The idea that the government would commission construction and infrastructure projects is wildly unpopular: after all, that's socialism! But you know what else is socialism? Providing jobless benefits to the unemployed, a policy which the Senate reaffirmed this week with another extension. So long as the government is intent on using its power to try to approach the deep economic turmoil with practical solutions, few ideas are so dangerous that they should be completely off-limits. And this recession, in particular, seems tailor-made for public works projects.
As we now understand, this isn't your average cyclical recession. The economy is experiencing prolonged high unemployment, where far fewer jobs are available than are needed. Many economists expect unemployment to remain above 7.5% through 2011.
And this recession has been far harder on some industries than others. Arguably the worst hit has been construction. Its size has contracted by 2.14 million workers since August 2006. Here's how bad it looks:
The total labor market has seen a 7.53 million worker contraction since then. That means construction accounts for 28% of the recession's job losses. And that doesn't take into account unemployed construction workers who have become discouraged, marginally attached, or forced to work part-time.
There's also reason to believe that the construction industry could lose even more jobs. Housing starts continue to fall now that the government has withdrawn its support of the market through its home buyer credit. Even when it does hit bottom for good, it's relatively certain that construction jobs won't recovery quickly, as there is a great deal of inventory out there, particularly in housing. A lot of overbuilding occurred during the real estate bubble.
So let's reflect on what we've just concluded. The economy has millions of construction workers who aren't likely to find work for a prolonged period. They're, consequently, going to continue collecting unemployment checks as Congress passes extension after extension. Since that money is a sunk cost anyway, why not get those jobless construction workers off their sofas and put them to work completing infrastructure projects that would boost the nation's future productivity?
There would be some cost involved for the materials, but we're already paying for the labor through unemployment payments. That means now is a historically unprecedented time for the government to invest in its infrastructure at little added cost. There also wouldn't be any economic distortions like in other stimulus projects that interfere with future private demand, like the home buyer credit. These projects would be the sorts of things that government would normally spend money on anyway, but over an extended period instead of all at once. While public works aren't a good idea in most recessions, in this one, it's hard to see much downside.
Numerous different plans could work, but here's one example. Municipal and state governments determine what infrastructure projects need to be completed over the next decade. It could be building a new bridge or repaving roads. They then submit proposals to the federal government, which provides the funding necessary for the work if it approves. It can prioritize which projects get funds based on a region's unemployment concentration.
The most obvious criticism to such a proposal is that some workers completing these projects might have already been employed. But this isn't a significant problem. First, these infrastructure projects would be driven by municipal and state governments that are mostly doing as little infrastructure spending as possible these days, since they're struggling with their own budgets. So the vast majority of these projects would otherwise not take place, and should genuinely create jobs. Second, even if these local governments did plan on incurring these expenses, obtaining federal funding might prevent them from having to take other cost-cutting measures which would involve laying off additional government employees like teachers or police officers.
Unfortunately, in this current political climate, it's fairly unlikely that anything like this would pass. It would involve some more spending, unless not-yet-used stimulus funds were reallocated to this end. And that's too bad. Public works could be a win-win situation under these circumstances. The U.S. could renew and strengthen its infrastructure for far cheaper than it can in the future while pushing down the high unemployment rate at the same time.
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