Economists see revival of an old fix

Simon and Puzzanghera are Times staff writers.

As recently as a few months ago, the idea of trying to bolster the troubled economy by pumping money into public works projects such as roads and bridges was dismissed as too slow -- not the quick pick-me-up that was needed.

But today, economists and policymakers are beginning to change their minds.

Most experts still think infrastructure spending is a slower way to put money in consumers’ hands than simply mailing out government checks the way President Bush did over the summer. What’s changed is that the economic crisis now looks to be so deep and likely to last so long that a stimulus plan that pumps out benefits for months and years seems to fit the situation -- with the added bonus of providing long-term benefits to the country.

“Now we’re in a situation where it looks like we’re going to be in a prolonged downturn, so speed is still relevant, but it’s not the be-all end-all,” said Douglas W. Elmendorf, a former economist for the Federal Reserve Board, the Treasury Department and the Clinton White House.


Elmendorf, now a senior fellow at the Brookings Institution, co-wrote a paper in January arguing against infrastructure spending because it was not fast-acting enough. “The concern at the time was that it would be a very sharp, short drop in economic activity, and we wanted to try to prevent that,” he said recently.

Since then, the situation has changed, Elmendorf said -- becoming more dire.

Infrastructure spending, which is supported by President-elect Barack Obama, is expected to be a centerpiece of a $60-billion to $100-billion stimulus package Democrats may bring before Congress in a postelection session later this month.

Lawmakers are looking at a wide range of projects, such as building new roads and repairing old ones, improving airports, and constructing schools and sewage treatment plants. They also are considering making funding available to help transit agencies buy buses and rail cars.

The focus will be on job-producing projects that can get underway quickly.

In a new twist, Obama and congressional leaders have talked about ensuring that a good chunk of the infrastructure spending goes to “green jobs,” providing funds for energy-efficiency projects, for example, promoting growth while reducing oil imports and greenhouse gas emissions.

Rep. James L. Oberstar (D-Minn.), chairman of the House Transportation and Infrastructure Committee, traces the history of infrastructure spending as economic stimulus to the massive public works programs launched by President Franklin D. Roosevelt in response to the Depression.

“From the Works Progress Administration of the Great Depression to the Accelerated Public Works Act of 1962 and the Local Public Works Capital Development and Investment Act of 1976, investment in public infrastructure has created and sustained jobs in difficult economic times,” Oberstar said recently, “and it can do so again today.”

Former Treasury Secretary Lawrence H. Summers, who is a possible Treasury secretary in an Obama administration, told a congressional committee that “properly designed infrastructure projects have the virtue of being helpful as short-run stimulus, especially for the employment of the workers most hard hit by the housing decline, while at the same time augmenting the economy’s productive potential in the long run.”

The liberal Economic Policy Institute estimated that $75 billion in infrastructure spending would create 1 million jobs.

Infrastructure spending creates “economic ripple effects across the entire economy -- for example, by providing more business for construction equipment manufacturers and the steelmakers that supply them -- and this money will quickly circulate back into the economy as workers spend their salaries, increasing overall demand for goods and services,” the institute said in a recent paper.

Mark Zandi, chief economist of Moody’s, estimates that every dollar of infrastructure spending boosts the gross domestic product by $1.59.

Government and industry officials insist there are plenty of projects they can start quickly.

Jared Bernstein, a senior economist at the Economic Policy Institute, cited $100 billion in deferred maintenance and repairs at 16,000 public schools, involving such things as antiquated wiring and leaky plumbing. He said that most of the projects could be completed in 60 to 90 days.

In California, Department of Transportation Director Will Kempton said that the state has as much as $1 billion worth of transportation projects that could be undertaken within 180 days. Many of those could be launched within 90 days, he said.

“These projects are ready to go, and we don’t have the money. So they’re sitting in a queue, waiting for these dollars to become available,” he said.

Doug Black, chief executive of Atlanta-based Oldcastle Materials Inc., a supplier of asphalt and concrete, told a House committee that most highway maintenance and repair projects can be undertaken quickly.

Skepticism still abounds.

“Changes in infrastructure spending are not an effective method of creating jobs or providing short-run fiscal stimulus to the economy,” Alan D. Viard of the American Enterprise Institute told a congressional committee last month, arguing that they are a slower and less efficient form of stimulus.

“Practically speaking,” the Congressional Budget Office said in a report earlier this year, “large-scale construction projects of any type require years of planning and preparation. Even those that are ‘on the shelf’ generally cannot be undertaken quickly enough to provide timely stimulus to the economy.”

House Minority Leader John A. Boehner (R-Ohio) said he’s concerned that such projects could lead to wasteful pork-barrel spending.

The Bush administration is similarly unenthusiastic about spending more on public works projects. “They take a long time for the money to get out into the system. And a lot of the claims that are made about how much transportation could actually help build the economy are overblown,” White House spokeswoman Dana Perino said.

But some skeptics have changed their minds as evidence has accumulated that the government may have to deal with a more severe economic challenge than most of today’s leaders have ever seen.

Rep. John Tanner (D-Tenn.), a member of the fiscally conservative Blue Dogs, said he is more receptive to infrastructure spending than to sending out more tax rebate checks.

“Infrastructure spending, one, is good for the country, and two, it creates jobs immediately,” he said in an interview. “And every state has a stack of infrastructure projects that they prioritize, that could get fairly quickly into the commerce stream. Infrastructure is much more appealing to me if we’re going to deficit spend.”

“You always worry about pork-barrel spending, but with the economy in the shape that it’s in right now, that’s less of a concern than it was earlier this year,” said Robert L. Bixby, executive director of the Concord Coalition, a budget watchdog group.

“If they sent out a bunch of rebates now, they’d find people just wouldn’t spend them,” Bixby said. “That makes a stronger case for the government actually making direct expenditures. One of the best ways to do that is through infrastructure projects, provided -- and this is the tough part -- that they really are ready to go.”