Economic Stimulus: We're All Marxists Now
The blogging software refused to take all my changes to Chinese Checkers, so here’s a new post to follow up.
I wanted to say that I should have titled yesterday’s post “We’re All Marxists Now”, but more accurate would be, “We’re All 1930’s Keynesians Now”. I’m reminded of all of Ataturk’s dam building projects, the huge Kruschev block houses - just pour concrete and stir. Mao had The Great Leap Forward where every peasant was making his/her own pig iron in the back yard (millions died in the ensuing famine). Pol Pot had “Return to Year Zero” - everyone out of the cities, back to the fields and rice paddies - full employment, manual labor at its finest. Yes, we can race towards the bottom of the pit or pyramid, every American manning a shake machine or a maquiladora worker or out busting our backs on a road crew.
Think for one about currency velocity - how money turns over. Money for construction is slow money, and let’s just say if this is the only level of jobs we’re capable of growing, we should be ashamed.
Now take an example of Amazon.com. 16,000 workers, estimated revenue for the year $17 billion, profit of roughly $500 million - almost $30K profit per worker - much of it on growing exports, based on extremely fast transactions - money in seconds, product in a few days. How efficient is it to push growth on a company like Amazon vs. pouring concrete? How easy is it to export our concrete business? How easy is it to increase productivity of an Amazon employee vs. a concrete pourer? How easy is it to grow Amazon’s business model? (They’re now doing probably as much electronics as the books they started with). Note that Amazon has introduced the Kindel for convenient downloadable portable reading - what kind of increased efficiency effect will that have on the rest of our & the world’s economy? Compare that to whatever minimal multiplicative effects from construction?
Now apply the same principles to Google and eBay and Microsoft and Cisco and the myriad of small, efficient, guerrilla startups. What are the effects of our pharmaceutical developments on world health? (Not just slow development - distribution, affordable availability). The steel in our cars is not the most interesting part - it’s the increased electronics sophistication, the composite materials, improved fuel system designs, battery technology. (Many of our huge steel mills of yesteryear can be efficiently replaced by localized flexible minimills such as hot roll mills.) Certainly we need physical infrastructure, but let’s not worship it like the throwback days of early civil engineering, building the Hoover Dam and Empire State Building. There will be no breakthrough technologies coming out of added road construction.
We also risk another misstep like we had with ethanol - big windfalls to corn farmers with a distortion of our food prices and destructive effects on arable land - if we just throw money at alternative energy, not to mention the slow pace of introducing new energy approaches (look at the turtle-like pace for CFL bulbs and the high premium to pay for them) . In short, it’s probably not the prime candidate for quick stimulus cash to provide high velocity job-affecting returns, unless there are promising near-market products to roll out.
Rather than low-tech industries like concrete-pouring highways and construction of new schools, low-footprint virtualized service areas like software and finance are much more flexible, innovation pays off handsomely, results can be exported and replicated elsewhere, and the benefits roll out in a number of ways, such help improving sales, greater efficiency in functions like searching and assisting consumers, and lowered costs and time.
And one of the dirty little secrets of our current educational system is that like the library before it, the resources of schools are more and more affordable and accessible at home, with teaching methodologies changing as well. I recall a time when school books were basically rented for the year (don’t write in the margins!!!). Now with a $400 computer, on-line resources and lesson plans, books for $15-20 (used for less), and additional inexpensive teaching tools, the educational portion of our schools revolves around the face time with teachers, their skills, as well as how conducive the environment is to learning. Will we keep pouring money into the school system of the 1800’s Great Plains, or actually address “No Child Left Behind” in a meaningful 2009 fashion?
Economics has changed as much as the world has changed in terms of technology and organization and distribution of resources. Marx and Malthus would be amazed, and it seems so would we. Catch up.
Hey, Des, totally OT and I apologize for that, but I'm trying to figure how a post with 0 recs is on the "recommended leader post" list at TPMEC and this one, with two recs, is not. (I noticed this was happening last week and the former sys-admin in me cannot let it go.) Did you, perchance, post this to both TPM Cafe and TPM Election Central?
November 23, 2008 10:25 AM | Reply | Permalink
Probably the system is slow to update. I've noticed that in a number of ways.
