In an effort to rev up the sluggish economic recovery, President Obama has proposed $50 billion in spending to improve the nation’s roads, airports and railways. The President’s speech at a Labor Day event yesterday in Milwaukee, Wisconsin called it a long-term investment intended to create jobs. Could this really spur the economy, or is it being irresponsible for the federal government to further extend deficit spending in this way?
Though government efforts so far have succeeded in stabilizing the economy to a great extent, economists and policymakers are seeking alternatives to boost the pace of recovery.
Infrastructure Investment
A major infrastructure investment could be one of the solutions. The latest infrastructure spending proposal of the President indicates that the government is also thinking on these lines. Also, the stimulus passed last year contained more than $100 billion in funding for infrastructural projects. According to the administration, this has helped create about 3 million jobs during the latest recession. However, there is a huge scope for further investments.
Objectives of the Latest Plan
The plan calls for investments over six years starting 2010. The fund will be partially used through an infrastructure bank to invest in transportation projects critical to the economy while also enhancing job growth. The current goals include rebuilding 150,000 miles of roads, constructing and maintaining 4,000 miles of railways -- enough to go coast-to-coast -- and rehabilitating or reconstructing 150 miles of airport runways while also installing a new air navigation system designed to reduce travel times and delays.
Though the total planned cost of the infrastructure investments was not disclosed, the government officials said that the initial $50 billion investment represents a significant percentage of the total.
A Pre-Poll Agenda?
As expected, the Republicans have promptly opposed Obama’s proposal, saying that an infrastructure investment would do nothing but increase the already excessive federal spending. Many congressional Democrats are also against raising expenditures and increasing federal deficits just before the elections. Infrastructure programs, they allege, always make for good press, but are often disappointing in practice.
Though the latest employment report showed that private jobs surpassed the forecast to reach 67,000 in August, overall employment fell by 54,000 and the unemployment rate rose to 9.6% mostly due to layoffs of more than 500,000 temporary U.S. Census workers. This adds to the growing concerns for Democrats just before the November's mid-term elections.
Small-Business Lending
Tax cuts for small businesses or of payroll taxes is one of the popular proposals currently. Democrats in Congress have been pushing hard a small business stimulus bill to boost lending to smaller scale operations to create more jobs. Of course, lending to small businesses primarily to create jobs may not the first-line problem with the economy. If businesses have fewer customers as a result of lower consumer spending and shrunken demand, they won’t take out loans to expand in the first place.
Several large financial institutions, including JPMorgan Chase & Co. (JPM), Wells Fargo & Company (WFC) and Bank of America Corp. (BAC) have continued to contribute to the economic recovery by lending to small businesses.
Conclusion
As infrastructure spending is relatively capital-intensive, it doesn't necessarily maximize new job creation per dollar spent. In economic terms, an equivalent employment subsidy would probably create more jobs than would infrastructure spending. Moreover, considering the proportion of the economic dent, the $50 billion investment sounds like little more than loose change.
However, the biggest economic advantage of spending on infrastructure is that there are bound to be positive returns irrespective of the economic condition.
Though we support the idea of government spending on infrastructure, we are concerned about how quickly -- and how far -- the infrastructure spending would make a difference.
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Infrastructure Investment
A major infrastructure investment could be one of the solutions. The latest infrastructure spending proposal of the President indicates that the government is also thinking on these lines. Also, the stimulus passed last year contained more than $100 billion in funding for infrastructural projects. According to the administration, this has helped create about 3 million jobs during the latest recession. However, there is a huge scope for further investments.
Objectives of the Latest Plan
The plan calls for investments over six years starting 2010. The fund will be partially used through an infrastructure bank to invest in transportation projects critical to the economy while also enhancing job growth. The current goals include rebuilding 150,000 miles of roads, constructing and maintaining 4,000 miles of railways -- enough to go coast-to-coast -- and rehabilitating or reconstructing 150 miles of airport runways while also installing a new air navigation system designed to reduce travel times and delays.
Though the total planned cost of the infrastructure investments was not disclosed, the government officials said that the initial $50 billion investment represents a significant percentage of the total.
A Pre-Poll Agenda?
As expected, the Republicans have promptly opposed Obama’s proposal, saying that an infrastructure investment would do nothing but increase the already excessive federal spending. Many congressional Democrats are also against raising expenditures and increasing federal deficits just before the elections. Infrastructure programs, they allege, always make for good press, but are often disappointing in practice.
Though the latest employment report showed that private jobs surpassed the forecast to reach 67,000 in August, overall employment fell by 54,000 and the unemployment rate rose to 9.6% mostly due to layoffs of more than 500,000 temporary U.S. Census workers. This adds to the growing concerns for Democrats just before the November's mid-term elections.
Small-Business Lending
Tax cuts for small businesses or of payroll taxes is one of the popular proposals currently. Democrats in Congress have been pushing hard a small business stimulus bill to boost lending to smaller scale operations to create more jobs. Of course, lending to small businesses primarily to create jobs may not the first-line problem with the economy. If businesses have fewer customers as a result of lower consumer spending and shrunken demand, they won’t take out loans to expand in the first place.
Several large financial institutions, including JPMorgan Chase & Co. (JPM), Wells Fargo & Company (WFC) and Bank of America Corp. (BAC) have continued to contribute to the economic recovery by lending to small businesses.
Conclusion
As infrastructure spending is relatively capital-intensive, it doesn't necessarily maximize new job creation per dollar spent. In economic terms, an equivalent employment subsidy would probably create more jobs than would infrastructure spending. Moreover, considering the proportion of the economic dent, the $50 billion investment sounds like little more than loose change.
However, the biggest economic advantage of spending on infrastructure is that there are bound to be positive returns irrespective of the economic condition.
Though we support the idea of government spending on infrastructure, we are concerned about how quickly -- and how far -- the infrastructure spending would make a difference.
BANK OF AMER CP (BAC): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis Report
Zacks Investment Research
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