« What I've Been Reading | Main | "Inside the influential new world of econoblogging" »
Obama's fiscal stimulus: some details
I was surprised to read the first plank of Obama's proposed stimulus:
First, we will launch a massive effort to make public buildings more energy-efficient. Our government now pays the highest energy bill in the world. We need to change that. We need to upgrade our federal buildings by replacing old heating systems and installing efficient light bulbs. That won’t just save you, the American taxpayer, billions of dollars each year. It will put people back to work.
Maybe that is deliberately unglamorous but I was expecting a more dramatic first punch. Here, by the way, are some simple arguments for energy-efficient buildings. My Google search doesn't yield much useful, however, in the way of critical analysis. (Any leads, readers?) And surely ten years from now our government still will have the highest energy bills in the world, unless the goal is to grow so slowly that the Chinese government will pass us.
Oddly the two goals of the plan -- saving dollars and creating jobs -- often stand in tension. Let's say we could heat all those buildings for a dollar: how many jobs would that create? Is the goal to "spend less" or to "spend more"? The mere fact that you can write in the comments section: "Spend more today to spend less tomorrow!" does not convince me.
The second plank of the program is more roads and bridges, which for better or worse you can consider the opposite of a carbon tax. How quickly can that money be spent anyway? The plan mandates quick spending of the transferred funds. But maybe state and local governments will hold off on some currently planned expenditures (which is contractionary) so they can be ready to spend immediately once they receive their "use it or lose it" allocations. Has anyone thought that problem through?
The third plank is upgrading school buildings. ???????????????? Maybe this is Obama's attempt to mimic ditch-digging, under the unassailable banner of "education," but again how quickly can these projects come on-line? I call this one total waste and an outright mistake.
The fourth plank is extending the information superhighway. Maybe, but isn't human capital the real constraint at current margins?
The fifth plank is internet-connected hospitals and electronic medical records. Those are good ideas but I don't see how they contribute to economic recovery. Basically you either force or pay medical care providers to do it and for sure health care is not the ailing sector.
The bottom line: When it comes to fiscal policy, many projects are not very good. Most projects take a long time to come on-line. The fiscal stimulus should, most of all, be directed at an effective marginal incentive scheme to keep up state and local spending. I am still enthusiastic about Obama's economic team, but I am starting to worry a little. How many of these expenditures actually help needy people? How many actually will help the economy? In fairness to Obama this was a radio address, and thus hardly the setting for meaty analysis, but still I am a little underwhelmed.
Posted by Tyler Cowen on December 7, 2008 at 07:57 AM in Political Science | Permalink
Comments
Well, I could say that plank #1 doesn't necessarily mean the government is going to spend less money. He could mean that the less money spent on energy, the more money to spend on cog-in-the-machine bureaucrats.
Now days though, I wouldn't be surprised if a good chunk of energy costs go towards powering big-old tube monitors and decrepit computers with 200 watt power-supplies.
Posted by: Xmas at Dec 7, 2008 8:35:04 AM
your a fucking idiot
Posted by: at Dec 7, 2008 8:42:15 AM
Throwing away working light bulbs to install working light bulbs, in order to stimulate the economy?
The ghost of Bastiat is chuckling.
Posted by: KipEsquire at Dec 7, 2008 8:43:05 AM
Do better medical records with the current system mean more denied coverage?
(I think the energy thing could be done right, though obviously it could be done wrong as well.)
Posted by: odograph at Dec 7, 2008 8:44:35 AM
Xmas, didn't Japan do an 'everybody use notebooks' drive? That's the easiest, cheapest, and most dramatic path to lower personal compute-energy consumption (this nb is drawing 40w right now, my desktop+monitor would be 150).
Posted by: odograph at Dec 7, 2008 8:52:34 AM
I have no doubt bureaucratic buildings are extremely wasteful. Every time our advisors tell us to conserve this or that, everyone ignores them. The only differences is that I feel bad because I know it is the tragedy of the commons at work.
However, when they have brilliant ideas, it usually starts with turning off the lights while I'm going to the bathroom. So, it's the incentives for those on the ground that matter, but they will never get it.
On the bright side, if Obama sticks with aspirational slogans, that's a good thing.