November 23, 2008 10:30 AM | Reply | Permalink
Good point, but don't worry. No matter how many blogs Des posts, they all get on the most rec list. This one will too. Not to worry.
November 23, 2008 10:31 AM | Reply | Permalink
I put it down to the Rec system having extraordinarily good taste :-)
I swear I didn't hack it (though could if I wanted to). Perhaps just not enough people posting diaries these days, or they handicapped me because they felt sorry for me.
November 23, 2008 1:17 PM | Reply | Permalink
I noticed that earlier with astrals blog, it appears to resort to how many comments a post has, if it runs out of posts with rec's. I could be wrong.
November 23, 2008 2:29 PM | Reply | Permalink
When NC Steve made his comment, his was the only one comment (his). There are certain posters here at TPM that get most rec'd no matter what.
November 23, 2008 5:46 PM | Reply | Permalink
Who exactly is "worshipping"? Your last two blog-posts give the impression of an either/or dichotomy here that is simply false.
Do you think that Obama's administration will really be that out of touch?
Marxist? Really?
November 23, 2008 10:25 AM | Reply | Permalink
Is the opposite of "worshipping" infrastructure, cursing it when you drive over a pothole and you need a new tire, an alignment, possibly a new rim, and are late to work as well?
I'll bet those people in Minnesota would have welcomed (not worshipped) infrastructure repairs if it would have saved their bridge. Fact is, the people who will make repairs to roads are not the same people who are marketing geniuses. They are not the same people who make the creative innovations that then get built in China.
November 23, 2008 11:00 AM | Reply | Permalink
How much of our bailout policy are we going to derive from one bridge falling in Minnesota 15 months ago?
November 23, 2008 1:19 PM | Reply | Permalink
I don't know, but so far, none. The bridge is referenced when we speak of a crumbling infrastructure, because it is a vivid and memorable example. Can you name one bailout policy penny that has been "earmarked" in the name of the Minnesota bridge? What is wrong with giving an example, anyway? It wasn't even a bridge to nowhere.
November 23, 2008 1:53 PM | Reply | Permalink
It is now ;-)
November 23, 2008 2:07 PM | Reply | Permalink
Why is it a bridge to nowhere? It connected a city and had thousands of cars a day traveling on it. You didn't answer my question -- can you name one penny that has gone to bailing out infrastructure in the name of this bridge?
I didn't think so.
November 23, 2008 5:49 PM | Reply | Permalink
Don't know if this passed, and as it says "not enough", but:
Minneapolis Bridge Collapse Prompts Senate to Approve $1 Billion to Fix Aging Bridges
Sep 14, 2007 | Parker Waichman Alonso, LLP
Six weeks after the Minneapolis Bridge collapse, the US Senate has allocated funds for replacing the doomed structure and has approved even more money to repair many of the nation’s other aging bridges. But although the $1 billion set aside in the Senate’s new transportation funding bill for bridge repair might seem generous, it falls far short of the $65 billion needed to fix structurally deficient bridges around the country. What’s worse, even this meager funding measure might not make it into law.
The collapse of the I-35 W Bridge in Minneapolis on August 1 that killed 13 people brought attention to the sorry state of the country’s infrastructure – especially its bridges. The national highway system is over 50 years old. Unfortunately, as traffic on roads has increased, federal and state funding to fix them has not kept up. Last year, the Federal Highway Administration asked Congress for $375 billion for highway repair projects. Unfortunately, Congress only authorized $286 billion.
But this year, things are different. Though a cause for its collapse has yet to be determined, the 40-year-old Minneapolis Bridge had been deemed “structurally deficient.” Surprisingly, there is nothing unusual about that – some estimates suggest that as many 74,000 US bridges are structurally deficient. Suddenly, Congress started paying attention to bridges, and proposals for increased funding began making their way through various committees.
The new funding bill would give the state of Minnesota $195 million to replace the destroyed Minneapolis Bridge. All fifty states would share in $1 billion set aside for bridge repair. But the legislation might not make it past President Bush’s veto pen, because it is about $4 billion over Bush’s “top line” for spending. And before it even makes it to the President, the Senate bill must be reconciled with one the House passed following the I-35 W Bridge collapse. The House measure included no money for fixing bridges other than the fallen Minneapolis Bridge.
