|  Chris over at Construction Software Adice dug into the stimulus numbers to figure out how many construction jobs it has created or saved. The graph to the left shows jobs lost vs. jobs saved and gained, from Sept of last year to this September.
Less than overwhelming. Meanwhile, the news about last week’s GDP numbers was that a big chunk of the 3.5% gain came from “motor vehicles”, which most economists are reading as meaning that the cash for clunkers program, in which the government gave credits for purchasing a new relatively fuel efficient car if you turned in an older car, was wildly succesful. The Wall Street Journal bewails that the real cost is more than the 3 billion sticker price, which is odd. I mean, the government has spent trillions during the financial crisis, and the stimulus bill itself was 787 billion dollars. In that context, 3 billion is peanuts. Think about that for a moment. 3 billion for the cash for clunkers produced a huge chunk of GDP growth. It probably wasn’t the full 1.7%, but it was significant. So far, about 160 billion dollars of the stimulus bill has been spent (bear in mind, about 37% of the bill was tax cuts and not spending). What this should twig you to is that most of the stimulus was done in incredibly inefficient fashion. If 3 billion could be responsible for that much GDP growth, it means the the remaining 157 billion wasn’t pulling its weight. A proper stimulus should do a few things (more in the extended entry):. |
- It should increase spending in the economy or stop a spending decline.
- It should fix fundamental economic problems at the same time.
- It should be something which businesses can plan on going forward.
Cash for clunkers met two of the three criteria. It increased spending in the economy and even pried loose money that wouldn’t have been spent otherwise. Consumers received a credit, sure, but they also had to pony up some of their own money. It also worked on a fundamental economic problem in the economy: it increased fuel efficiency and decreased pollution from cars. What it didn’t do is create any sort of long term demand which business could count on going forward. It happened, it’s done. Auto companies can’t ramp up production expecting that demand to continue, auto dealers can’t order more cars expecting that demand to continue, and auto suppliers can’t rehire employees expecting this demand to continue. But for 3 billion for so much effect, why not extend it, and gaurantee funding for, say, 3 years? 36 billion for a proven effective stimulus is a good deal. Let’s step back to the construction workers we started this piece with. What should the government have done to really help them? To really help the construction industry? The current real help, forget direct spending, is a tax credit for those buying new houses. That may seem like it meets the criteria of being ongoing and creating new spending, but in fact it is only ongoing. In fact, high housing prices are a problem in the US economy. They need to be lower, because right now they reduce job mobility (if you can’t sell your house, you can’t move), they lock younger people out of the housing market (houses are still too expensive even with the credit), they make the US internationally uncompetitive because Americans have to be paid wages capable of supporting inflated housing prices, and they depress general demand because high mortgage payments are money not being spent on goods other than housing. Trying to make housing prices artificially high is as stupid now as it was Greenspan was doing it. Instead, why go give credits for refitting buildings for energy efficiency, active and passive solar? Say 10K for a single family 3 bedroom home with scaling credits for larger and smaller homes, and credits for office buildings, factories and so on? Immediately you have a ton of work for construction workers, if the credits are expected to go on for years businesses can plan for them, and that means manufacturing all the necessary materials including solar panels, and they reduce the amount of energy the US needs, which means it’s solving a fundamental problem in the economy rather than making it worse. The scandal of the stimulus bill isn’t how much it cost. It’s how relatively inefficient it was, and how little it looked forward and attempted to fix fundamental problems in the US economy. Contra the WSJ, cash for clunkers was a good and efficient program. Not perfect, but as stimulus goes, effective. Let’s learn from it, and do even better |