Posted by: Andrew at Dec 7, 2008 8:52:47 AM
The package is perfect. If you think it is too small, remember that lots of extras will probably be added as it goes through congress. And it practically begs to be used for earmarks. This should help the Democrats raise all the money they need to further marginalize the Republicans.
Posted by: Jason at Dec 7, 2008 9:25:58 AM
What these have in common is that they are forms of public investment -- spend money now to create assets with longer term value and thereby increase long term welfare. As your link notes, there appears to be low-hanging fruit in the area of improved energy efficiency. Infrastructure (crumbling bridges and information superhighways), education facilities, and healthcare also seem like reasonable areas for increased public investment. Since we currently have much more idle labor and capital than we do during normal times, the opportunity cost of all these investments is much lower than before. This suggests that the net benefit of doing them is much greater than before, so we should do more of them.
That said, I agree that human capital could use more emphasis, e.g. more funding for k-12 education and more generous college scholarships. Perhaps he left this out of his most radio address to avoid giving the GOP an opportunity for a cheap and easy attack line: e.g. "Obama is paying off his political supporters in the teachers union with public money". That would detract from his efforts to maintain national unity.
Also, as you note, one of the most efficient ways to rapidly fund high NPV projects is to give money to states so they do NOT cut back in progress projects that were already approved. States that have to balance their budgets are ironically cutting back on projects just when the opportunity cost is lowest and the fiscal stimulus would be most beneficial.
Posted by: a student of economics at Dec 7, 2008 9:34:11 AM
Infrastructure spending isn't what it used to be - what with all the extra studies and approvals and so forth that city, state and federal projects go through before they spend $1 on manual labor, Obama's "upgrades" will take 10 years or more to realize any make-work gains.
Posted by: jb at Dec 7, 2008 9:35:35 AM
Here, by the way, are some simple arguments for energy-efficient buildings. My Google search doesn't yield much useful, however, in the way of critical analysis. (Any leads, readers?)
Well, the Heritage Foundation/WSJ have been slamming the Center for American Progress' suggestions, which include energy efficiency (as a way to not only mitigate climate change but also create jobs). I don't have the links handy, but here is CAP's response.
Also, at IER we wrote a critique of California's Air Resources Board economic analysis of AB 32, which had projected that the state's economy would benefit from new efficiency mandates. Our chief objection was that if these measures really did "pay for themselves" (as opposed to merely internalizing externalities), then the government wouldn't need to force businesses to adopt them. They could just fax the calculations to various CFOs and that would be that.
Posted by: Bob Murphy at Dec 7, 2008 9:47:45 AM
I agree that it sounds kind of lame. Where are the bullet trains and nuclear fusion plants? Of course, I suppose those things take even longer to put in play.
Maybe the helicopter really is the best solution?
Posted by: Greg at Dec 7, 2008 9:47:54 AM
"Spend more today to spend less tomorrow!" does not convince me.
Why not? I think we agree on the first clause: we should spend more today, in the midst of a Great Recession.
Given that, should today's spending be designed so that we a) spend more tomorrow or b) spend less tomorrow, when the recession is over?
I recommend b).
There's nothing contradictory about a strategy of trying to spend more today (in a recession) so that we can live well tomorrow with less spending. It's called "investment" and this is a good time to ramp it up.
Once we agree on that, we can focus the debate which sets of investments have the highest NPV and can be implemented efficiently and rapidly.
Posted by: a student of economics at Dec 7, 2008 9:47:58 AM
"more roads and bridges"
*More* roads and bridges or repairing/maintaining/replacing the existing ones? The excerpt just says "invest". A lot of bridges are in pretty bad shape and need replacing ASAP anyway, if the federal government's going to do that, might as well do it now...
Posted by: Jacqueline at Dec 7, 2008 9:48:16 AM
The press is terrible and we commentors are not much better separating appropriation from spending. Although knowing that money will be spent in the future is somewhat stimulating, "stimulus" spending needs to keep a cose eye on cash flow. We also need to keep in mind that the productive sturcture of the economy in the future needs to shift toward tradable goods (becasuse of the external debt) and toward investment goods and that the saving rate will also needs to rise.
Posted by: Thomas at Dec 7, 2008 10:09:42 AM
Like Tyler, I think that infrastructure spending is too slow to act and doesn't get money into hands quickly enough. We need a payroll tax holiday today.