November 24, 2008 3:01 AM | Reply | Permalink
Hey Des. I'm trying to figure out if you're saying that we should be replacing Y type of jobs instead of X type of jobs, or doing both. Can you clarify?
Personally, I think the answer should be both. We're seeing layoffs from a huge variety of industries, jobs creation should be across the spectrum as well. We do need some massive infrastructure building/rebuilding. So creating jobs through that is a 2 for 1 deal: we need both.
I'm already not a huge fan of bridges, I'd feel a lot better if they weren't getting C grades on infrastructure report cards and even you know...collapsing.
This isn't really accurate. Did you know that the average teacher spends between $600 and $1000 yearly on classroom supplies - they get a $250 tax credit for it. Why is that? Where's the money go?So they can get a cheap computer. The crucial software, still usually expensive. Keeping up with the rest of the technology is not cheap. The new big thing in schools is the SmartBoard. You only see it in the wealthy area schools, because the cost of one is about 3,000. It's not something that's shared among classroom. Once you can find that cost, the software for it is free, so at least that's a plus.
Then look at assessments. The DRA is a common reading assessment, and to be used functionally, each classroom needs one. Each box of assessment materials costs about $350. And then you have to go into the development and scoring costs of the accountability tests, which are a poor tool for measuring progress anyway. More money wasted.
The rising costs of employee benefits and fuel/heating costs are a big part of budget issues.
And one of the biggest pieces of the budget pie is special education funded, which is mandated under the federal IDEA, so schools can't skimp there.
And teacher salary, well that's a whole debate in itself.
But aside from budget issues, you're right that NCLB does need to be addressed in an innovative manner that goes far beyond the "Bush left the money behind" mantra.
November 23, 2008 12:09 PM | Reply | Permalink
Answer #1 - roads and bridges
Of course we need to be rebuilding our roads and bridges - that's what some of our gas taxes are for. That this pool of money keeps getting raided is criminal, which is the way Washington works. And of course there's a large construction industry angling for a huge handout. Does that make it really an essential part of a bailout & recovery program for a financial & mortgage based collapse? How many people are part of this construction industry, how many jobs will this effort create, and is it sustainable - won't we be retraining people in 3-5 years to do something else, or if these people are untrained, what were they doing before October?
November 23, 2008 1:26 PM | Reply | Permalink
I do see your point. But these programs seem to me to fulfill several interrelated needs: employment, infrastructure rebuilding, public works, and "going green." No, I don't want pointless jobs. I read somewhere that New Zealand's job creation program included people hired to dig and then refill holes. I don't know how true that is, but it's a good metaphor either way for what we don't want out of a jobs creation program.
The manufacturing and construction industries have been hit hard, and these programs should help there. (which is, I'm assuming what these people were doing before.)But job loss is speading to other sectors as well, and I doubt someone who lost a job in the hospitality or business sector is going to get a job laying rail or rebuilding bridges.
We can expand the Corps network, and I'd like to see a national program directed at increasing the amount of nursing education to address the serious shortage we're facing.
And we've got to do thing to make the private sector more able to create jobs. Lowering the cost of labor - Health care costs number 1. Tax reform for education and training. And so on.
November 23, 2008 3:44 PM | Reply | Permalink
Do you know how much oil pouring concrete uses? Certainly has nothing to do with going green. So with one hand we give, with the other we take away.
November 23, 2008 4:45 PM | Reply | Permalink
Could you explain what you mean about "pouring concrete?" What does that have to do with repairing already existing roads and bridges? You are making it sound like the idea is to cover the US with a layer of concrete. You are not making a lot of sense here, Des. Or maybe I am missing your point. How is repairing crumbling roads and bridges equal to "pouring concrete"
But I'll bite. How much oil is used to pour concrete? I'd like to know the answer, and I assume you have it, or you wouldn't have asked.
November 23, 2008 5:55 PM | Reply | Permalink
http://revver.com/video/828718/concrete-7-global-co2-emissions-global-warming-impact/
November 24, 2008 3:06 AM | Reply | Permalink
That's "7% of global CO2 impact due to concrete", for those who don't have time to click, which isn't quite the answer to your question but does give the anti-green nature of this business.
November 24, 2008 3:08 AM | Reply | Permalink
Sorry, to clarify, I wasn't really implying they were related. I don't see the road system leaving us anytime soon however.
