How We Stopped Investing in the Future: A Florida Case Study

In June 2009, ten Florida Congressmen sent a letter to the Department of Transportation, requesting over $2 billion from the federal government. They wanted to build a high-speed rail line, shuttling passengers from Tampa to Orlando and eventually Miami in only two hours. The money was supposed to come from the American Recovery and Reinvestment Act, the $787 billion “stimulus” bill that newly-elected President Barack Obama signed in February of that year.

Of the ten Florida Congressmen, three were Republicans, and all three had voted against the stimulus: Lincoln Diaz-Balart, Mario Diaz-Balart, and Adam Putnam.

This kind of about-face wasn’t unusual. Many Republicans were begging for a piece of the stimulus after they had tried to kill it in Congress. Even party leaders like Paul Ryan and Eric Cantor got in on the action.

John Boehner defended this contradiction by saying that the stimulus would fund “shovel-ready projects that will create much-needed jobs.” Only a few months earlier, he had been saying the exact opposite — and relentlessly trashing anyone who dared to disagree with him.

The Tampa-Orlando rail line really did fit Boehner’s definition. It was shovel-ready because almost all the land and permits were already lined up, and according to the U.S. Conference of Mayors, it would create 27,000 jobs.

Moreover, it was good fiscal policy. According to two separate reports, the project would produce an annual surplus of $31 million to $45 million by 2026 — and that didn’t include the much more profitable connection to Miami that was likely to follow.

And it was good environmental policy. High-speed rail emits far less greenhouse gas than cars, especially in densely populated regions like central and southeastern Florida, which is why overflowing cities in China, Europe, and Japan have surged so far ahead of us in this vehicle of the future. It saves time, money, and pollution. Unsurprisingly, it’s very popular.

Fifty years ago, this would have been a no-brainer. In the 1950s and the 1960s, politicians were dedicated to investing in new technology and staying one step ahead of the Soviet Union. It’s no coincidence that economic growth was faster and more widespread in those days.

Back then, the federal government spent 2.6 percent of the nation’s income on nonmilitary investment. In the last twenty years, it has averaged 1.8 percent per year. That difference of 0.8 percent may not seem like a lot, but it adds up to trillions and trillions of dollars that could have gone into research and development, education, and new infrastructure — and, if previous investments are any indication, would have yielded benefits many times higher than the costs.

As economist Eugene Steuerle put it, “We have a budget for a declining nation.”

On January 28, 2010, the White House granted Florida’s request. By December, the Department of Transportation had allocated $2.4 billion against a cost of $2.65 billion, and they promised to cover any cost overruns. Had Florida accepted the money, its workers would be laying rail for the Sunshine State bullet train at this very moment.

Instead, Governor Rick Scott rejected the deal, citing cost concerns that didn’t make much sense since the feds were on the hook for any losses.

Thus did the dreams of high-speed rail die in Florida. Thus do many dreams of the future die in the modern political arena.

In Tampa, there’s a street called Bayshore Boulevard. It’s the longest continuous sidewalk in the world. It’s a beautiful walk, with a balustrade that overlooks the water below. It was built in the 1930s by the Public Works Administration, part of the federal government’s response to the Great Depression. It’s just one of many breathtaking feats of construction that dot this great land of ours, each a reminder that, as Transportation Secretary Ray LaHood said during the high-speed rail fiasco, “We still know how to do big things in this country.”

I’d like to think that’s true. I’d like to think we still care about the future. I’d like to think we can build a better tomorrow. I only wish Governor Scott and his fellow ideologues felt the same way.

==========

This op-ed was published in today’s South Florida Sun-Sentinel.

Outsourcing Isn’t an Excuse to Abandon the Working Class

Barack Obama and Mitt Romney agree on one thing: Outsourcing is a problem.

Of course, they disagree on who’s to blame. To Obama, it’s private equity firms like Romney’s Bain Capital. To Romney, it’s deficit spending like Obama’s 2009 fiscal stimulus.

(As I pointed out two weeks ago, there’s plenty of evidence that the 2009 stimulus created millions of jobs right here in America. But never mind.)

“Countries around the world are…giving their workers and companies every advantage possible,” says Obama, but “we can win that competition.”

On Romney’s website, you can find the same language. He says our tax code “needs to be more competitive and business friendly.” We need to create a “level playing field for American products in foreign markets.”

This rhetoric is more dangerous than it seems.

It’s true that many of our exports are at a disadvantage. In countries that we trade with, the average manufacturing wage is 65 percent of the American average. In Mexico, manufacturing workers earn 11 percent of what their U.S. counterparts make. In China, they earn 3 percent.

So, the question is: Just how “level” does Mitt Romney want the “playing field” to be?

When it comes to outsourcing, Romney has a solution, but he won’t say it…because you won’t like it: The easiest way to create a “level playing field” is to lower American wages.

The dirty secret about Republican economics is that it’s all about cheap labor.

While most of the industrialized world (and much of the developing world) has experienced rising real wages in the past thirty years, American wages have stagnated.

Union membership has plummeted. The minimum wage has failed to keep up with inflation. Taxes and regulations that previously restricted the rich from siphoning the wealth of the middle class have been eviscerated.

In short, Mitt Romney’s game plan has already been put to the test.

