Sunday, January 18, 2009

Rebuild Iowa Wisely

As I noted previously, I just started reading the classic “Economics In One Lesson” by Henry Hazlitt. Although it was originally written in 1946, the subject matter seems to be torn from today’s headlines. Chief among these are the many “make-work” projects being advanced by the ruling Democrats.

Not to be outdone by President Obama’s national public works plan, our own Iowa Governor Chet Culver has trotted out his own $700 million infrastructure plan. "In an effort to stimulate economic growth during this recession, create good private sector jobs, and address unmet infrastructure needs, I propose the creation of the Rebuild Iowa Infrastructure Authority," Culver said in his recent Condition of the State speech. "But when I say infrastructure, I’m not just talking about bridges and roads. I mean all infrastructure: rail, trails, public buildings, water and sewer treatment facilities, the utility grid, and telecommunications, too."

After the 2008 floods and tornadoes, there is definitely no shortage of infrastructure that needs fixed. But what about the two primary goals, stimulating economic growth and creating jobs, that Culver listed even before “address[ing] unmet infrastructure needs?” Culver boasted that “for every $100 million spent on highway construction alone, more than 4,000 new jobs are created!” He predicts that if the legislature spends as much as he hopes, 28,000 jobs would be created.

Will any bill like this really “stimulate economic growth” and “create good private sector jobs?” Economist Hazlitt would say, “NO.”

In the chapter “Public Works Mean Taxes,” Hazlitt uses the erection of an otherwise unneeded bridge as his example of a typical government make-work project. He writes: “It is true that a particular group of bridgeworkers may receive more employment than otherwise. But the bridge has to be paid for out of taxes. For every dollar that is spent on the bridge a dollar will be taken away from taxpayers. If the bridge costs $10 million the taxpayers will lose $10 million. They will have that much taken away from them which they would otherwise have spent on the things they needed most.

“Therefore, for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $10 million taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project. More bridge builders; fewer automobile workers, television technicians, clothing workers, farmers.”

In other words, if you need a bridge (or park or community building), then build it. But do so because you need it, not to “stimulate” the economy or create jobs. It will do neither.

The necessity of many of the projects covered in Culver’s plan is unquestionable. Iowa’s infrastructure took a pounding last year. But some of the projects should give taxpayers pause.

Mass transit projects such as “light rail” are often expensive boondoggles for governments that build them. (This fact was even lampooned in an episode of The Simpsons wherein an unscrupulous traveling salesman sells the gullible Springfielders on the idea of building a monorail.) I don’t know if Culver is referring to light rail when he mentions rail, but it wouldn’t surprise me. There's been talk about it.

Even Iowa Public Radio would get some of Culver’s $700 million largesse, as would the governor‘s residence.

Culver pointed out that “unlike the federal government, [Iowa] can’t deficit spend. And, we’re not going to tax our way out of this, like California or New York." Culver instead proposes to fund the $700 million by selling bonds. That means $700 million in state debt that will be need to be repaid over 20 years. So Culver does plan to “tax our way out of this,” although through delayed taxation rather than immediate taxation. Thanks, you Big Lug!

We have $620 million in “rainy day funds” and now is obviously a good time to use some of it. Governor Culver proposes taking $43 million from the fund: $20 million for property tax replacement, $10 million in "Jumpstart" assistance, $5 million in non-profit assistance, $5 million for individual unmet needs, $2 million for the Rebuild Iowa office and $1 million for skills training. Why not withdraw a little more and skip the bond debt?

I don’t doubt that Iowa needs to spend a lot of money to rebuild. I just hope that the Iowa legislature spends that money carefully and wisely.

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