Monday, July 05, 2010

Why we can't have a new stimulus plan

Double dip recessions are rare things. Even a slowdown immediately after a recession is unusual. But job creation coming out of this one is painfully slow. While there are lots of reasons, here is a key one.
Historically, housing got creamed in a recession. Interest rates rose going in, choking off housing activity. Then interest rates were cut, housing gradually recovered and helped employment. A lot.
Think of how many skilled trades are involved in building a house. Plumbers. Electricians. Carpenters. Cabinet installers. Roofers. Landscapers. Wallboard hangers. Carpet layers. Tile layers. Bricklayers. Concrete finishers.
Then there are the manufacturers and suppliers of pipe, kitchen and bath faucets, lighting fixtures, roofing shingles, lumber, toilets, sinks carpet, concrete, bricks,conduit, circuit boxes, windows, doors, insulation, air conditioners, water heaters and so on.
Well, in this recession there is no housing rebound, so the millions of local trade workers and manufacturing jobs that one would expect simply aren't getting created.
With that in mind, I could almost support a stimulus plan. "but". The first stimulus plan was a disaster. Over half the money went to Congress' pet projects, not to investments that might actually help move the economy.
A plan should be judged by two factors: first, does it improve the U.S. long-run productivity? Ports, rails, airports, roads and energy grid spending falls into this category. But not spending to support raises for people who already have jobs or to bail out broke states. Second, it should create a lot of jobs immediately. It is better to create two $20 per hour jobs than one $40. And it is still better to create four $10 per hour jobs than 1 $20. People need to be put to work.
Congress clearly failed those tests last time, with bogus "prevailing wage" rules and old pork spending so awful that even their friends wouldn't support it before. I don't see how we can trust them to do a better job a second time around.

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