Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post Newsgroups: americast.latimes.money From: americast-post@AmeriCast.Com Organization: American Cybercasting Approved: americast-post@AmeriCast.com Subject: The Potholes in Public Works Programs Infrastructure: Lessons from the New Deal and other programs show Date: Mon, 16 Nov 92 07:57:14 EST Message-ID: HEADLINE: The Potholes in Public Works Programs Infrastructure: Lessons from the New Deal and other programs show Publication Date: Sunday November 15, 1992 BYLINE: PATRICK LEE In the Great Depression, President Franklin D. Roosevelt's New Deal put people back to work with multibillion-dollar public works programs that built schools, roads and dams--but also paid people to lean on their shovels and, the saying goes, gave a bad name to leaf-raking. Similarly, in the post-war boom of the 1950s, President Dwight D. Eisenhower launched the Interstate Highway system, another massive program that employed millions and changed the way the nation works--but also, some say, enriched many relatives of politicians. Now, as the nation struggles to emerge from the worst economic downturn since the Depression, President-elect Bill Clinton has proposed spending billions of dollars to rebuild infrastructure--the nation's aging system of roads, sewers and communications lines--as a way to put people back to work and stimulate economic growth. He can learn a lot from history, economists say. Past programs show that public works projects can result in wide-ranging benefits to the economy over the long haul. But they also demonstrate how waste and inefficiency can dilute the effects of such federal spending: Costs can rise, money finds its way into useless projects or politicians' pockets and projects take so long they fail to stimulate the economy in a meaningful way. Economists still argue over how much public spending can improve the nation's competitiveness or productivity, compared to private investments. Some say it can spur significant economic growth; others say it helps only modestly. "The consensus view at this point is that infrastructure spending is probably useful to the economy, but it is in no way, shape or form an elixir," said David Luberoff, assistant director of the Taubman Center for State and Local Government at Harvard's Kennedy School of Government. "Infrastructure spending encompasses a wide range of things that money can be spent on, and does not distinguish between good or bad investments." Clinton has proposed $20 billion in new spending over the next four years to rebuild roads, bridges and sewer lines, as well as construct a high-tech telecommunications network. The goal is to create millions of new, high-wage jobs, smooth the transition from a defense-based to a civilian-based economy and improve the competitiveness of American industry. Money would come from new taxes on corporations and wealthy individuals, deficit financing and user fees such as tolls and waste disposal charges. State and local governments would be asked to match any federal spending--and given responsibility for project development and management. A crucial challenge for Clinton is to overcome fears that such a program will exacerbate the immense federal deficit. He has said it won't, partly because infrastructure spending will be offset by defense cuts. Wherever the money comes from, the need for such work is clear. One widely quoted study, by economist David Alan Aschauer, estimates that total reductions in infrastructure spending over the past 25 years have contributed to a drop in productivity, depressed profits and impeded private investment. While many economists dispute Aschauer's conclusions, others argue that Clinton's $20 billion amounts to less than half the total needed to restore the nation's crumbling roads, bridges and sewers and prevent further deterioration. Even so, one has to reach back into history to find examples of comparably sweeping public works programs. The first programs designed to boost a sagging economy and create jobs were those of Roosevelt's New Deal, notably the Public Works Administration and the Works Progress Administration. From 1935 to 1942, the WPA spent $10 billion--roughly equivalent to $87 billion now--to provide mostly low-wage, low-skilled jobs to more than 8 million people, or about 20% of the labor force. "To those who say that our expenditures for public works and other means for recovery are a waste that we cannot afford, I answer that no country, however rich, can afford the waste of its human resources," Roosevelt said in defense of the program in a 1934 radio address. "Demoralization caused by vast unemployment is our greatest extravagance. Morally, it is the greatest menace to our social order." In just six years, WPA workers built nearly 20,000 schools, hospitals, libraries, gymnasiums, water and sewer lines, and about 130,000 rural roads. It's said now that a visitor to almost any small town in America can still see a park or post office built by WPA workers. Still, because the program was designed primarily as a jobs program, it often funded projects with little utility or efficiency. "Because they were concerned with getting people wages, the projects weren't thought out in ways that made them have some sort of goal," said Linda J. Lear, a history professor at the University of Maryland in Baltimore County and an expert on the New Deal. "They'd make a road, then fill it in." By contrast, the Public Works Administration is perhaps most directly comparable to Clinton's program. From 1933 to 1939, the PWA paid more than $6 billion ($61 billion in 1992 dollars), mainly to private contractors, to build 34,508 dams, roads, buildings and other projects, including Hoover Dam in Nevada and Lincoln Tunnel in New York City. The program employed 1.2 million people in relatively good-paying jobs, and contractors were required to hire practically anyone who applied, especially minorities, Lear said. Unlike the WPA, the Public Works Administration was not a make-work program, but a serious attempt to strengthen the nation's infrastructure. Overall, the total volume of new construction in the nation doubled between 1933 and 1938, largely due to the PWA. To avoid any question of impropriety, contracts were carefully scrutinized and projects deliberately planned. Perhaps too deliberately: Lear says the program ultimately drew criticism for proceeding too slowly. "The cost of making sure it was honest was that it didn't go fast enough to give the kind of boost to the economy that Roosevelt was looking for from deficit spending," she said. Looking back, it is possible to assess long-term economic effects of the programs. The WPA kept some people fed, but didn't end the Depression. Neither did the PWA, but it set the stage for future development. "The PWA at one point constructed half of the public works in the country, and that has had lasting impacts on many cities and other regions," said Joel A. Tarr, a professor of urban studies at Carnegie Mellon University in Pittsburgh. "By the time World War II comes along, there's a power industry in the Pacific Northwest, where in 1933, there was nothing," Lear said. "If you hadn't had the PWA in there building power lines and dams and freeways