The Lie of Shovel Ready Jobs

President Obama was shocked --SHOCKED! -- to learn that bureaucracy and contracting hassles delay construction projects.

Mickey Kaus points to this passage from Jon Alter’s The Promise:

The biggest frustration involved infrastructure. Obama said later that he learned that “one of the biggest lies in government is the idea of ‘shovel-ready’ projects.” It turned out that only about $20 billion to $40 billion in construction contracts were truly ready to go. The rest were tied up in the endless contracting delays and bureaucratic hassles associated with building anything in America. [E.A.]

Kaus has two points based on the above, that its good the President is still learning, and the second point I’d summarize as, “Huh?” That is, was the President living in another galaxy or something? Of course it isn’t surprising that government projects take considerable amounts of time to get going. That was precisely one of the complaints about fiscal spending as an economic stimulus. Here is Arnold Kling from January 2009,

1. It is harder to spend larger amounts quickly and cost-effectively.

2. There is a greater risk that we will run into a “sudden stop,” in which foreign investors are no longer willing to fund our deficits (this is Buiter’s main worry).

3. There is a risk that the intergenerational transfer imposed by the stimulus (from our children to ourselves) is excessive, particularly in the context of other intergenerational transfers of the same sort.

4. There is a risk that fiscal stimulus, large or small, is actually ineffective, so that a large stimulus only means a large failure.

5. There is a risk that much of the spending will kick in after a recovery is underway.

6. The government’s capacity to deal with an emergency, such as a major natural disaster or a foreign attack, will be limited, because its credit worthiness will be damaged.

7. There is a risk that government will absorb a permanently higher share of GDP. Policymakers will be reluctant to cut public spending for fear of causing a downturn. Moreover, it will be difficult politically to cut public sending.

And Kling was not the only one. If Obama believed this and feels he was lied to, he is extremely naive.

FILED UNDER: Bureaucracy, Economics and Business, Government, US Politics
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. john personna says:

    Well, of all the projects in all the states, some had to be ready to go, pending funding. At the same time, the set of people which would petition the government “we are shovel ready” would be much larger.

    If Obama seriously thought everyone who showed up, hat in hand, was shovel ready, he was naive.

    Actually …

    It turned out that only about $20 billion to $40 billion in construction contracts were truly ready to go.

    cynics in the audience might think that a pretty good ratio.

  2. Brummagem Joe says:

    So when did the president actually say this and if he did in what context? Can you tell us Mr Verdon? Or are you just replaying something written by some journalist which has then been regurgitated by another wonderfully objective source. Sorry but I’m increasingly believing next to zilch I hear from the media.

  3. Zelsdorf Ragshaft III says:

    All of this is not done by mistake. Obama and his Harvard lefty cohorts planned this for years. Any strong structure must be weaked from the interior for it to be brought down. If you do not think that is Obama’s purpose. You really have not been paying attention. Check out his background. Who he hung out with. Who his heros were. Listen carefully to what he is saying. This man is a dangerous traitor to the United States of America.

  4. john personna says:

    You jumped the shark with that one Zelsdorf, obvious parody.

    It might be fun to hear you tell how GWB played his part though, pretending conservative roots but actually a mole, controlled by the even more crafty Karl Rove, as they placed the dynamite in the foundations of our economy.

  5. Pete says:

    John, you’re acting just like Zels now. You sound like a playground whiner who’s screaming, “You did not, I did too.”

  6. Steve Verdon says:

    Brummagem Joe,

    Here you go,

    http://www.factcheck.org/2009/12/obamas-economic-speech/

    Obama said 10,000 infrastructure projects — the ones we were once told were “shovel ready” — have been “funded.”

    Obama: Already, more than 10,000 of these [infrastructure] projects have been funded through the Recovery Act. And by design, Recovery Act work on roads, bridges, water systems, Superfund sites, broadband networks, and clean energy projects will all be ramping up in the months ahead.

    That’s true in a bureaucratic sense. The Department of Transportation reports that $31.77 billion in stimulus bill funds have been made “available” as of Nov. 27. But “funded” is not the same thing as “underway.” DOT also reports that only $6.52 billion had actually been paid out, more than eight months after Obama signed the stimulus measure.