The bridges in my town were last painted in 1982. I live in Oak Park, Il, which is a nice place. Just repairing and maintaining our current infrastructure is a few trillion dollars worth of spending.
It is funny that you would think that spending on schools wouldn't be that much money. Anyone that lives in Chicago knows they could spend many billions and still not be anywhere near modern quality or energy efficiency. Many schools in chicago have kids in temporary trailer-like outside classrooms. I bet the major cities could absorb so much in infrastructure spending. We've neglected them for decades and while they are better than they were, there is lots left to fix in the cities.
Plus, we shouldn't forget that yesterdays women teachers are todays lawyers, doctors, professors and business women. We have had a huge decline in the quality of teacher, simply because smart women today have viable options. I talk with my friends parents and realize that these women, if they were growing up in my generation, would never have been teachers but rather gone on to law school and business school, like my friends did.
Posted by: mickslam at Dec 7, 2008 10:11:27 AM
#1 may keep building industry jobs while providing incentives to change wasteful practices. But what you should be spending on now will be the cost to innovate and bring energy-efficient solutions to scale or into wider adoption (that would be "investment"...but we architects could use economists over our shoulders).
#3 sounds redundant to #1, and #2 for roads and bridges, quite frankly, worries me...We may be enabling the transportation industry to keep Americans sprawl-happy and car-dependent and avoiding investment in alternative transportation modes, as well as avoiding better integrated land-use and transportation planning. The benefits of the latter can be especially dramatic. We must not lose our focus on system and network improvements...which capture efficiencies at a larger scale.
It seems that the specificity of some of these planks makes them sound myopic, favoring piecemeal (switching out light bulbs) solutions.
Posted by: Eric at Dec 7, 2008 10:22:11 AM
I don't understand Dr. Cowen's theoretical objections for spending money on energy efficiency projects as a means of stimulus.
When I come up with an energy saving project, I typically have to prove that it will pay for itself in three years. In other words, there is a big spike in spending followed by a gradual payback. Seeing as most economist seemed to believe that governments should spike spending to stimulate the economy in bad times and run surplus to pay down the debt in good times, energy saving projects seems ideal from a theoretical perspective.
As a practical matter, there are plenty of reasons why spending money on energy efficiency will have a less then ideal outcomes. For one thing, most of the big energy savings in any commercial building will be found in upgrading/modifying the HVAC systems.
People capable of working on commercial HVAC systems are few and far between even in this economic climate. None of them are short on work and the barriers to entry are pretty high.
You have to know a lot and you have be on your toes at all times. Screw up and you could destroy equipment worth hundreds of thousandths of dollars or make your company liable for astronomical EPA fines.
I don't think I need to explain on economics blog what the effects of throwing a lot of money at small pool of labor with high barriers of entry would be.
Even those energy savings projects that don't require skilled labor from the HVAC trades have problems. For example, many(most?) government buildings really should upgrade their windows to more energy efficient ones. But I would be amazed if anyone could get a project to upgrade windows in a large scale commercial building up and running in less then a year. Its not like you can just go down to Lowes and pick the windows out and have them installed the next day. More likely, it would take a year just to get all the planing done and get all the bids in (this applies to most major upgrades to an HVAC system as well).
Ironically, the only project that would really provide a stimulus right now and truly increase energy efficiency would be to replace outmoded florescent tubes and ballasts. I could get a project up an running to replace T12 with T8s within weeks in the real world. In a government setting, it might take me months, but it still would be well within a year.
I wrote up a project to replace T12s with T8s in a government run hospital. As a result of this project, I increase the quality of lighting and paid for the project in under three years. More over, I did this while using union electricians getting paid overtime rate and figuring generous amounts of time for each fixture (cause I knew the electricians would screw me if I figured a realistic amount of time).
Granted, this was done in an area upstate NY with high electricity costs. Also, the hospital was running many of the lights 24/7 which shortened the pay back time dramatically. Still, I could get a good pay back to replace any T12 if I did not have to use overtime rates. So contrary to what KipEsquire seems to imply, it can make good economic sense to throw out perfectly good light bulbs.
For this reason, most well run companies got rid of the their T12s years ago. But a lot of government buildings still have them.
