Since the proposed highway would require no local match, one can certainly understand the attraction of a gigantic public works project like this one, especially during these recessionary times. If it ever comes to fruition decades from now (assuming that there aren’t revolutionary technology developments in the transportation industry like travel pods), it would temporarily pump hundreds of millions in construction monies into the area and create hundreds of jobs, though many of the jobs would be filled by non-resident workers for outside contractors. Once the highway opened, it would have a marginal impact on local employment. You’d see some rearranging of the economic geography with retail establishments clustering closer to highway exits. You’d see more residential sprawl. For an investment of $1 billion or so, the affected counties might experience a net impact of a few hundred permanent jobs, mostly in low paying service and retail trade sectors.

Another economic development dead end

Why? New highways and expanded highways have their largest economic impacts where existing capacity bottlenecks and agglomeration economies exist. But, let’s face it: Route 220, which runs in the direction of the proposed corridor is not experiencing any bottlenecks. It’s a lightly traveled thoroughfare. When you get past Rawlings, MD, you can often drive for miles without encountering an oncoming car. Thus, a new highway would have very small total user benefits. That’s why Wilbur Smith Associates found that similar highways built in lightly populated areas as part of the Appalachian Highway System have a negative ROI. We’ve known these things for decades. Former ARC Executive Director, Ralph Widner, who oversaw the planning and construction of much of the ARC highway system acknowledged the mistake years later in a pensive 1990 article in Economic Development Quarterly in which he faulted the ARC for placing too little emphasis on developing human resources.

When the numbers don’t add up, expect the proponents to reach elsewhere for support. They’ll tout the improved highway safety and potential for reduced accidents (without acknowledging the increased pollutants and deleterious effects on, for example, asthmatics). They’ll assert that it will improve national defense, citizen evacuation, and police mobilization (without acknowledging that it improves criminal and terrorist movement and is associated with increased crime as well). They’ll hold aloft a few advocacy studies with poor research designs purporting to show how the areas will thrive economically as a result of the new asphalt. They’ll argue that the Marcellus shale discovery changes the entire economic rationale.

Who are the biggest losers in this economic development equation? First, the local public who fall for yet another economic development whopper, and lose valuable time in developing worthwhile economic development projects created through publicly engaged planning which focuses on the area’s assets, including human and natural resources. Second, everything else. The proposed corridor would cut through another fairly intact forest area, inducing a pattern of fragmentation that will render an entire swath of wilderness reaching several miles in each direction useless as an environmental asset, devastating ecological services, and destroying biodiversity.

A terrible thing to waste

Ezekial 38:20 warned us of what a wrathful god could do:

So that the fishes of the sea, and the fowls of the heaven, and the beasts of the field, and all creeping things that creep upon the earth, and all the men that are upon the face of the earth, shall shake at my presence, and the mountains shall be thrown down, and the steep places shall fall, and every wall shall fall to the ground.

Turns out that we are quite capable of doing ourselves in without any heavenly ire.

Unfashionably late and overhyped, again.

Bottom line. Not only is there light at the end of the tunnel, but we’re emerging from the tunnel. However, it’s going to take some time to adapt to the sunlight after nineteen months in the cave.

And, for accuracy’s sake, we should remember that it’s a panel of experts at the National Bureau of Economic Research that calls the troughs and peaks of business cycles, not Newsweek or anybody else. They use a dashboard of economic indicators and gut judgment. So, a few consecutive quarters of robust Gross Domestic Product growth followed by anemic growth and continued job losses do not mean that the recession is over. Consequently, it may be years before any “official” declaration is made, if a declaration is warranted.

The two states have followed two different public policy paths: California based on a higher tax, higher public service, higher land use regulation, and high tech model and Texas on a low-tax, low public service, no land use regulation, and natural resource (energy and agriculture) model. Both states, however, have experienced high rates of immigration, mainly from Latin America. The article predicts that the current California situation, which has cyclical, structural, and demographic roots will spread to Texas and the rest of the nation.

How bad are things in California? Well, so bad that even free-market guru Arthur Laffer has decamped from cosmopolitan Malibu to backwoods Tennessee. He attributed his move not to the usual Tiebout sorting but to some universal truisms revealed from spurious correlations of tax rates and economic welfare evidently computed on the back of a napkin.

All in all, the article reminds me of a recent Pat Buchanan jeremiad, the difference being that The Economist predictably applauds the transformation of America into a facsimile of their wonderworld of a newly amalgamated Houston and LA.

Pat says 'Don't Mex with Texas'

Well they should. The country may become a vast wasteland of people, sprawling asphalt, and hot summer nights. But, from The Economist’s vantage point change and calamity represent opportunity. Yep, thar’s gold in them thar hills.