By jobs creation through going green I meant more things like investment in retrofitting buildings, improving the rail system, building wind farms, etc. Those might not be the best examples, I claim no expertise in this realm.
November 23, 2008 6:30 PM | Reply | Permalink
I'm not an expert either, and this all sounds fine, and for both some energy conservation and supporting companies with innovative energy solutions, I'm all for. But I think the numbers for impact are extremely tiny for the problem at hand.
AIG disappeared $80 billion in a couple of weeks (bigger than the Education Department's entire annual budget) and came back for another $60 billion.
How much GDP effect will any of this stimulus have in the next 3 years? Versus say a medical solution that lowers the time of sickness by 1 day over millions of people, a computer program that makes searching faster and more relevant, a trading program that improves predictions on portfolios or lowers time of evaluation, or per what you mentioned, a breakthrough improvement or significant lowered cost in teaching tools.
But we still loves us some New Deal.
November 24, 2008 3:34 AM | Reply | Permalink
Answer #2 - education
I certainly don't have all the answers. But look at your own figures - $600 to $1000 yearly for a class of say 25? $40/student? That's pretty much nothing, and AFAIK it's not like the teacher's money is going to buy shared resources typically (bunsen burners and centrifuges, computers and networking, math boards) - more basic supplies.
Smartboard's not the only game in town - Smartboard, Activeboard, Interwriter, Mimio, eBeam, or WiiBoard as one OpenSource package states (many others), as well as integration with the free Edubuntu system. Prices will continue to fall - it's a competitive field. Of course some of these systems can work remotely without a classroom. So at what point are we doing schools for instruction and at what point are they for socializing (an important aspect of education, I'd agree)? What's the focus? Do we do better with crumbling buildings and 1 million new Smartboards? Do we stop spending most of the year preparing for Math/English achievement tests?
What in education makes clever out-of-the-box thinkers, useful innovaters, technicians who can follow complicated instructions, informed citizens, etc.? What's the age when we need to support individuality and field-specific knowledge? How do you educate a child to be able to switch jobs 7 times in a career? What are the modern skills for balancing job and home responsibilities, or for assuring an income outside of what one does? (E.g. "holding a job" simply isn't necessary if you can manage investments or on-line fulfillment business, while marketing and promotion is essential for many activities yet is far from our K-12 education system. )
November 23, 2008 2:06 PM | Reply | Permalink
Well, get busy then!
November 23, 2008 2:27 PM | Reply | Permalink
Des! The point isn't that it's not a lot of money per student, the point is, why should the teacher have to shell out any cash for those things?
As a starting teacher with a master's, my "leftover" budget, which doesn't include emergencies or savings of any kind is in the low thousands, if I'm lucky - taking a grand out of that hurts. A lot. And I used to work as a preschool teacher - about 16K after taxes, after rent/utilities and food I was a freakin pauper. And there was still stuff we as teachers ended up paying for. Meanwhile my boss was happily driving a Land Rover.
Other than that, we're on the same page. SmartBoard and its ilk aren't a prerequisite for learning. But that, and the expensive assessments, are where NCLB is pushing us. I like Obama's education plan least of any policy ideas he has. Thinking needs to go way outside the box here.
November 23, 2008 4:20 PM | Reply | Permalink
Ah, now I understand - yes, it's stupid that good teachers receive low pay and then have to subsidize their under-resourced work out of that low pay, while with a straight face we contend we're worried about our children's future. As just one of the many stupidities in our educational approaches.
November 23, 2008 4:44 PM | Reply | Permalink
I guess I know what you DON'T think we should be spending money on to get the economy going, but I'm less clear about where you think we should be investing. OK, we market well.
What should we be marketing? Don't we have to have something to sell? Maybe I missed it, but what are you actually proposing?
November 23, 2008 1:57 PM | Reply | Permalink
That's what Chinese Checkers was about - getting some policy coordination together with China and India, the EU and the Middle East - we've got producers and consumers in numerous areas, and rather than approach this as an internal US problem (which actually was one of the big problems in 1929-1932), we need to keep the chains of production and consumption working - not absurdly artificial, but in a restorative fashion. And that's in a number of sectors on a global level.