and canals and housing projects, by the time the war effort came along and we had to convert those areas to airplane and munitions manufacturing, you couldn't have done it." The lessons Clinton can learn from the PWA are to move fast and stick it out. "Public works had been discredited as a recovery instrument, not because of an inherent weakness in the policy, but because Roosevelt was unwilling to proceed with such deficit funding," Lear said. "It was not given a long enough term to see what kind of recovery instrument it would be." A far different national economy faced Eisenhower when he devised the interstate highway program. The nation was in the midst of a post-war boom, both economic and baby. The project, widely considered the largest single construction project in history, was conceived as a way to speed the movement of people, goods and armies across the nation. Eisenhower--who once spent 62 days taking a post-World War I convoy from Washington to San Francisco--modeled the program in part on Adolf Hitler's Autobahn system. Unlike the WPA, it was not meant to bail out a sagging economy, but rather to spur the growth of a robust one. To appreciate the scope of the project, consider that it is still not complete. The first federal appropriation for the system was made in 1956, in the amount of $1.125 billion (or $5.8 billion in 1992 dollars). Thirty-six years later, the total system is 99.6% finished, with 42,661 miles open to traffic and only 132 miles left to build, the Federal Highway Administration estimates. By the time the last few miles are completed sometime in the late 1990s, the project will have cost $130 billion. The economic effects of the system are difficult to assess. Simply put, it transformed the United States: It boosted the auto industry; replaced rail with trucking as the principal means of transporting goods; speeded the development of both suburbs and inner city ghettos, and spawned the car culture of which Los Angeles is the most visible embodiment. The system also provided models for future programs. Most important, it showed how a project with so much at stake can be subject to a political tug-of-war among federal, state and local governments. It showed how federal money can simply vanish. Sen. Albert Gore Sr.--father of the vice president-elect--reportedly complained in 1958 that no one could say how many miles of interstate had been built with federal funds. In 1959, a House committee reportedly found that a rest area in Texas cost $1,500 to build, while one in Illinois cost up to $51,000. "One of the lessons of the interstate project is that in general . . . if you don't require that states put up a reasonable amount of the cost, you run the risk of building stuff that is probably not that cost-effective," Luberoff said. Adds Tarr at Carnegie Mellon: "It was the states who made the decisions on spending, and miles of rural roads shouldn't have been built the way they were. From an efficiency perspective, there was a lot of waste involved." Also, he said, "There was money for new construction, and not enough money for maintenance, so that large parts of the system were allowed to decay." Clinton's proposal is aimed in part at redressing this problem. Economists are still sorting out the long-term economic effects of the interstate and other public works projects. The debate is framed on one side by Aschauer, an economics professor at the Bates College in Lewiston, Me., who argues that a dollar spent on public infrastructure is as effective as a dollar of private investment, and generates up to two dollars of economic growth. Aschauer bases his conclusion on a statistical study of both public infrastructure spending and national economic growth over decades. "The evidence seems overwhelming that public capital has a positive impact on private sector output, investment and employment," concluded a 1990 study by Alicia H. Munnell, a senior vice president at the Federal Reserve Bank of Boston, in the New England Economic Review, who generally sides with Aschauer. The effects extend beyond those that would be achieved by a comparable investment of private capital, the study found, adding: "This country has underinvested in public capital . . . the results indicate that more spending on public investment, which is clearly needed to remedy serious safety hazards and to improve the quality of life, may also produce greater productivity and growth." On the other side are many economists who argue that Aschauer's conclusions are wildly inflated. They argue that a strict cost-benefit analysis of public works projects shows little evidence of economic stimulus compared to private investment. "The thesis that there are substantial benefits beyond those that accrue from private investment remains to be proved," said Dale Jorgenson, an economics professor at Harvard University and a prime critic of Aschauer. "I don't take a strong position on whether it is desirable to increase infrastructure investment, just that the evidence is not very convincing." He argues that each public dollar spent on roads and other infrastructure returns a mere 5 cents in economic growth. That's because of the effects of increasing taxes to pay for such projects and the inefficiency with which such public spending is allocated. His view is supported in part by studies by the Congressional Budget Office, which finds good returns on some spending but not on others. In general, a 1991 study concluded: "Cost-benefit analysis shows little evidence . . . that substantial across-the-board increases in current public capital programs would have a marked effect on economic output." Munnell acknowledges that the magnitude of Aschauer's conclusions are probably exaggerated, but still argues that infrastructure spending can have measurable benefits. She estimates that a dollar of public capital can increase private sector output by 35 cents, taken on a state level. Moreover, "Much of public capital spending is done to improve the environment and enhance the quality of life in other ways . . . that are not captured in measured gross national product," she said. "It's a mistake to throw out the baby with the bathwater, to say that public capital plays no part (in economic growth)." In any case, Clinton's team can take lessons from the past. Above all, his team should keep a sharp eye on the money, particularly since the Clinton Administration will have to worry about compounding a monstrous deficit unlike that which faced previous administrations. "I think that you need to be focused on some performance measures that encourage people to focus on what the system is supposed to do and allow them the creativity to experiment with different ways to get there," Luberoff said. And timing is crucial. "The problem with short-term programs historically has been that by the time they are up and running . . . They often had the perverse effect of actually putting people to work at exactly the time the business cycle started to lift up anyway, so they ended up fueling inflationary problems," he added. Times Researcher Maloy Moore contributed to this report This article is copyright 1992 The Los Angeles Times Home Edition. Redistribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM