Russ Roberts

Frank and Roberts on Infrastructure

EconTalk Episode with Robert Frank
Hosted by Russ Roberts
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Robert Frank of Cornell University and EconTalk host Russ Roberts debate the merits of a large increase of infrastructure spending. In the summer of 2012, Frank and Roberts were interviewed by Alex Blumberg of NPR's Planet Money. That interview was trimmed to ten minutes for a Planet Money podcast. This is the entire conversation. Frank argues that a trillion increase in infrastructure spending, where the projects are decided by a bipartisan commission, would put people back to work and repair a near-failing system at a time when it is cheap to repair it and cheap to fund those repairs. Roberts disagrees with virtually every piece of Frank's argument. This lively conversation covers fundamental disagreements over fiscal policy, the proper role for government, and the political process.

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0:33Intro. [Recording date: Summer, 2012, for Planet Radio, reproduced with permission.] Russ: This week's episode is a little different. A few months ago, National Public Radio's [NPR's] Planet Money did a show on policy ideas that economists across the ideological spectrum agree on--more or less. But each of us also had ideas where there was no agreement whatsoever. And one of those came from Robert Frank: A proposal to spend $2 trillion on infrastructure. Planet Money decided to do a follow-up show on these ideas, so they interviewed Robert Frank and me to see if he could convince me to support his idea or if I could convince him to give it up. Alex Blumberg of Planet Money interviewed the two of us for almost an hour. Planet Money then took that hour and distilled it down to 10 minutes as part of a recent Planet Money podcast. But I thought the full, extended conversation might be of interest to EconTalk listeners. So, with permission from Alex Blumberg of Planet Money and Robert Frank of Cornell U., here's that conversation. I hope you enjoy it.
1:29Blumberg: Bob, so you were very adamant about the idea that infrastructure idea. And Russ was equally adamant about how it was a bad idea. And I figured the two of you should talk it through and see if either of you could convince each other. So, why don't we start here: Bob, you lay out your idea directly as you did to me and Roberts, and then we'll let Russ see if he's convinced. Does that seem all right? Bob Frank: Sure. I'll give it a shot. Yeah; we're here in the fourth year of a demand shortfall recession. There are millions of people out of work. For the simple reason that not enough is being spent to generate demand for as many people as want jobs. We've reached an impasse when it comes to arguing about the theoretical merits of Keynesian stimulus policy. That's all been done. We've had good discussions about that. I don't think the opposing viewpoints are going to bend at this stage of the game. So, I think the next best strategy available to us is to move forward with propositions that are so reasonable that no intelligent person could oppose them. And that's what I see the proposal for a massive infrastructure rebuilding program to be. The nation's infrastructure is in tatters. I don't think there's any question about that. The American Society of Civil Engineers, two years ago, published a Report Card on it. The average grade was D. The roads are in disrepair. So are the bridges. The water systems, the sewer systems, school buildings--there's just no component of American infrastructure that's been maintained properly. The problem that confronts us with is that when you postpone infrastructure repairs beyond a certain point, their cost begins to rise very, very rapidly. One of my favorite examples is a stretch of 10 miles of Interstate 80 in Nevada. The Department of Transportation there estimates that if we were to repair that stretch today, we could do it for $6 million. The road bed is cracked; it's a heavily travelled route; very trucks go on it all the time; frost heaves the road bed up. If we wait two years--just 2 years--they estimate that the cost of bringing that road up to code will rise from $6 million--the cost if we do it now--to $30 million--the cost if we wait two years. Right now there are people unemployed who know how to do that work. There are machines sitting idle in the yards that could be used to do it. The materials we would need to do the job are cheaper than they'll ever be in world markets. The financial arrangements we could ever make to pay for the work are more favorable now--interest rates on 10-year Treasury Bills are lower than they've been in history. And so, what's the downside to accelerating the projects that need to be done? Put a bipartisan committee in a locked room; have them take the American Society of Civil Engineers' Report with them, and let them identify the projects they don't think should be undertaken right away. All the rest get the green light. We invite states and municipal governments to submit proposals to begin work on these projects; and they'll be funded and given the green light to go ahead. That would put people to work; it would put idle machines back online. It would put money in the pockets of the people doing the job and then, whether we argue any longer about whether that creates multiplier effects, most economists think that it would; but if you say it wouldn't, at least we've got some repaired bridges and roads at less than the cost that we'll have to incur if we wait. Blumberg: All right, Russ? What's the problem with that? Russ Roberts: Well, I just want to start by mentioning this idea that we don't spend enough and that's why we have a recession. Consumer spending is above what it was at its peak of what it was before the recession started. So is government spending. Business investment has not