Still, how much money can you really spend replacing light bulbs? The hospital that I came up with the project for had 7 stories and it was a big sprawling building (can't remember total square footage). But total price tag for the project was under $100,000. Assuming that all federal buildings are still using T12s (in which case a lot of federal building mangers should be shot). It seems to me that you could upgrade all the lighting for a few billion dollars. Even assuming that I am hopeless naive about how much it would cost to relamp all federal buildings, I don't think you are going to get a big stimuluses out of changing light bulbs.
Posted by: Ape Man at Dec 7, 2008 10:27:14 AM
"I don't think you are going to get a big stimuluses out of changing light bulbs."
It will keep the lightbulb joke writers in business for years to come. Please, won't someone think of the comedians???
Posted by: Jacqueline at Dec 7, 2008 10:36:00 AM
I suppose you all got the contradiction between "use it or lose it" and "spend it effectively". Given that trade-off, well, let's just say they probably won't lose it.
Posted by: Larry at Dec 7, 2008 10:40:24 AM
Maybe I am looking at this the wrong way, but I don't see how any of this resembles paying some people to dig a ditch and then paying others to fill the ditch up again. I don't know if it's a good idea to try to retrofit buildings for environmental reasons in its own right, but let's assume it is. Why wouldn't it then be a good way to put people to work? The same goes for broadband access. You're right to suggest that there's a limit to how useful it will be; the access itself won't lead everyone to become an I.T. specialist. But at the same time, if there's a good argument to be made for universal broadband access, why wouldn't it make sense to put people to work ensuring everyone has access? As for the idea of a national medical records system, didn't Jonathon Gruber say that supporting one would put people in the technology sector to work?
I think you're most on target with the idea that more roads and bridges is the opposite of a carbon tax. Yet I'd like to know to what extent the money spent will be repairing what current exists and building something new. Even if it's focused more on the latter, it still doesn't make sense to think that we can go into the future without a focus on bridges and roads.
This link does a decent job, I think, of talking about alternative energy investments. There are others like that on the site as well.
Posted by: Brian J at Dec 7, 2008 10:45:04 AM
Here is what Krugman said on his blog a few days ago. It underscores how slow fiscal policy will be.
"Infrastructure spending will take time to get going — a new Goldman Sachs report suggests that projects that are “shovel-ready” are probably only a few tens of billions worth, and that a larger effort would take much of a year to get going. Meanwhile, it’s very questionable how much effect tax rebates will have on consumer demand. So it may be hard for stimulus to get much traction until late 2009 — and that’s even if Congress goes along, which may be a problem given all the bad analysis and disinformation out there."
Posted by: Cyril Morong at Dec 7, 2008 10:48:21 AM
www.gsa.gov comes to mind:
"The Energy and Water Management program is responsible for the utility use and cost data in all GSA buildings nationwide. The program's staff reviews and processes approximately 5,500 utility bills monthly, the total cost of which is over $250,000,000 annually."
If energy efficient lights could save more money, then it was already recommended by the GSA.
Posted by: brainwarped at Dec 7, 2008 10:59:43 AM
Brian J,
The problem is not that these things are bad ideas. Government building lag behind the private sector when it comes to energy efficiency. That should change no matter what your views on the utility of the government is.
But if you lost your job, could you get one upgrading the pneumatic controls on an HVAC system to a pneumatic/electronic hybrid? Do you know why it might make sense to do that? Do you know how to do a cost benefit calculation to figure out if it makes sense?
Labor is not a perfectly fungible product. Especially when you are talking about skilled labor.
Posted by: Ape Man at Dec 7, 2008 11:04:15 AM
"The fourth plank is extending the information superhighway. Maybe, but isn't human capital the real constraint at current margins?"
Tyler, do you have an argument that these two aren't closely linked? Wouldn't greater access to the internet (and, I presume, a greater access to computers in general) increase human capital? It's possible that there would be no strong correlation between access to information technology and increased skills formation (unless wasting time on the internet could genuinely increase someone's skills... thoughts?) but I also don't think the possible connections between the two should be quickly eschewed.
Posted by: Alex at Dec 7, 2008 11:08:47 AM
How many of these expenditures actually help needy people?
Ape Man already made this point, but I was wondering the same thing. These projects sound like they primarily require specialized skills and trained labor. Where are these people going to come from? Laid off auto workers aren't going to step right into a job designing energy efficient buildings or building bridges.
Posted by: Andrew at Dec 7, 2008 11:29:46 AM
