, and the economy sickened,” says Grover Norquist of Americans for Tax Reform. “Now he is back with another $400 billion in stimulus. Leeches! He gives us more leeches!”

On July 8, 2011, economist Veronique de Rugy, in her excellent article, offered three myths about stimulus spending. She says:

  • Myth 1: Stimulus spending can jump start the economy and fix unemployment
  • Myth 2: Additional infrastructure spending is an effective way to stimulate the economy and create jobs
  • Myth 3: Tax rebates will stimulate the economy

Infrastructure Spending

President Obama, in his “American Jobs Act,”is asking for $50 billion additional infrastructure spending, such as grants and guaranteed loans, investments on highway and rail projects, high-speed rail projects, and Amtrak. But, as economists Veronique de Rugy and Matt Mitchell point out:

  • In 9 out of 10 transportation infrastructure projects, costs are underestimated
  • For rail projects, actual costs are on average 45% higher than estimated costs
  • For fixed-link projects (tunnels and bridges), actual costs are on average 34% higher than estimated costs
  • For road projects, actual costs are on average 20%higher than estimated costs
  • For all project types, actual costs are on average 28% higher than estimated costs
  • These same cost overruns exist in all public work projects

When Democrats passed the $787 billion stimulus bill in February 2009, they promised an historic investment in roads, bridges and rail. Obama’s next stimulus won’t do any better than his last one. Only 3% of his last stimulus went to infrastructure spending because such programs are not politically popular. Once the stimulus money is gone, the jobs are also gone. This “stimulus” calls for 11.2% spending on infrastructure. The original $787 billion “stimulus” called for 6.4% to be spent on infrastructure, but 3% (less than half) was actually spent on infrastructure (see above). And, according to a Washington Times article, infrastructure projects were supposed to be “shovel ready.” But we all know how Barack Obama laughingly dismissed that requirement. Infrastructure spending will not provide much of a stimulus, and it will not provide the jobs promised by Obama.

The White House said that President Obama, in Ohio on September 22, 2011, would visit the Brent Spence Bridge, described as “functionally obsolete,” in order to highlight the “urgent need” for infrastructure improvements. The 48-year-old bridge is a double-decker inter-state bridge. But there is absolutely nothing wrong with the bridge upon which infrastructure money could be spent. Federal and state officials have been moving ahead with a repair plan for the bridge. But despite the attention given by Obama, the timetable suggests it is not “shovel ready” and won’t spur increased employment right away.

In an article in Investor’s Business Daily, John Merline, on September 15, 2011, cited five myths about infrastructure spending.

  • Infrastructure spending is declining
  • Our infrastructure is falling apart
  • We’re falling behind China
  • More federal money means more jobs
  • The money can be spent fast

Even though Mark Zandi, chief economist of Moody’s Analytics, claims that when the government spends $1 on infrastructure, it yields $1.44 in growth (a 1.44 multiplier), that’s his opinion. Economists are far from a consensus on what the actual return on infrastructure spending is. As economists Eric Leeper, Todd Walker, and Shu-Chum Yang said in a paper for the IMF: “Economists have offered an embarrassingly wide range of estimated multipliers,” from -1 to 3.7.

Further, in the case of rail projects, a study of 208 projects in 14 nations on five continents shows that:

  • 9 out of 10 rail projects overestimate the actual traffic.
  • 84 percent of rail-passenger forecasts are wrong by more than 20 percent.
  • For rail, passenger traffic average 51.4 percent less than estimated traffic.

This means that there is a systematic tendency to overestimate rail revenues. Remember that when the president explains how much demand there is for these new rail projects he wants taxpayers to pay for.

National Infrastructure Bank

A National Infrastructure Bank was proposed in 2007 by Senator Christopher Dodd (D-CT) and former Senator Chuck Hagel (R-NE). According to Senator Dodd, an Infrastructure Bank would fund large-scale projects, with funds going to the most qualified projects, not projects with the most political clout. Every $1 billion spent on highways and transit projects would create about 47,500 jobs.

President Obama proposed legislation to create a national infrastructure bank to create jobs. Senator John Kerry (D-MA) applauded the president’s plan in a statement, saying,”There’s almost $200 billion in private capital sitting on the sidelines that could be invested in our infrastructure, but it will take this bank to unlock private investment for bridges, roads, and rail.” Obama, in his “American Jobs Act,” proposed a $10 billion infrastructure bank and $50 billion in expedited infrastructure spending to help stimulate the economy. Said Obama, “Building a world-class transportation system is part of what made us an economic superpower. And now we’re going to sit back and watch China build newer airports and faster railroads?”

We already have a national infrastructure bank – it’s called the TIFIA program,” Geoffrey S. Yarema, a partner with Nossaman LLP in Los Angeles said, referring to the Transportation Infrastructure Finance and Innovation Act program.

So, Obama wants to establish an infrastructure bank and raise taxes to spend money on infrastructure to revive the economy. Yeah. His first “stimulus” plan didn’t work, but for Obama and his Keynesian economists, “hope (with our money) springs eternal.”

But that’s just my opinion.

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