Judis on whether Obama is doing enough:
There's much to like in Obama's plan. But there are two important ways he may have to go further. Most economists agree that what finally pulled the U.S. out of the Great Depression was military spending for World War II. Some liberals argue that if the Roosevelt administration had not abandoned a Keynesian stimulus strategy in 1937-38, the U.S. might have gotten out of the depression without a war. But in 1936, unemployment was still at 16.9 percent; by 1942, after two years of war spending, it was 4.7 percent, strongly indicating that it was war spending that did it. I am not suggesting that the United States start a world war in order to solve the world's economic problem. But I am suggesting a strategy that could be called the fiscal equivalent of war.
It would consist not merely of updating or repairing the nation's infrastructure, but in undertaking massive new investments that would expand the scope of American industry, and address other urgent problems in the process: global warming, over-reliance on petroleum, and the need to revive America's domestic manufacturing capabilities--not just to provide jobs, but also to provide tradeable goods that can reduce the country's current account deficit.
One area that is ripe for such investment--and that is not, from what I have seen, a declared priority of the Obama administration--is high-speed rail. Amtrak's Acela trains--the closest thing we have to one--average less than 100 mph between Washington D.C. and Boston, whereas trains in Western Europe and Japan go more than twice as fast. Many of them also run on electricity. They would be the most energy-efficient and quickest means of getting between places like Boston and New York, or Los Angeles and San Francisco. But they would require a massive investment. For instance, installing high-speed rail in the Northeast corridor could cost about $32 billion, while California's high-speed rail system would require up to $40 billion. A system that would address the other areas of the country could easily raise the cost to the hundreds of billions. The House transportation and infrastructure committee has currently proposed $5 billion in stimulus funds for intercity rail--not even a down payment on what it would cost to convert the U.S. to high-speed rail.
Here's the problem: by 1942, the war had more than doubled government outlays, increasing the fraction of GDP spent by the Federal Government from 9.8% in 1940 to 24.3% in 1942. The next year brought it up to 43%. Much of this was paid for by not-quite-forced-savings like War Bonds and rationing.
Even if Obama wanted to spend this kind of money, where would he get it? Americans used to save approximately 8-10% of their household income. Now they save . . . nothing. That's only just reversed itself, and much of it is going not into loans, but to building up the balance sheets of the lenders they're repaying.
Nor do I see high speed rail as a great place to absorb huge numbers of unemployed. In construction, yes, some, though even those jobs aren't perfectly fungible--pavers and crane operators and steel workers are not much used in residential building, and many of the residential construction workers are illegal aliens who will not be applying for Davis-Bacon jobs. But what does a mortgage bond trader do on a high speed rail project, other than read the Wall Street Journal and bitch about the quality of Amtrak coffee?
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