Explaining Southern California's economy

Saving the economy: Infrastructure spending isn't enough

Occupy LA

Eric Richardson / Blogdowntown

Participants in Occupy Los Angeles rally on the steps of City Hall after marching from Pershing Square on Saturday, Oct. 1, 2011.

At Business Insider, Henry Blodget offers a plan to save the economy. In the process, he says that he's choosing sides in a religious-econo war, between the big-spending Keynesians on one side and the no-spending Austrian School economists on the other (this is a super-shorthand version of the major economics debate of the past 100 years). His solution? Massive infrastructure spending:

  • The government should construct and pass a long-term budget plan that
    • Minimizes short-term pain, while
    • Getting the long-term deficit under control
  • This budget plan should be designed to benefit all Americans, not just special-interest groups or different classes or industries
  • This budget plan can theoretically include an increase in short-term spending designed to minimize the country's pain, as long as it also includes a decrease in long-term spending (again, right now, the world is willing to lend us as much money as we want)
  • One form of government spending that unequivocally benefits all Americans is infrastructure spending (when the projects are finished, America has the infrastructure)
  • Infrastructure spending would help America address another reality that has emerged in the past three decades—the reality that the infrastructure of many countries in Europe, Asia, and other regions has vaulted past that in the US and made the US look like a second-world country
  • Infrastructure spending would boost employment in one sector of the economy hammered by the recession—construction
  • Infrastructure spending would involve fewer of the conflicts and misaligned incentives that infuriate many Americans about "entitlement programs," extended unemployment benefits, welfare, food stamps, and other government expenditures that seem to encourage sloth and laziness and "socialism"
  • The 10-year government budget designed to get us out of our current predicament, therefore, should probably include a massive, multi-year infrastructure spending program.

This makes a lot of sense and sticks to the Great Depression playbook, when Harold Ickes oversaw the Public Works Administration and built much of the heavy-duty infrastructure that we assoiciate with that period and the recovery from the crisis. But just as it wasn't enough on its own in the 1930s, it won't be enough in the 2010s. 

For that, the other half of the Great Depression playbook needs to be used. This is the Works Progress Administration, overseen by Harry Hopkins. Its focus was simple and short-term: jobs, jobs, jobs.

Infrastructure spending is the perfect way to find detente between the Keynesian spenders and the Austrian no-spenders because it represents investment rather that, bluntly stated, waste. If you're going to spend, spend long-term and build what the country needs to be competitive in the future. Who can argue with that? In fact, there's aready bipartisan enthusiasm for infrastructure spending. 

But what do you do about, for example, 12 percent unemployment in California — right now? If you follow the Hopkins rules, you throw money at the problem, spending now and asking questions later. At best, you restore dignity and save citizens from the threat of long-term unemployment; at worst, you pump money into some pointless endeavors that won't yield much of anything in 30 years, but will at least attack the problem of idle human capital.

Occupy Wall Street and its offshoots have shown us that there's a lot of rage and frustration in the land. Rebuilding the nation's infrastructure is a great, partial solution. But if we're going to stave off the potential social fracture that now looms, we need to get the unemployed to work, and we need to do it a lot faster than the time we'll need to approve bridges, tunnels, and roads.

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Visual Aid: Occupy Wall Street's breakfast — grilled millionaire?

The 1% have nothing to fear from the 99% but fear itself. Unless the 1%, like Franklin Roosevelt in 1938, lose their taste for scrambled eggs at breakfast after munching for months on...millionaires!

The video above is fairly famous but I think also worth revisiting as tensions mount with Occupy Wall Street. Mayor Michael Bloomberg has informed the protesters that they need to vacate Zuccotti Park by tomorrow. 

Follow Matthew DeBord and the DeBord Report on Twitter.

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Invest with James: How to make money renting your shirts

Matthew DeBord

James has discovered the value of renting stuff he isn't using.

My almost-six-year-old son James is very interested in money. But unlike some kids who think about ways that they can do jobs for an allowance or create little businesses (Lemonade stands!) in order to get some cash to spend, James wants to divert wealth from other people without actually providing any real services. 

I think this makes him a member of the 1% that Occupy Wall Street is protesting, if not in assets then in philosophy.

His chief target is his older sister, Lucia, who has decided that she doesn't care about money and wants to live for her art.

James is obsessed with separating her from her money. He doesn't really know anyone else who has money he can get his hands on, so this makes sense. 

Money for both of them comes from the traditional sources of pre-adolescent capital: intermittent allowances, gifts, the Tooth Fairy. But James has more of it because he saves it all.

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Visual Aid: How the 1 percent have fared since 1981

This is one of those charts that speaks for itself. It comes from a report I was directed to by Catherine Rampell of the New York Times. It shows how drastically pay in the securities business has diverged from pay in all other private sector fields, in New York City since 1981. 

If you want to know what the Occupy Wall Street — and Occupy LA — movement is protesting, look no further.

The chart tells a tale about the New York City economy, which was dominated by the financial services industry prior to the financial crisis and is still seeing very high compensation levels in that world, even after the near-collapse of the system, the bankruptcy of Lehman Brothers, and the taxpayer bailout of the big banks. The bailout money, by the way, came from the people represented by the red bars.

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