Gas is Cheaper, But the Roads are Falling Apart!

Opinion from Noel T. Braymer

While there is always someone who will disagree with someone else, there is general agreement among economist that a growing economy depends on spending. When spending is down, the economy slows. But when spending is up, it grows. One thing we should be spending money on: we being the government is on infrastructure, particularly for transportation. We use to, but since the 1970’s in order to “save money” and to “lower taxes” this country has been deferring repair and replacement of critical transportation infrastructure. The result is passenger rail, transit rail and highways are often falling apart. In many places it takes years of waiting to get funding for projects which can be cancelled suddenly due to budget shortages. What is often forgotten by those opposing spending is the fact “to make money, you have to spend money” . The real question is what is the best way to spend it to get the greatest return.

How do I know that government spending stimulates the economy and create jobs? History. When the Stock Market crashed in 1929, most counties including the United States cut spending in order to try to balance their budgets.The result was the economy got worse, tax revenues continued to decline because the economy continued to slow with government spending cuts and so the budget deficits got worse. By the 1930’s the United States was spending money to create jobs building infrastructure which included roads, dams, the Northeast Corridor, rural electrification and so on. This helped to get things moving and came in handy when the economy later recovered. But what really got the United States out of the depression of 1929 was World War II from the massive government military spending that came with it.

What was different about World War II in this country is after most wars there was an economic depression when the war was over and government spending was cut sharply. The reason a new depression was avoided at the end of World War II was in large part because the government made sure the workers doing war work were paid well. But the government also made sure that these workers saved much of the money they made during the war by buying War Bonds. Encouraging workers to save money and discourage spending with rationing was part of the plan to control inflation and concentrate resources for the war effort by limiting consumer spending.

When the war was over and factories retooled for consumer production, people had money saved up and were looking forward to spending it on things that hadn’t been available for some time. With this consumer spending after the war the economy kept going and avoided a major recession, With strong consumer spending the economy reached new heights in the 1950’s and 60’s. The biggest component of the economy is consumer spending. When consumer spending is down, the economy slows. After the war the government did have programs to help people, particularly veterans spend money for housing and schooling.

Taxes during the war reached record highs. These high tax rates were largely kept in place up to 1980. For most of this time the country had record economic growth with the highest taxes in American history. It was also during this time that there was an explosion in construction of infrastructure. This included raising the gas tax in the 1950’s to help pay for the construction of the Interstate Highway system which led to the growth of the suburbs. Many of the military air fields from the war, became airports for many communities as air travel was promoted and expanded in the post war era.

A factor often overlooked for the economy during the 1960’s was the “Space Race” and the goal to reach the Moon before 1970. The economy during the 60’s was brighter than in the 50’s. The country was getting out of a mild recession at the time of the 1960 election and avoided recession for most of the 60’s. A lot of money was spent on the space race at this time and no one ever asked if the United State was going to make any money from it. This extra spending had an impact on the economy. It had an impact at my house at the time. My Father’s company had several contracts with NASA directly related to the space program as well as contracts with contractors working for NASA.

Things changed in the 1970’s. It was due to a combination of the Vietnam war, the disruption of oil supplies twice with resulting higher oil prices and inflation. Following this came the Tax Revolt movement and efforts to “cut government spending and taxes”. With this much of the infrastructure building after World War II largely ended and maintenance of what existed was often deferred. In 2008, the World suffered the worse economic crash since 1929. Both crashes where cause by runaway speculation fueled by financial institutions recklessly issuing massive debt. In both cases the crash caused many people to suffer major losses of wealth and with that came major reductions in spending. This caused the economies of the world to slow down. Just like in the early 1930’s many countries tried to balance their budgets by cutting spending which caused their economies to continue slowing and their budget deficits to keep rising.

One of the few counties that didn’t cut spending was the United States. An economic stimulus package was passed in 2009 which many economists warned would be to small to produce a full recovery. The result was the United States’ economy did better than most major countries in the World, but recovery was slower than anytime after World War II. Most of the opposition to the stimulus package had more to do with partisan politics than economics. Since World War II both parties have used economic stimulus to improve the economy when it was slowing down. This often included increasing government spending by both parties in the White House with hiring more government employees in order to lower the jobless rate.

Stimulus spending between 2000 and 2008 included giving people checks with the hope that people would spend more money. Spending money to stimulate the economy is a long held conservative value. Milton Friedman of the Chicago School of Economics joked the best way to jump start the economy would be to fill helicopters with bags of money and throw the money from out from the sky so people could pick it up and spend it. The results of the stimulus checks between 2001 and 2008 was many of the people didn’t spend the money. People often saved the money or used it to pay debts.This is understandable in times of economic insecurity. There are economists now who want central banks like the Federal Reserve to pay banks to issue prepaid debit cards to their customers “for free” so people will spend the money and not be able to use it for savings or debt payments.

As good or better way than throwing money at people would be to “create jobs” by construction of infrastructure, such as new and improved rail service. Just in California, improved rail service not only “creates jobs” during construction. It also leads to new development around the stations. This can be seen with the changes around Market St. in downtown San Francisco before and after the construction of BART. Increasingly Los Angeles is seeing new high density housing being built around the stations of many of the rail transit lines built since 1990. Housing values have recently gone up near the new extension of the Expo Line to Santa Monica even before it opened. Most rail station have seen new development and economic activity around them. There has been dramatic changes since 1980 around the Santa Fe Depot, the train and trolley station for San Diego. From a rundown part of town near the depot, it is now home to condo’s going for a million dollars a piece. The first multi-modal transportation center was opened in Oceanside in 1984. It was the cornerstone of the plan by the city to turn a rundown and crime laden area downtown into the popular beach resort they have today.

We may also be seeing this happening in one of the poorest areas of the State. The San Joaquin Valley if it became a state would be the poorest state in the Union. In Fresno alone the unemployment rate recently dropped below 10% for only the 4th time in the last 25 years. Despite the drought and slowdown of farming, parts of the Valley are seeing growing demand for labor. How much of this is tied to construction of High Speed Rail in the San Joaquin Valley, particularly in the Fresno area is hard to judge. But it sure doesn’t seem to be hurting the local economy either. But the real pay off will be the new development when High Speed Rail service is up and running for the cities with stations.