It was almost eight years ago that I started writing about spending on infrastructure as a means of countercyclical fiscal policy. There was an op-ed in The Washington Post, followed by an essay in The Ripon Forum, as the Great Recession was beginning. I returned to it occasionally as the weak recovery and inelegant policy discussions of economic stimulus continued the need for a sensible plan to boost economic activity. This op-ed at U.S. News Economic Intelligence blog is a good example.
In the intervening time period, the American Society of Civil Engineers (ASCE) has updated its quadrennial Infrastructure Report Card. As of 2013, the costs to improve our D+ grade had reached $3.6 trillion. That far exceeds what we allocate to infrastructure investment over a reasonable period, and the additional $275 billion (perhaps coupled with private funds to reach a total of $500 billion) over 5 years that Hillary Clinton has proposed is a small step in the right direction.
What I find interesting about the proposal is less in the details and more in the possible timing. At present, the labor market is cresting. My preferred measure of the labor market is the initial claims for unemployment insurance. The latest estimates are posted each Thursday morning at this page. The latest 4-week moving average of initial claims was 271,000. We have been below 300,000 for over a year now, a threshold which has historically been associated with a growing economy. Between now and 2017, we can expect that series to start creeping back up to values that are less consistent with a growing economy.
So the interesting part of the proposal is that when a new president takes office in January 2017, economic growth will be slowing, and our friends at ASCE will be getting ready to release a new report card showing, I'm sure, an enormous infrastructure gap. Our friends at the Fed will have started to raise short term interest rates (maybe this month?), but they won't be very high by that time and so there won't be much room to cut. We will be relying once again on fiscal policy to smooth out a looming downturn.
I hope that 14 months from now, we are not scrambling around for "shovel ready" projects like we were in 2009. I also hope that our fiscal policy discussions are more elegant than "which expiring tax cuts should we hold our nose and continue to extend?" (correct answer: none, actual answer: almost all of them)
The time to set the stage for better policy options is now. Congress should make a prioritized list of the nation's infrastructure needs from the menu laid out by ASCE and its own objectives for improving sectors like energy, commerce, and transportation. Have the list ready to go in January 2017 when the new president takes office and when the economy will likely benefit most from increased public spending. That we would look like a functioning republic again is just an added bonus.