recovered; that's because of I think a lack of confidence. We could debate why that confidence isn't there. Then the question is: Will this type of spending stimulate the economy? So, Bob wants to put that aside. I'm happy to do that as well. Then it's just a question of: Are these good projects? His idea gives me a strong sense of deja vu. We did this in 2009. We made a list of shovel-ready projects. Maybe it wasn't the right list? Maybe we picked the wrong things, we repaired things that didn't need repairing, built roads and bridges that didn't need building. But we certainly tried in 2009 to spend money quickly on things we thought were going to produce a bang for the buck outside of just the spending effect that would also maybe be good projects. That turned out to be quite difficult to do. We couldn't do it quickly. I suspect a lot of projects got done that weren't so useful. And I wouldn't rely on the American Society of Engineers. Asking them for what we should spend money on for infrastructure is a little bit like asking schoolteachers whether we should spend more money on education. The answer is always Yes. The fact that they give us a D is not very informative. Spending on infrastructure in the United States as a percentage of GDP has been pretty steady over the last decade or more. So the debate has to be: Well, there still some projects that are urgent. There are bridges that are falling down, there are roads that have holes in them or have cracked roadbeds. And sure we should fix those. Then it's a question of who pays for them. And do we want the Federal Government paying for them, or do we want states to incur those costs? That's an interesting debate. I generally think that states have been responsible enough in how they spend their money, and giving them the opportunity to avoid that responsibility seems like a bad idea. So, I think states should fix bridges that are falling down and roads--state roads, certainly. Federal roads should be repaired when it's useful. So, I don't understand this push for a big, new, sudden--I don't really see the rationale for it. And I don't see the rationale for it in practice. I understand the theoretical idea. But I don't think carpenters in Nevada who are unemployed right now and have been for three or four years, I don't think they are going to be working on road repair and road building and bridge building. I think those are actually different skills. And so, I'm skeptical on many, many fronts.
8:26Blumberg: So, Bob, let me take this point by point here. First of all, the stimulus program. Yeah. Just two years ago we did a gigantic--we borrowed a lot of money and invested it in infrastructure projects. Why are we still so far behind? Why do we need to do it again? Bob Frank: When the financial crisis broke, employment and output were falling far faster than they were during the onset of the Great Depression. We had never seen anything quite like the collapse that was occurring during this particular financial crisis. The forecast at the time was that we faced a demand shortfall of $2 trillion a year. The stimulus package which was hammered out in the ugly political process that everybody decries--with good reason--was for a total of $787 billion spread out over three years. Economists were warning at the time that it was nowhere up to the size necessary to deal with the demand shortfall that it was an attempt to remedy. So again, $787 billion spread out over 3 years trying to remedy a demand shortfall of $2 trillion per year. Blumberg: But this is a Keynesian story. What I'm wondering though is if we just spent hundreds of billions of dollars on infrastructure in 2009, why is there all of a sudden $2 trillion dollars' worth of infrastructure problems? We spent more than we'd spent in a long time on infrastructure. Bob Frank: No, the infrastructure component of the bill was quite small because of the political wrangling that led to the bill. Much of it was in the form of ineffective tax cuts. Blumberg: Uh, huh. Bob Frank: The limited component of that bill that went for infrastructure was spent to hire people to fix projects and build projects. The Congressional Budget Office (CBO)--the nonpartisan analysts who have studied the stimulus package--have agreed that except for it the economy would have gone into a much deeper tailspin. So, the idea that we tried that and it didn't work, that's a fiction. The stimulus package was too small. There's a lot of infrastructure that's in tatters. I agree with Russ that we don't want to take the American Society of Civil Engineers' opinion as the final word on that. They have an interest, obviously. But has anyone driven on the roads that we have in this country? Has anyone read any of the independent reports about the number of bridges that are, roughly speaking, in the same condition that the bridge that collapsed over I-35 on the way into Minneapolis was in when it collapsed? There are just thousands of projects waiting to be done that need only the authorization to be done. To say that the states ought to do them is just to miss the point of public finance in the United States. States are not allowed to run deficits. They must run balanced budgets under their constitutions. It's the Federal Government that right now has access to the cheapest capital that's ever been available in the world. We have pressing capital investments--again, spending $6 million now to avoid having to spend $30 million in two years is not wasting the public money. If you are worried that we're in debt and we can't afford to take on projects like these, you really ought to be worried that if we don't take on projects like these we're going to have a much, much bigger debt to bequeath to our grandchildren. The whole idea of trying to economize by not doing projects that need to be done is false economy. Blumberg: What do you say to that, Russ? I mean, that makes sense