Two Competing Views on America’s Economic Future

Or, Palin and Eichengreen on Infrastructure Investment.

In a recent speech, Sarah Palin, stated that:

… “The federal government is spending too much, borrowing too much, growing and controlling too much,” she said.

Palin said Obama had revived the era of big government, and she ridiculed the infrastructure spending and investment he outlined in his recent State of the Union speech.

“The only thing these investments will get us is a bullet train to bankruptcy,” the 2008 vice presidential candidate said in a speech at the Ronald Reagan Ranch Center in Santa Barbara, California, part of two days of festivities marking the late president’s 100th birthday.

strucinv0.gif

Figure 1: Log ratio of gross government investment in structures to GDP, both in Ch.05$, normalized to zero at 1967Q1. NBER defined recession dates shaded gray. Source: BEA, 2010Q4 advance GDP release (tables 3.9.4, 3.9.5), NBER, and author’s calculations.

That colorful language, while not quite up to the level of “Don’t Retreat. — Instead, Reload”, nonetheless inspired me to think a bit more about infrastructure investment. Writing on the challenges the Nation faces in the years to come, Barry Eichengreen observes in his new book, Exorbitant Privilege, the need for “tighter belts” (p. 170):

… increases in efficiency can’t be willed into existence; they have to be achieved. And in order to deliver an improvement in the U.S. trade balance, they have to be achieved faster than in countries with which we compete.

Here the United states has some obvious strengths. It has large numbers of university- and industry-based scientists, many attracted from other countries. … entrepreneurs and an agile venture capital industry … flexible labor markets . . . abundance of fertile land . …

But much of the country’s physical infrastructure is antiquated and difficult to modernize, partly by virtue of the fact that it is under the jurisdiction of a multitude of state and local governments or in private hands. Freight railways own much of the track used by Amtrak, for example. Contrast the difficulty of building a high-speed link between Beijing and Shanghai — or for that matter with France’s, Germany’s, and Spain’s high-speed trains. China plans to build as much as 8,000 miles of high-speed rail by 2020. In the United States, meanwhile, intercity rail service is now actually slower than in the 1940’s. … Were Dwight Eisenhower to come along today and propose building the interstate highway system, no doubt he would be accused of socialism.

Some thoughts on infrastructure investment: [Wachs/RAND and Holtz-Eakin], [Treas./CEA] [CBO1] [CBO2].

Local side note: Wisconsin’s new governor proposes ending the Madison/Milwaukee high speed rail project. [1] [2] [3]

Professor Eichengreen worries:

… the United States is no longer the beneficiary of an increasingly well-educated labor force.

I think evidence supporting this last point is evident everywhere, including in political discourse.

Update, 6:25pm: I’ve been accused of cherry-picking data — even though my standard is to plot data from 1967Q1 onward. Here is the entire span of available quarterly data. It does not change my views regarding structures-investment trends.

strucinv1.gif

Figure 2: Log ratio of gross government investment in structures to GDP, both in Ch.05$, normalized to zero at 1967Q1. Tan shading indicates the Eisenhower Administration. Source: BEA, 2010Q4 advance GDP release (tables 3.9.4, 3.9.5), NBER, and author’s calculations.


Originally published at Econbrowser and reproduced here with permission.
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