Archive for December, 2008

Three Different Questions That Must Be Asked About Obama’s Plan

Sunday, December 7th, 2008

Over at the Marginal Revolution, I got involved in a discussion about Obama’s stimulus plan. It got a little out of hand on my end.

I don’t have much use for Keynesian economic views. I still hold to views that I laid out here, although I would hope that if I had to write them out again I would do a better job of articulating my views. So as you might imagine, I don’t have much use for the concept of a government sponsored “stimulus.”

But I did not comment Marginal Revolution with the intention of railing against Obama’s stimulus plan. Marginal Revolution has a lot of dedicated anti-Keynesians and I don’t feel that I really have lot to add to the arguments that have already been hashed over.

The only reason I left my first comment on the thread was because I didn’t understand why Tyler Cowen felt that energy savings contradicted the goals of a stimulus. From there the conversation went far afield. It seems that some people have the idea that I am defending Obama’s plan. Needless to say, that was not what I was going on about.

As I see it, any discussion of Obama’s plan to spend money on infrastructure must consider three different questions.

The first question is whether investment in infrastructure is really necessary. I am on record as arguing that it is (see this post for an example). But that does not mean that we can just throw money at infrastructure and think that it will be spent wisely. As I point out here, Japan spent a lot of money on infrastructure and they still have critical infrastructure needs.

Just because we desperately need to start upgrading our infrastructure, does not automatically mean that all spending on infrastructure is wise.

The second question is what are the obstacles to improving infrastructure? In other words, if it needs to be done, why haven’t we done it already? I would argue that one of the key constraints is the shortage of skilled labor.

This is the argument that most people have the hardest time accepting. They see the housing boom has bust and lots of people in construction without a job, and they just can’t believe that labor shortage is a real issue.

But what most people outside of the trades don’t understand is that there is a big difference between commercial work and residential work when it comes to utilities. Moreover, there is a further division between troubleshooters and installers. People who can troubleshoot on the commercial level are few and far between. And so far, I have seen no sign that they are in danger of losing their jobs.

This has practical effects when you start talking about making buildings more energy efficient. Troubleshooting is the most important skill when it comes to making a pre-existing building more energy efficient. For example, in most cases, you can save big energy dollars simply by making HVAC controls in older buildings work properly. But to do this, you need troubleshooters and they are in short supply.

That is only one way in which labor shortages can impact how fast we can improve our infrastructure. Every trade has their own tales. For example, I hear that there is a growing shortage of Civil Engineers.

The bottom line is that almost every trade has some key skills that are in short supply. These skills limit the amount of money we can effectively throw at infrastructure at one time.

The last question that needs to be considered is how well Obama’s plan to invest in infrastructure will work as a stimulus. Since I don’t really buy the whole concept of stimulus, I don’t really have a lot to say here.

I would note that those critics who say that any infrastructure project will take too long to get off the ground are likely right. I can think of lot of exceptions in theory. But in practice, the government takes a long time to move on any project. If you want a lot of jobs next year, infrastructure projects are unlikely to meet your goals.