to me. It's better to--a stitch in time saves nine. Russ Roberts: Yeah, so we should be investing in new weapons systems, too, because they are cheap now, also. I think that's a silly argument; and I'm sure the defense department will tell us, and its contractors will tell us, why this is a great time and we have so many pressing needs, and military investment. And I don't see it. We spend plenty on the military--too much, in my opinion; and we spend plenty on infrastructure--probably too much because a lot of it gets wasted through the political wrangling that caused the waste that Bob talked about in the stimulus bill. Just a correction of fact: The bulk of the stimulus did not go toward tax cuts. About a third went toward tax cuts. About a third went to state and local budgets, which they chose to spend, strangely enough, not so much on infrastructure--a little bit, but mostly on other things. And about a third, a little less than a third, went to what we would call infrastructure, and it's not a very big amount. But that's what politics is. So, to advocate more infrastructure for crucial projects is a nice idea; whether it would actually get more money for crucial projects remains to be seen. I don't think there's any evidence that's reliable on the effects of the stimulus spending on job creation. Yes, many economists will argue that there is evidence that the stimulus helped make it be better than it otherwise would have been. That evidence is all based on models. It's not actually looking at what actually happened. There's no CBO estimate that actually looks at the data to evaluate whether the economy would have been worse. They've explicitly publically admitted that that's too difficult. So, it's basically based on existing Keynesian models, which we can debate about but that I'm skeptical of. I would add that Japan has tried this for a long time. They have spent trillions--I think the number is, between 1991 and 2006, I think it was, roughly a 15 year period, they spent over $6 trillion on paving over parts of Japan that hadn't been paved over before. Most Japanese people I think are not so happy about it, and there's no evidence that it had much of an impact except to increase Japan's debt to a very high level. Let's talk about what we agree on. What Bob and I agree on is, if there is a bridge about to fall down, it's a good idea to fix it. And the question then becomes: Who should fix it? The implication that there are hundreds, dozens, thousands of bridges about to fall down because we've been profligate elsewhere suggests the process doesn't work very well, number 1. But number 2, the implication is that that's out there, and I don't know any evidence for that. Bob asked: Have you driven on any of the roads? Well, I drive a lot on the Beltway outside Washington, D.C., and there's plenty of people out there working, trying to make that road bigger; and they're adding a toll road. There's a lot of infrastructure going on; I don't know whether that's stimulus money or not. And if it's money well spent, we should spend it. You've got to make the case. You can't just say there's $2 trillion dollars laying around of unpicked fruit that's going to make us better off. There's just no evidence for it. Wish it were, but there isn't. Bob Frank: Okay; again though, the proposal was aimed specifically at that concern. It was to let each side pick its own trusted representatives, send them into a locked room with all the data that either side requests, and have them emerge from the room with an agreement on which projects are legitimate and should be done. And then put those projects out for bid. Just invite people--it can be private firms who do the work, it can be state governments who do the work, it can be municipal governments that do it. We don't need to get involved in that level of detail. All that the committee needs to do is agree that these are the projects that need to be done. And there are thousands of them.
16:10Russ Roberts: But Bob, if that's your model of politics, why limit stimulus spending, why limit infrastructure spending to this great process? Let's have military spending be the same way, Social Security. Let's get partisans of both sides in a locked room and ask them only to pass the stuff that's good and worthwhile. Well, that's hard to agree on evidently; and it isn't the way the political process is designed to work in the United States. We don't have an elite group of experts that get to spend trillions of dollars of other people's money. And to be honest, I'm kind of glad that that's the case. Republicans and Democrats behind closed doors often spend money on stuff that I don't think is very good. And so, I think that's part of the problem, not part of the solution. Bob Frank: Well, again, the proposal is that attention focus on those projects that have been identified as in serious disrepair. Russ Roberts: Why aren't they being fixed now? Why haven't they been done before? What's holding us back? These projects that are so urgent. Bob Frank: The money has not been authorized for them. Russ Roberts: Why not? Bob Frank: Well, I think one reason is that there are many people who say that anything the government touches turns into waste the moment they get their hands on it, and so we don't dare give any money to the government. A starve-the-beast argument that I think has cut off our ability to fund useful government projects in this country for many decades now. Russ Roberts: Is the beast smaller than it used to be? That starving the beast--the beast grows every year. That argument that government is evil, that tax money is wasted, that's not persuading anybody in positions of power. They keep spending more. Bob Frank: The beast is smaller than it used to be. Russ Roberts: Which one? Not the Federal beast? Bob Frank: You said government spending was as high as it was before. Russ Roberts: No, it's