Take advantage of today’s low costs

By Robert Frank
August 3, 2011

By Robert H. Frank
The opinions expressed are his own.

Reuters invited leading economists to reply to Lawrence Summers’ op-ed on his reaction to the debt ceiling deal. We will be publishing the responses here. Below is Franks’s reply. Here are responses from Laura Tyson, Benn Steil, Russ Roberts, Donald Boudreaux and James Pethokoukis as well.

I’m in general agreement with Larry Summers’ piece. If it had been my column to write, I’d have been more emphatic about how much more important the unemployment problem is than the deficit problem. Deficits need to be reduced, yes, but not in the midst of a deep downturn. If we could put just half of the people who are either unemployed or underemployed back to work, for example, national income would be larger by more than ten times the interest we’re paying on the 2011 deficit. The extra income tax revenue alone would be enough to cover the interest on last year’s debt.

I’d also have hit harder on the claim by ostensible deficit hawks that extra spending right now would impoverish our grandchildren. Some of the most vivid and easily understood counterexamples involve infrastructure maintenance. According to the Nevada Department of Transportation, repairing a damaged 10-mile stretch of Interstate 80 would cost $6 million if we did the work today. But if we postpone repairs, weather and traffic will continue to damage the roadbed. If we wait just two years, the cost of bringing that same stretch of road up to par rises to $30 million. There are thousands of similar projects crying out to be done.

The Nevada cost inflation estimates, by the way, take no account of the special circumstances associated with the current downturn. There are idle machines and workers who could do the work today, for example, but if we wait a few years, we’ll have to bid them away from other useful tasks. Materials are cheap in world markets now, but if we wait, their prices will rise as the global economy recovers. Interest rates on 10-year T-bills are near record lows. They’ll be higher if we wait. No one proposes to allow the interstate highways to deteriorate back to gravel. We either fix them now or we fix them later. Fixing them now is MUCH cheaper, AND it will put unemployed workers back on the job. If we REALLY wanted to impoverish our grandchildren, it would be hard to come up with a better strategy than failing to undertake these projects right away.

507 comments

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What about repairing the dam and levee systems along the Missouri and Mississippi rivers? This year over 500,000 acres of prime farmland were destroyed by levees and damns that were built in the 40s. Talk about mortgaging your child’s future – WHEN will we get serious about infrastructure instead of oil subsidies and defense contracts?

Posted by iowafarm | Report as abusive

[...] responses here. Below is Tyson’s reply. Here are responses from Russ Roberts, Donald Boudreaux, Robert Frank and James Pethokoukis as [...]

Unfortunately iowafarm, the military is just as inept at constructing levees as it is at prosecuting a war. It can certainly be argued that they are incompetent and and no longer retain the basic knowledge and personnel for such projects.

Still you are correct, there is no large commitment to rebuilding and building anew the infrastructure that this country desperately needs. Perhaps if Washington allocated large, substantial, no strings attached funding for infrastructure, (like they fund the DOD)the knowledgeable and skilled would be encouraged to step forward and offer their services. We might also be able to put Americans back to work in large numbers.

Investments in public education,transportation, water supply and sewers, the electrical grid, highway and rail expansion as well as renewable energy would reap incalculable dividends for our children and grand children. Our investments in war have only saddled them with debt. Where is the American conscience?

Posted by coyotle | Report as abusive

[...] structures must be repaired. In many cases, pushing needed repairs into the future would needlessly increase costs as more heavily degraded roadways and schools cost more to repair than those only in need of minor [...]

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