    Obama from the White House “jobs summit”

    Obama, Dec. 3 2009: The term ’shovel-ready’ — let’s be honest, it doesn’t always live up to its billing.

    and

    Obama: [W]e’re going to see even more work – and workers – on Recovery projects in the next six months than we saw in the last six months.

    So much for,

    Obama, Dec. 2008: We’ve got shovel-ready projects all across the country. And governors and mayors are pleading to fund it. The minute we can get those investments to the state level, jobs are going to be created.

    But feel free to continue to believe that all journalists are lying and in cahoots.

  7. john personna says:

    I was writing parody there, Pete.

  8. Gerry W. says:

    Well, Obama may not be the brightest guy on earth, but let’s face it, he was handed a total mess.

    I am sure he found obstacles and the obstacles get worse with both parties not knowing in how to run the country and the problems just pile up.

    But here is some questions:

    If creating jobs is so important, then why are we sending jobs overseas?

    If tax cuts (under Bush) were supposed to work, then why did we lose the jobs, and why is the country in the shape that it is in today? After all, we were supposed to have prosperity. And in 2007, Bush said that he would have a balanced budget in 2012. So what happened?

    If tax cuts stimulate the economy, did anyone consider that you have to solve problems with those tax cuts, and not sit on a failed ideology of “stay the course” and “trickle down.”

    If tax cuts is supposed to spur growth, then why did we lose so much business? My town has some 30% to 40% unemployment. And how do we create a business environment for small business, when the big business leaves?

    And if we put the tax cuts in the hands of consumers, are they going to buy American? After all, half the products in the stores are foreign. And if buying foreign is beneficial, is it reciprocal?

    After how many years of tax cuts, does the tax cuts have the same punch today as it would have in normal circumstances if we would have solved problems and would have kept jobs and not run up so much in deficits and debt?

    And how can the fed stimulate with lower interest rates when they are already at their lowest?

    So, it seems like, that Obama has little to work with. That is not to say I agree with everything he is doing. He doesn’t seem to have the command that I would like to see. We can expect many years of higher unemployment after many years of mismanagement of our nation. So far, republicans have not come up with anything credible in creating jobs. Ignoring globalization and its effects on the nation needs to be checked into.

    And as far as bureaucratic hassles, here is a billionaire that wants to stop progress. He wants it all for himself and he will take it to his grave.
    http://www.dailyfinance.com/story/billionaire-moroun-detroit-ambassador-bridge/19545089/

  9. Pete says:

    John, leave GW out of your parody and it will resonate more. We all know GW did little to help the conservative cause.

  10. Juneau says:

    If tax cuts stimulate the economy, did anyone consider that you have to solve problems with those tax cuts, and not sit on a failed ideology of “stay the course” and “trickle down.”

    Failed? What failed is the Democrats unabashed pursuit of the ideology of providing free lunch, free housing, free money, and no accountabiity to be honest about what you can afford.

    CRA, community based, engineered insanity taken to the nth degree with Frank, Dodd, and crew wiping their mouths and hands when it turned to garbage, saying” Fannie and Freddie are in great shape financially.” You hear how F & F got (received) another, what 10 BILLION to stave off collapse?

    Democrat economic policy = redistributed wealth = epic fail.

  11. Gerry W. says:

    I agree with you on the free money. And that is why I voted for Reagan, when I saw too much welfare. On the other hand, it comes to be true that the republicans are only for the rich. At least from where I stand.

    There seems to be a misconception of what our problems are. Fannie and Freddie is one, the financial failure is another, too big to fail is another, the failure of trickle down another, two wars not paid for, not enough troops, quagmire, housing falsely targeted for growth, we have too low of interest rates for too long of time, and then there is globalization.

    Now, maybe Freddie and Fannie is on your mind. But in the Midwest, we lost manufacturing jobs and that is making cities and states go broke, and also less revenue for Washington. (Higher deficits)

    Again, all I saw for eight years is our jobs leave the country (while we were told “free trade is good.” Our money going to Iraq as we were told to “stay the course.” Deficits and debt. And the neglect of our infrastructure. It seem to me, that republicans only think of tax cuts, and they think the economy will be on automatic. Or should we call it laissez-faire. Now that is what I saw in Ohio.