We were told that it was a new era. We were told that we needed to sacrifice our job security, our wage increases, our retirement benefits — all in the name of globalization. We were told that America couldn’t compete with those costs around its neck. We were told that the manufacturing sector was deadweight. We were told that the working class was pulling us down. We were promised a better world filled with high-tech jobs and rapid innovation, low taxes and rising asset prices, cheap imports and even cheaper investments.

We did everything we were told. We gave up our protections and our power. And, in return, we got lower economic growth, higher inequality, productivity growth that went almost entirely to the top 1 percent, and — irony of all ironies — even bigger trade deficits.

All that cheap labor didn’t make us “competitive” after all.

All it did was line corporate coffers with more profits than ever before.

But not everyone made that mistake. According to the conservative Heritage Foundation, U.S. tax revenue is currently 27 percent of GDP. In Denmark, it’s a whopping 49 percent. They have the world’s highest minimum wage and arguably the lowest level of income inequality. Yet their unemployment rate (7.7 percent) is currently lower than ours (8.1 percent), and their economy grew at the same rate as ours from 1979 to 2007.

For another comparison, look at Sweden, where tax revenue is 48 percent of GDP. They consistently battle Denmark for the world’s lowest level of income inequality, yet they’re also ranked as the second most competitive country in the world (after Switzerland). Their unemployment rate (7.8 percent) is also lower than ours, and their economy grew faster than ours from 1979 to 2007.

Needless to say, unions are more prevalent and powerful in both of these countries than in the U.S. But arguably the most heavily unionized country is Germany, where employee representatives sit on corporate boards and have a say in industry-wide decisions. Germany’s unemployment rate (5.6 percent) is way lower than ours, and they boast a large trade surplus.

Clearly, we can raise wages and compete in the global economy at the same time. We don’t need a “level playing field” to beat outsourcing. We just need a proactive government.

==========

This op-ed was published in today’s South Florida Sun-Sentinel.

Government Isn’t the Problem…and Austerity Isn’t the Answer

I have a friend who witnessed about half of the Supreme Court arguments on the Affordable Care Act. When he walked out of the courtroom, he wasn’t surprised to find a sea of people protesting the law. What did surprise him was how many of the protest signs were anti-Europe. Apparently, the protestors were worried that universal health insurance was the path to “becoming European” and all the nefarious consequences that implies.

If asked for their opinion on government spending to stimulate the economy, I imagine they’d give roughly the same answer.

But the truth is that fiscal irresponsibility has little to do with Europe’s current crisis.

Just before the recession hit, the European governments with the highest public social spending (relative to the size of their economy) were France, Austria, Belgium, and Germany — none of the so-called “PIIGS” nations that are in trouble. In fact, many conservatives have anointed Germany as the role model that its neighbors should emulate.

Even if you measure all government spending in the middle of the crisis, there is no correlation between a country’s public spending and the interest rates on its sovereign debt (which is the key indicator of financial distress).

From 1999 to 2007, the European government with the highest budget deficit (again, relative to economic output) was Slovakia, hailed by conservatives for its flat tax. France’s budget deficit was about as big as Italy’s, and Germany’s was close behind. Spain and Ireland actually had budget surpluses.

Besides, if government spending were the problem, then the crisis should be over by now. The EU and the IMF have forced the PIIGS nations to slash public expenditures — and the recession has only gotten worse.

Compare that strategy with what happened in the United States, where we took the opposite approach and increased public expenditures.

In the fourth quarter of 2008, real GDP contracted at an annual rate of 8.9 percent in the U.S. In January 2009, nonfarm employment declined by over 800,000. That was the lowest point both statistics — growth in economic output and jobs — would reach.

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act (ARRA), better known as the “stimulus” package.

In the first quarter of 2009, real GDP contracted by 6.7 percent. In February 2009, nonfarm employment losses were closer to 700,000. The recession was clearly not over, but the bleeding had slowed.

On March 6, 2009, the Dow Jones reached its cyclical low of 6,626.94. The next day, it began a strong recovery.

By the third quarter of 2009, when the stimulus money was starting to be spent, the economy was growing again. By March 2010, job growth was positive again. (Job growth always lags behind economic output.) By February 2011, two years after Congress passed the ARRA, the Dow Jones cleared 12,000.

Clearly, the ARRA was the turning point. Its passage was the beginning of the end of the Great Recession.

Coincidence? Perhaps.

But isn’t it odd that none of the critics’ predictions came true? They warned that interest rates would skyrocket with the government borrowing so much money. Instead, interest rates plummeted. They warned that inflation would soar. Instead, it’s been low and stable.

And that’s not all. Several economists have measured the effect of the stimulus since it was spent. Two Dartmouth researchers, for example, compared jobs growth in each state and county to the amount of stimulus funds spent in that state or county. They found that every dollar spent on the poor yielded two dollars in increased economic output, and every dollar spent on infrastructure yielded $1.85 in output.

Another study compared jobs growth in each state to the amount of federal Medicaid matching funds spent in that state. They found that each dollar spent yielded two dollars in output. A similar study found that the ARRA “created or saved about 2 million jobs in its first year and over 3 million by March 2011.”

So it’s no surprise then that Europe continues to flounder while America continues to grow. You can’t beat a recession by cutting government spending. Even Mitt Romney said so.

==========

This op-ed was published in today’s South Florida Sun-Sentinel.