November 23, 2008 2:35 PM | Reply | Permalink
Again, I ask... who's "worshipping"? Who is approaching our economic problem only as an "internal U.S. problem"? I guess I'm not reading the same publications or blogs as you. I don't see the same mindless, inward-looking, protectionist thing you apparently do.
Obama doesn't fit that mold.
November 23, 2008 3:10 PM | Reply | Permalink
What is his global strategy that gets us out of this mess. Sorry, I only heard about internal - building & repairing roads, bridges, schools, supporting green technology.
November 23, 2008 4:47 PM | Reply | Permalink
"Getting some policy coordination going" with China, India, etc is not very specific. If you were in charge, what exactly would you do?
You sound a little like Micky Rooney and Judy Garland saying: "We're gonna put on a show!" In the movies they always manage to do it, but you are suggesting very vague ideas without anything concrete that I have seen.
Sure, we have "producers and consumers in numerous areas..." so what? We have that already and we're in this mess.
and as to this:
well... who can argue with that? But you are stating a bunch of things that are already known. I'm still waiting for a suggestion as to what to do. A specific thing, rather than "selling stuff is good."
Des. This is the question I'm asking: HOW do we "keep the chains of production and consumption working in a restorative fashion?" I don't think anyone disagrees with the fact that we should. How do you propose doing it? In other words, what is your point?
If you don't answer the question this time I'm giving up.
November 23, 2008 5:44 PM | Reply | Permalink
I'm basically saying, "Follow the money and work from there". Our money is around service industries primarily, and for good reason. The product chains and life cycles are international. We have various specifics - companies like Google, Amazon, Microsoft, Apple, and smaller players in IT-based services, as well as pharmaceuticals. Easy exports (some digitally, others just small). Tell me any other industries that fit this pattern. We have manufacturing imports out of China, we have software relationships out of India. We have continual existing customers domestically and in the EU and the Gulf (still stitting on lots of unspent petrol dollars).
So do I know in which specific ways we can bolster these supply chains? Well, perhaps some sort of e-government or computing in schools or citizen mobile phones or other types of initiatives that spike up demand in these areas. Perhaps I'll come up with some huge breakthrough solution by Friday, or perhaps it's a series of smaller measures to improve market conditions in a number of different areas. I'm simply pointing out that dealing with a Pacific Tsunami is not helpled by building fences in the Midwest.
November 24, 2008 5:15 AM | Reply | Permalink
The thing I felt was fallacious was perhaps my misinterpretation, but the example of software companies (I love my Photoshop and ProTools, BTW) is not useful in my view, because it fails the "What if everybody did it" test. It is also not exactly our playpen, there is tons of software talent out there.
But the argument I have been making, along with any others, is that we should not depend on foreign markets to the extent we do now. I know the usual example of one country is good at X another at Y. It's not ever really true, although certainly one country has lots of resource Z, and another wants it. But we can't outsource our childbearing (yet) and we don't want to outsource our eating. We need local fire crews police, teachers. We need roads here, not elsewhere.
All countries are this way. They do not specialize in the fundamentals, which why they are fundamental. And we have neglected our fundamentals like cash-crop economies do. When the buyers change their minds, or are in trouble, you're hostage to others' economies. THis is not healthy.
A ship has compartments so leak is not a sinking. The tightly-connected globalized markets are similar to a ship without watertight compartments. The equivalent to that would be tariffs to protect local fundamentals like food and main building supplies and systems. It's irrelevant if it's inefficient; much of life is. But those lower-efficiency systems are typically robust and not prone to brittle failure.
November 23, 2008 3:44 PM | Reply | Permalink
In other words, there's efficiency (in getting close to 100% out of your inputs), and then there's efficiency (in continuing to function when resources are degraded). :-)
November 23, 2008 3:53 PM | Reply | Permalink
"Infrastructure" includes things like last-mile high speed Internet access. There is plenty of fiber strung all across the country, but when FIOS is only available in a few places, it does not do as much good as it should. I have heard it argued that we should call this "first-mile" instead of "last-mile", and that makes a certain amount of sense.