    Now, we had tax cuts under Bush and we still lost the jobs. So something did not work. And it is not just spending alone and it is not taxes alone. To me, it is 2 billion cheap laborers that want our jobs, and we have not adjusted to that. It really is amazing with the economists that come on C-span or other programs and say we are going to be an information and service society and that China can do the manufacturing. So we give up our jobs, and now we have no jobs. So what is it, that the republicans want? They took our jobs and my town has some 30% to 40% unemployment. What else can we give? And states are desperate and will do anything for spending projects to create jobs. Which seems to be a daunting task against 2 billion cheap laborers.

    We see how republicans operate. We see the trashing of anti trust laws by Reagan. We see no investment in our country to create future jobs. We see less inspectors on meat and other products. We see how Tyson, Smithfield, and Monsanto takes 75% of the market from the farmer. We see the price fixing by big box stores so that the mom and pop stores cannot make it. It is all for the dollar and the heck with the middle class.

    As far as our recession, it was a combination of a lot of things that I had mentioned. What we went through with Bush reminds me of the roaring 20’s. We lived it up, and now we are going to pay the price as we have nothing to stimulate this country with. So we are where we are.

    And on a side note: As far as recessions go, the economy runs out of steam. It has no more to give as people borrowed and spent. Everything is in excess. Then add the problems and you fall into a recession. The trick is to cut spending when times are good (never happens). And look at areas that are starting to fail and find a solution to that problem. Like, if our jobs are going overseas, what will replace those jobs? And I keep asking that question.

    We don’t have a democracy in our country, and we don’t have a republic in our country. We have an oligarchy and elitism. A few people and interest groups run this country. Now, globalism has opened up the world and we have to deal with that instead of seeing the middle class continually gets crushed. This is a major problem. I don’t ask for protectionism, but we can invest in our country, in our people, and in the future. It is the only way to run the country and not some ideology by either party.

  12. An Interested Party says:

    “Democrat economic policy = redistributed wealth = epic fail.”

    And the solution is to turn control of the Congress back over to the GOP and to put a Republican back in the White House….because their economic policies have been such a roaring success in the past…

  13. sam says:

    Megan’s worth thinking about (and Will and Ezra) when we get into this stuff.

    Confirmation Bias and Stimulus

    Will Wilkinson and Ezra Klein notice that people tend to cherry pick the papers they like on big macroeconomic questions. This is perhaps the greatest reason why I am a stimulus agnostic. Oh, I believe that if you increase one component of a compound variable, you can produce a notional increase in that variable; this is virtually a truism. But I am less convinced that it produces a large net increase in public welfare.

    Wading through the online debates, I note that opinions on stimulus are nearly 100% correlated with the composition of that stimulus, and the opinionator’s prior view of that activity. So when Democrats are in power and stimulus is mostly spending, liberals think that the stimulus is an issue of fierce moral urgency stymied by venal greed and rank idiocy, while conservatives develop deep qualms about budget deficits. When Republicans are in power, and stimulus consists mostly of tax cuts, Democrats get all vaporish about deficits and the income deficit, while Republicans suddenly realize that the normal rules don’t apply in an emergency. When out of power, both sides will grudgingly concede that some small amount of highly temporary stimulus might be all right, but note (correctly) that the other side seems to be trying to make permanent as much of this “stimulus” as possible.

    For me, then, this mostly ends up as a proxy war over the level of government spending, a war I’d rather fight honestly on value grounds rather than attempting to disguise my preferences with a shoddy veneer of “scientific” logic.

    Read the whole thing (links, too).

  14. Brummagem Joe says:

    Steve Verdon says:
    Friday, July 9, 2010 at 18:21

    “But feel free to continue to believe that all journalists are lying and in cahoots.”

    The problem is that in none of these statements you quote does the president say:

    “one of the biggest lies in government is the idea of ‘shovel-ready’ projects.”

    nor do they support it’s corollary that Kaus (who is something of joke) suggests and you just replay that he was under any illusions about how many “shovel ready” projects there. And of course we all know journalists are models of probity when it comes to accurate reporting.