“The Recovery Act wasn’t designed to restore the economy to full health on its own, but to provide the boost necessary to stop the free fall. It was designed to spur demand and get people spending again and cushion those who had borne the brunt of the crisis. And it was designed to save jobs and create new ones. In a little over one hundred days, this Recovery Act has worked as intended.”

But, former chairman of the Council of Economic Advisers, Edward Lazear, offered a different and, in my opinion, more accurate take on the economic stimulus in an op-ed piece in the Wall Street Journal earlier in the week.

“By June 26, about $56 billion was spent on the stimulus . . . A large proportion of that actually reflects mere transfers from the federal government to state governments, so the amount that has gotten into the economy is significantly lower. . . But even if we call all of the $56 billion spending, it’s still not enough to make a meaningful impact. By this point of the year in 2008, the Bush administration’s tax-rebates got out about $80 billion. The Bush administration’s tax rebates had a positive but hardly dramatic effect on the economy.”

So, to paraphrase Rep. Pete King, “let’s knock out the econobabble.” What honestly has the Obama/Congressional fiscal package achieved? Here’s my take:

(1) It has validated the Principles of Macroeconomics lesson that fiscal policy is notoriously difficult to use as a countercyclical tool because of the large lags in legislative decision-making, execution, and spending of funds.
(2) It has shown that the relief package had serious design flaws from the beginning. The bulk of the impact was never designed to occur when it was most needed. Instead, it would ramp up the economy after most macroeconomic forecasting models forecasted that recovery would already be underway without an economic stimulus. Its long term residual effect will be to crowd out private investment, much as the Congressional Budget Office predicted.
(3) It has demonstrated that personal income or payroll tax cuts are a poor mechanism for stimulating the economy during severe downturns. All of the tax cuts were predictably saved by consumers.
(4) It has illustrated the counterproductive effects of certain incentives and long delays in implementing some aspects of the package. For instance, many renewable energy investment projects that would have occurred in the absence of fiscal stimulus projects are being placed on hold until the economic incentives kick in.
(5) It has confirmed that this administration is not very efficient in executing economic policy. In amount and timeliness of stimulus delivered and actual impact, even the Bush tax cuts worked better. The Obama administration has not delivered the funds appropriated on schedule and according to legislative intent.

Show me the money

There are some other aspects of the fiscal stimulus that deserve scrutiny. As the Wall Street Journal recently reported, regional distribution of fiscal stimulus is uneven, with many economically hard-hit states receiving proportionally less than better off states. And, the well worn paths that federal dollars follow mean that the stimulus funds are disbursed according to a partisan geography.

Moreover, some of the programs funded by the stimulus program are clearly economically wasteful and even directly contradict administration policy in other areas. For instance, Senator Byrd’s environmentally destructive carbon creating economic boondoggle, Corridor H, was initially awarded $21 million from the stimulus package.

So, if Mr. Obama’s claim of credit is not credible and the trickle of fiscal stimulus has done little to boost the economy, who or what should receive accolades for the obvious stabilization of financial markets and the economy? To some extent, the mere changing of administrations and more policy activism has served to boost consumer confidence, even if that has not yet resulted in much additional consumer spending. To some small extent, the fiscal stimulus is having a beneficial impact. For instance, some parts of the funds released so far have softened the blow for states of next fiscal year revenue shortfalls. Moreover, aid to low-income workers and the unemployment has had salutary effects.

But, the real force behind the slow turnaround has been the expenditure of TARP funds and actions of the Federal Reserve to shore up the financial system and inject liquidity in unprecedented ways.

Surely, Mr. Obama must realize that real leadership requires giving credit where credit is due.

“When you consider that the federal government is about $11 trillion in debt, and we’re borrowing more to spend more … it defies any sensible economic policy any of us ever learned through college…It defies economy practices and principles that tell ya ‘you gotta quit digging that hole when you are in that financial hole.’”

Of course, any beer sodden undergraduate could tell you that Keynesian economics, the science behind the ‘fiscal stimulus’, is indeed taught on most public and private college campuses these days. It’s bundled into a course called ‘principles of macroeconomics.’ You’ll usually find it as a core requirement or elective in a business major or a stand-alone economics program. Some dissident schools teach Keynesianism as heterodox thinking (e.g., Hillsdale College, Grove City College), but nobody imagines that the highly influential school of economic thought doesn’t exist.

Math is hard.

So, could the explanation for Governor Palin’s comments be that the colleges she attended never offered this course? According to the newsmedia, she attended three community colleges and a four year university over a five year period: Hawaii Pacific College, North Idaho College, Matanuska-Susitna College, and University of Idaho. A quick check of the first step in her academic odyssey, Hawaii Pacific College, shows that they are teaching 12 sections of the course in Fall 2009. So, it is probably reasonable to assume that they were offering the course way back in the late ‘80s too.

Did Palin ever sit through a macro principles course? Hard to say without those college transcripts, but it seems doubtful. Too much math.