The problem with money velocity has multiple interlocking factors, but if you want to boil it down to one core nub, it amounts to this: faith (or lack thereof). (Or, equivalently in this case, "trust". The two words are not perfect synonyms, but in this case they are.) A US dollar bill possesses value because of faith (or trust): if I give you a dollar in exchange for something, you take it because you believe that the next person will also take it, when you go to exchange it for something you want at that time.
We (the nebulous "we") still have faith in the dollar bills, but we have much less faith in various institutions: banks, the stock markets, the value of houses, and so on. This is natural enough (and correct!) because a number of them have betrayed our trust. Infrastructure-building will help somewhat, but the main way it will help is by shoring up faith in these institutions. The infrastructure we need is thus something that verifies whatever trust we place in them, in the same way that Reagan used to say "trust but verify".
It's not entirely fair, but I think we need some very public prosecution of some of those who have gotten away with golden parachutes from various companies they have wrecked. This, too, counts as "infrastructure building".
November 23, 2008 3:47 PM | Reply | Permalink
Well, lately (?) we've been favoring monopolies in our telecom policy over competition. That doesn't create efficiency nor redundancy. And yes, Internet infrastructure is important, and the US is oddly lagging. But we have to be careful about our approaches - neutral in the sense of not forcing a winning technology. Everyone was sure ATM would be fantastic everywhere and then it just shriveled except as a DSL component. WiMax would be the next great thing, but it just can't push over the hump.
But if we say, "what will do more good, $10 billion on internet infrastructure, $10 billion on roads, $5 billion on each, or some other types of tradeoffs", I think we start to actually look at employment, wealth and growth issues in the choices we have. It's also playing winners, but dumping a bunch of money into roads is playing winners already. Look for a temporarily optimal strategy if we're going to go down this road, not just a paean to the FDR days.
November 23, 2008 4:54 PM | Reply | Permalink
Budgeting is always a mess of course, and one must watch out for the "spend lots of money at the end of the budget cycle because it will be taken away if we don't spend it" effect. There are two aspects to this problem, both of which I used to see when I worked for a university. First, there's the "next year's budget is based on what was spent this year" problem. If you have $X million but spend only 90% of it, the next year, they start you at .9X-mil instead of 1.0X. Second, you cannot carry forward any saved money. This gave us incentive to buy a bunch of goodies at the end of the year: sometimes it was computers we actually needed, but sometimes it was just "whatever will cost $32,750".
November 23, 2008 7:49 PM | Reply | Permalink
Your piece is about the furthest thing from marxism you can get. It may not be a negative in itself, but truth in marketing and all.
November 23, 2008 5:29 PM | Reply | Permalink
He meant Groucho and Harpo.
November 24, 2008 1:21 AM | Reply | Permalink
Zeppo, I find him a bit lighter, but yep.
November 24, 2008 4:16 AM | Reply | Permalink
Do we really need a further expansion of virtual economy?
Hasn't the expansion of "virtual service" economy been one of our key problems?
Trading well paying manufacturing and other jobs were people actually make things other people need for either low paying service jobs or high paying "bubble" jobs like endless crap online and real estate "flippage".
We don't need anymore advertising-based "google" economy or endless circular commerce schemes to inflate consumer demand beyond already insane levels.
The junk gadget economy and the virtual service economy are not sustainable. We need to invest in slower growth, community based "deep" economy - one that our planet and our humanity can actually sustain for several hundred years into the future.
November 24, 2008 1:58 AM | Reply | Permalink
That book's been kicking around for 40 years or so. Not even on the best seller list these days. Yes, this is the unworkable Euro Green pseudo-Marxist philosophy that hasn't held up - people will act unselfishly, we don't need advertising (which last I checked is a form of communication & information, flawed or not), slow down gotta make the mornings last, feeling groovy...
The only way to apply that one is with a huge gun.
November 24, 2008 4:19 AM | Reply | Permalink
You must be responding to someone else.
Marxist is like fascist, these days - often used, rarely applies.
Economists have equally poor understanding of human behavir as do politicians, yet that never prevents them from postulating models and they both never blush when they get it wrong.
Is more junk widgets as far as the eye can see, for ever and ever into the future is really desireable future for us?
Are continuous bubbles the good way to grow stock prices, in lieu of actual increases in value?
It's OK if you can't imagine anything else, but there is no reason to fit reality to your own limitations.
November 24, 2008 11:50 AM | Reply | Permalink