Can Infrastructure Spending Rev Up The Economy?

Hopes for a massive federal effort to jump-start the economy helped send the stock market higher Monday. The Dow Jones industrial average gained 298.76 points, closing at 8934.18 — a 3.46 percent gain.

President-elect Barack Obama said over the weekend that he would lead the biggest government infrastructure investment since the interstate highway system was launched in the 1950s. He is also planning to boost government spending in other areas in hopes of spurring both short- and long-term economic growth.

Every $1 billion the federal government commits to roads, bridges and other infrastructure helps to support some 35,000 jobs.

A Jobs Pipeline

"You're talking about every kind of job that's associated with a transportation infrastructure project, from the people that actually make the steel to the people who build the project," says Tony Dorsey, spokesman for the American Association of State Highway and Transportation Officials. "You're talking about everything in that whole pipeline."

Faced with their own budget shortfalls, many states have had to defer these kinds of projects. AASHTO has identified some $64 billion worth of work that's all ready to go — just waiting for someone to write the check.

"These projects can be under contract within 180 days," Dorsey says. "All they need is the investment from the federal government to help them to get off the shelf and put people to work."

Speed counts, because part of the government's goal would be to get the extra money flowing into the economy as quickly as possible. Economist Alan Viard of the American Enterprise Institute is skeptical that infrastructure projects are the best way to do that — a concern the president-elect's own economic advisers have raised in the past.

"Even if you start these things right away, some of them are just very long-term projects, so very little of the spending is going to occur in the near term," Viard says. "In general, infrastructure spending is too slow. It's not really a good stimulus tool. But certain things, like road repair, could be done more quickly."

Jump-Starting The Economy

Obama said this weekend that he would focus on projects that get the money moving quickly.

"I think we can get a lot of work done fast. When I met with the governors, all of them have projects that are shovel-ready," Obama said on NBC's Meet the Press.

The president-elect also hopes to use the economic stimulus package to fund initiatives that are valuable in their own right, such as making medical records available electronically and retrofitting buildings to make them more energy efficient.

"The key for us is making sure that we jump-start that economy in a way that doesn't just deal with the short term, doesn't just create jobs immediately, but also puts us on a glide path for long-term, sustainable economic growth," he said.

One such proposal comes from the Center for American Progress — a think tank founded by the president-elect's transition chief, John Podesta. Earlier this fall, the center recommended that the government spend $100 billion on energy efficiency, renewable energy and mass transit to promote what it calls a "green recovery." The effort would create an estimated 2 million jobs over the next two years.

"It is not just the construction workers that show up on the site. It's the people who serve them lunch. They also get a job boost. It's the truck drivers who deliver the materials. It's the accountants. All of these types of jobs get created through a green investment agenda," said Robert Pollin, an economist at the University of Massachusetts, Amherst and a co-author of the proposal.

Pollin added that any massive increase in government spending would create some jobs, no matter how the money is used. He favors building retrofits, because they require a lot of workers here in the U.S. and because the resulting efficiency delivers a long-term payoff.

"Even if we spend a lot more money than we actually end up needing in the short term, we're still going to get the long-run benefits," Pollin said. "We will have made major investments towards creating the clean energy economy that we all know we need."

The president-elect still hasn't specified a price tag for his proposal. But congressional leaders have been talking about a program in the range of $500 billion.

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