  15. Brummagem Joe says:

    This is essentially an effort by Verdon to dis the government’s injection of around 825 billion into the economy as a stimulus measure. At the time there wasn’t much debate about the fact the economy needed a stimulus to pump up aggregate demand and make up for the slump in consumer and business spending . The only difference was in how it was to be achieved. Republicans wanted wholly tax cuts, mainly payroll oriented, and Democrats dismissed this formula because of it’s weak accumulator effect and came up with a package that as best I recall was about 200 billion in tax cuts; 250 billion in transfer payments to the states to bolster state budgets which are also under stress from the collapse in tax receipts; and 375 billion for “shovel” projects. The bill mandates that it all had to be spent or committed by the end of 2010 and the estimate is that around 75% of the total will actually have been spent by this year end including about 60% of the infrastructure portion. I don’t know about other states but in my own it’s funded a mass of projects that had either been mothballed or certainly would not have happened given the states straitened cirmcumstances. For anyone to suggest that none of this has been effective they must be wearing blinders. Next week they are going to announce Q2 GDP numbers and the consensus is they will be in the 2.75-3.25% range so that will be four quarters of positive growth after the longest periods of economic contraction since the great depression (7 quarters I think). We’ve stopped losing jobs at around 750,000 a month and are adding them although at not a strong a rate as we’d like to see. There has been a substantial recovery in corporate profitability and business confidence generally and this is showing up in the Dow which is up well over 50% from it’s low point. Rather than arguing about this sort of tendentious trivia about shovels we should be celebrating dodging a rather nasty bullet. I’m not with the naysayers of right like Verdon or left like Krugman but with Buffett who has a more balanced take on these things and points out that a) we are in full recovery mode and b) that it’s a bit of sawtooth like most other recoveries he’s ever experienced.

  16. john personna says:

    Ah well, Pete. As they say, comedy is hard.

  17. john personna says:

    As relates to some of our previous discussions:

    It would be interesting to see if the evidence actually supported the anti-business hypothesis in the case of health care or any other regulation. My guess is that it doesn’t, but until someone produces such evidence, the anti-business explanation for weak investment is basically just name calling.

    http://www.cepr.net/index.php/blogs/beat-the-press/if-president-obamas-anti-business-attitude-is-hurting-investment-can-someon-explain-how

    FWIW, I still think that what business fundamentally needs is _customers_, and lacking those they’ll gripe about something. Given that the conservative system doesn’t really have a way to deliver customers (it assumes they are present at all times), they might be looking for scapegoats. IOW, when the market fails, blame Obama.

    (not parody, just slightly inflated, for emphasis.)

  18. G.A.Phillips says:

    A picture is worth a trillion words……

    Why even argue with these economic crack heads anymore, VOTE THEM OUT!!!!!!!

  19. sam says:

    A picture is worth a trillion words……

    You oughta know — you don’t read books without them.

  20. Steve Verdon says:

    Brummagem Joe,

    We would have almost surely stopped losing 750,000 jobs/month without the stimulus too. The question is when? Would it have happened sooner, around the same time, or later. Obama is pretty much on record as saying he is quite disillusioned with shoverl ready jobs. Fact Check is a website that is fairly non-partisan and they provide several data points on why we should be skeptical of the claim that shovel ready has worked. Tens of billions have been scheduled to be spent, but a fraction actually has. Thus, it is highly unlikely that it was the shovel ready jobs.

    Next week they are going to announce Q2 GDP numbers and the consensus is they will be in the 2.75-3.25% range so that will be four quarters of positive growth after the longest periods of economic contraction since the great depression (7 quarters I think).

    If you think July 30th is next week fine, but it really isn’t. And given the various indicators I’ve been looking at I hope it is that high, but I consider that range to be overly optimistic. Consider also that PCE for April was zero and only 0.2% and 0.3% (Nominal and chained dollars respectively) for May.

    There has been a substantial recovery in corporate profitability and business confidence generally and this is showing up in the Dow which is up well over 50% from it’s low point.

    Gee, can you lay it on any thicker? Business confidence is up, eh? The rebound in GPI also looks to be fizzling that isn’t good for medium to longer terms growth either.