The Money Has to Come From Somewhere

With the media and Democrats referring to the nation's financial crisis as the "worst financial crisis since the Depression," the economy keeps on showing signs of resilience. Weren't Christmas sales supposed to be down this year? But Black Friday's sales were not down, they were not even flat, they were up 3 percent over last year.

Yet, possibly President-elect Barack Obama’s new chief of staff, Rahm Emanuel, put everything in perspective and explained why little attention will be paid to such good news when he recently said, “Rule one: Never allow a crisis to go to waste. They are opportunities to do big things.”

Promising a recovery plan for Main Street, last week Obama vowed "creating and saving 2.5 million jobs -- jobs rebuilding our crumbling roads and bridges, modernizing our schools, and creating the clean energy infrastructure of the 21st century." Leaks indicate that Obama’s plan could cost $500 to $700 billion (more than the $473 billion spent during the first six years of the Iraq and Afghanistan wars).

A New New Deal, with government-created jobs. But, unfortunately, job programs during the 1930s didn’t solve anything; they only made the country poorer -- moving spending to things that people wouldn’t buy on their own. The unemployment rate declined only from 22 percent in 1934 to 19 percent in 1938. What most economists think set off the Great Depression and kept it going were sharp reductions in the money supply -- drops caused by the Federal Reserve reneging on promises to banks and later changes in government regulations of banking reserve requirements.

Why is it so hard for politicians to understand that the government doesn't create new expenditures? Even without new taxes, the money has to come from somewhere. Either cut other government spending or require a lot of government borrowing or print up money. But there is no net increase in real spending.

The question is whether we get more of a return from spending the money on what companies and citizens would spend it on or on what the government would.

On education, the moderator in the third presidential debate, Bob Schieffer, pointed out that “the U.S. spends more per capita than any other country on education. Yet, by every international measurement, in math and science competence, from kindergarten through the 12th grade, we trail most of the countries of the world.” We spend 24 percent more per pupil than France and 53 percent more than Britain. Even more spending may create more education jobs (assuming that it doesn’t just increase salaries for those already in public education), but more spending doesn’t really seem to be what we are lacking.

Or take the claims about our crumbling bridges.

The poster child of crumbling infrastructure was the I-35W bridge collapse in Minnesota last year. Since the collapse, the Minnesota Star Tribune notes that Democrats "sometimes bluntly, sometimes not" attacked the "skinflint tax policies and budgets had set the stage for the I-35W bridge tragedy." It was only a couple of weeks ago that a National Transportation Safety Board report found that the collapse had nothing to do with poor maintenance or inspection -- the problem was that the original engineers had made mistakes in designing the bridge.

At the time, House Transportation Committee Chairman Rep. James Oberstar (D-MN) said: "If you are not prepared to invest an additional five cents in bridge reconstruction and road reconstruction, God help you."

In fact, our nation’s bridge system is far from crumbling — the number deemed "structurally deficient" has fallen every year since 1990, dropping by a total of almost 50 percent.

And fewer bridges are being listed as deficient for a simple reason: Real spending on maintenance is higher now than in any previous decade.

Much reporting has focused on loaded terms such as "structurally deficient" bridges, with papers across the country publishing lists of all such bridges in their area. But the term simply flags a need for regular inspections and repairs or upgrades. As the United States Department of Transportation notes in its 2006 report of bridge conditions, "The fact that a bridge is ‘deficient’ does not immediately imply that it is likely to collapse or that it is unsafe."

By any measure, even "structurally deficient" bridges" are extremely safe.

The most comprehensive database of U.S. bridge collapses comes from the New York State Department of Transportation. Of the 1,500 U.S. bridge collapses from 1966 to 2005, some 400 were the result of collisions, overloading or fires — problems maintenance won’t prevent.

The New York DOT estimates that poor construction, materials, age, wear or other “miscellaneous” factors caused fewer than 1,100 collapses. In fact, 80 percent of those collapses were caused by "scouring" — the removal of sediment from the water around the bridge’s pillars.

Those 1,100 collapses work out to 25 a year. Since the United States holds nearly 600,000 bridges, the odds of any given bridge falling are only about one 240th of 1 percent. (Even if the collapsed bridges were all among the 72,264 deemed "structurally deficient," the odds rise only to less than a 30th of 1 percent.)

Similar discussions can be provided on crumbling roads and alternative energy policies. A stronger case can be made for building new roads, but opposition by environmentalists in the Obama administration ensure that is not really being considered. Yet, not only are the need for expanded government programs being exaggerated, the need for government works programs based on the New Deal makes no sense.

With unemployment at 6.5 percent (and even that at least 1 percentage point higher than it should be because of a recent 50 percent increase in unemployment insurance), hysteria seems to be driving most of the arguments. Half of the months during the 1980s and 1990s, our unemployment rate was higher than it is now, but there were no serious calls for large-scale public work projects. Government is nowhere near efficient as private firms and individuals in figuring out where the most productive use of their time and resources are.

Hundreds of billions of dollars have already been wasted on stimulus policies this year, and it would be a shame to squander hundreds of billions more dollars. It would be nice if Obama and other politicians could for once take a step back and carefully look at where spending more actually makes sense. But the hysteria seems more aimed at generating support that Rahm Emanuel noted was necessary for major new government programs than in making sure that money is wisely spent.

*John Lott is the author of Freedomnomics and a senior research scientist at the University of Maryland.