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August 22, 2014, 11:41 am

Infrastructure key to recovery

Lagging investment has caused nation to lose its edge, experts say

 

As the president struggles to pass his jobs bill, it cannot be forgotten that industry has always been at the forefront of moving this country forward.

Whether it was the Industrial Revolution and railroads or the massive building of roads and bridges during the 1950s — somehow, someway — industry has provided the necessary income to stabilize the country’s middle class.

And let’s not forget about the auto industry that helped thousands of African-Americans — many of whom were unskilled and uneducated — find decent, secure jobs that allowed them to support their families and plan for their futures. 

The auto industry was known for higher than average wages and served as a gateway to the middle class for many African Americans.

“We’re still hemorrhaging jobs,” the Rev. Jesse Jackson said to NPR. “Think about Chicago, New York, Memphis, Oakland and Atlanta laying off thousands of transport workers. We have to look at it in a very real way … the economic reconstruction.”

In the mid-1900s, millions of Blacks living in the South, headed north to cities throughout the Midwest, lured by job prospects and a desire to escape the oppressive racism of the South.

Automakers were among the few companies that would hire Blacks, and many of those who migrated north ended up in the auto and steel plants throughout the Midwest.

With these jobs, they were able to buy land, build homes and provide an education for their children.

As a result stable Black communities were established, and the Black middle class began to emerge. Needless to say, this is not only President Barack Obama’s plan for Blacks, but the country as a whole, as he fights for his jobs plan. Most importantly, he hopes to rebuild the country’s infrastructure. 

“In every instance,” the president said earlier in the month at a news conference in the East Room of the White House, “there has been games-playing in negotiations with Republicans. I have gone out of my way in every instance, sometimes at my own political peril, to work with Republicans to find common ground to move this country forward.” Investing in infrastructure has always been at the forefront when it came to creating jobs in America and has always yielded lasting benefits for the economy, including increasing growth in the long run.

Upgrading roads, bridges, and other basic infrastructure is at the very fabric of what has made America great. It helped people earn good, middle-class incomes, which has always expanded the consumer base for businesses.

hese kinds of investments also paved the way for long-term economic growth by lowering the cost of doing business and making U.S. companies more competitive.

According to Bloomberg Business Week, the United States and other developed countries can stoke growth and reduce excess industrial capacity by investing in infrastructure at home and in potential consumer nations abroad, said the World Bank’s chief economist, Justin Lin, in New York earlier in the year.

“Whenever we have a strong wind, we have a blackout. It reminds me of the situation we had in China in the 1980s,” Lin said. “This is a good investment opportunity. If we seize this opportunity, we can turn from the new normal to the new new normal.”

He’s not alone when it comes to favoring infrastructure investment. 

Mary Meeker, a financial analyst at Morgan Stanley and author of a new nonpartisan report called USA Inc., said the United States has in recent decades been spending less on productive investments, such as infrastructure and education, and more on areas of preservation, such as health care. That combination has caused America to lose its innovation edge.

“In the last 40 years, we’ve pumped the breaks on productivity-enhancing investments in infrastructure, education and technology, while health care and income security costs have accelerated dramatically,” she wrote in the Atlantic. “Like an aging couple shifting its spending away from the kids’ clothes and tuition toward pills and doctor visits, the U.S. government has transformed itself from a defense-technology-infrastructure investor to a national insurance conglomerate for its aging population.”

Productivity-enhancing spending, according to Meeker, comes from three main sources: infrastructure, education and research and development investment. The country has seen infrastructure spending collapse as a share of the budget since the 1960s.

There is ample empirical evidence that investment in infrastructure creates jobs. In particular, investments made over the past couple of years have saved or created millions of U.S. jobs.

Increased investments in infrastructure by the Department of Transportation and other agencies due to the American Recovery and Reinvestment Act saved or created 1.1 million jobs in the construction industry and 400,000 jobs in manufacturing by March 2011, according to San Francisco Federal Reserve Bank economist Daniel Wilson. And although infrastructure spending began with government dollars, these investments created jobs throughout the economy, mostly in the private sector.

Infrastructure projects have created jobs in communities nationwide. Recovery funds improved drinking and wastewater systems, fixed bridges and roads, and rehabilitated airports and shipyards across the nation. Some examples of high-impact infrastructure projects that have proceeded as a result of Recovery Act funding include:

• An expansion of a kilometer-long tunnel in Oakland, California, that connects two busy communities through a mountain.

• An expansion and rehabilitation of the I-76/Vare Avenue Bridge in Philadelphia and 141 other bridge upgrades that supported nearly 4,000 jobs in Pennsylvania in July 2011.

• The construction of new railway lines to serve the city of Pharr, Texas, as well as other infrastructure projects in that state that have saved or created more than 149,000 jobs through the end of 2010.

Analysis of all fiscal stimulus policies shows a higher “multiplier” from infrastructure spending than other kinds of government spending, such as tax cuts, meaning that infrastructure dollars flow through the economy and create more jobs than other kinds of spending.

Mark Zandi, the chief economist and co-founder of Moody’s Economy.com, where he directs the company’s research and consulting activities, found that every dollar of government spending boosts the economy by $1.44, whereas every dollar spent on a refundable lump-sum tax rebate adds $1.22 to the economy.

The American Jobs Act seeks to remedy this situation by investing $105 billion in infrastructure. This should raise U.S. economic output by $151.2 billion based on Zandi’s most recent economic multiplier for the impact of infrastructure spending on GDP.

Clearly, the president’s jobs bill is a “creative” way to help small companies, which have struggled more than larger ones to recover from the Great Recession of 2007–2009. According to Zandi, during recoveries, small businesses normally drive job creation.

“Something like this is much needed” for an economy grappling with 9.1 percent unemployment, Zandi said to USA Today. Considering, “the economy is on the edge of recession.”

 

Zack Burgess is the enterprise writer for The Tribune. He is a freelance writer and editor who covers culture, politics and sports. He can be contacted at zackburgess.com.