much higher. Bob Frank: The reason spending is as high as it was before is that government is now spending an enormous amount on Medicaid increases because people are out of work and don't have medical insurance; they are spending on long-term unemployment insurance. There are all sorts of transfers that are triggered in the social safety net when the economy is in recession. That's not the same as a sustainable spending increase. Those are dollars that will go off the books once the economy recovers. Blumberg: Bob, you are saying the government has grown in size because of automatic triggers in mandatory spending and not-- Bob Frank: Yeah. The reason, since the financial crisis the increase in government spending that's occurred, part was due to the stimulus bill; that's run out now. Any residual is primarily a consequence of the transfer payments that are triggered by the lingering recession conditions in the labor market. Russ Roberts: But we spend more on everything at the governmental level. It wasn't just the stimulus. It's not just the automatic stabilizers or the safety net and the results of the recession. And at the state level it's also true. We spend too much. If we really have crucial problems there are so many things that we could spend less on elsewhere, that's also wasted. Your argument had its day. In 2009, we had a chance to spend. You can debate whether it was too big, too small--we did spend in theory $787 billion--it ended up being, I think, over $800 billion. And some of it went toward infrastructure. You are suggesting that that process was flawed; we missed a chance to do $2 trillion dollars' worth of stuff that's worth doing. Could be. I'm skeptical. I think we probably did a bunch of projects that weren't worth doing. And I don't know why another process would end up any different. Blumberg: Do you have examples of projects we did that you think weren't worth doing? Russ Roberts: In the stimulus bill? Blumberg: Yeah. Russ Roberts: I don't have any idea. I don't know. I've never looked at it carefully. I assume some of it was worthwhile; some of it wasn't. Blumberg: So, Russ, I'm persuaded-- Russ Roberts: When I saw the shovel-ready, when states came forward with their list of shovel-ready projects, which was a different process designed to solve the problems that Bob's talking about, some of them were ludicrous, some of them I'm sure were useful. Who knows? Blumberg: And Russ, I feel like--I'm persuaded by your skepticism in certain respects. But then I feel like sometimes it bends over into an outright cynicism about the possibility of anybody doing anything right. And you know, just because a society of professional engineers, yes, they have a vested interest; they would get the contracts to do the infrastructure repairs, probably--their members. A doctor gets paid more if I have a heart condition, but I generally trust the doctor to accurately diagnose if I have a heart condition. You know what I mean? Just because somebody has a vested interest doesn't mean you can discount, disbelieve what they say. Russ Roberts: Of course not. But I wouldn't take a grade of D for America's infrastructure from the American Society of Civil Engineers as being a very informative judgment. I'm happy to accept the possibility that there are roads and bridges that need repairing. And let me say, very clearly--I'm out in California for the summer at the Hoover Institution; I go across the Golden Gate Bridge every once in a while on Sundays, and I think it's one of the most glorious achievements of mankind. I like the Brooklyn Bridge, too. But we don't need a second bridge across that channel. You'd have to put it to the test. And to suggest-- Bob Frank: Russ, you are arguing against something that no one's proposed. People are proposing to fix the bridges and roads and sewer systems and water systems that are demonstrably substandard. That's the proposal. Don't throw waste in and say you are against that. We are all against that. Russ Roberts: I don't know who has responsibility for the Golden Gate Bridge. Bob Frank: It's good to be skeptical of the government. I think there are documented instances in which bureaucrats have feathered their own nests when people weren't looking. You do have to keep a close watch. But I think it's a mistake to just assume that the private sector is just immune from imperfection. Have you ever transferred in the Philadelphia Airport from one plane to another on U.S. Airways? You will abandon any faith that the private sector is more efficient than the public sector once you do that. Read Dilbert, founded on real episodes in the workplace. Russ Roberts: I never said-- Yes. Bob Frank: There are lots of good government officials. My wife is a City Councilwoman-- Russ Roberts: Here's the difference-- Bob Frank: She works hard. They are trying to build good government institutions here and they are making headway when they try to do that. When you just bash the government and say it's always evil, it's always wasteful-- Russ Roberts: I didn't say that-- Bob Frank: Then you poison the well, basically. Russ Roberts: I didn't say that. I'm not the guy you mentioned, the political wrangling that led the $787 billion stimulus to come out not so attractively. That was your argument-- Bob Frank: You want me to tell you whose side messed up that bill? We can go into that, too. Russ Roberts: Uh, you could debate it, I guess. At that time, I think there was a Democratic House Senate and President? Am I wrong? I think the Democratic side controlled all three institutions. Bob Frank: No side had all the blame. You needed 60 votes in the Senate to get that. Blumberg: I don't want to go back into that. Let's not get into an argument about that which doesn't-- Russ Roberts: But I want to say one important thing, which is: I've had a mixed experience with USAir: I've had some good experiences, I've had some bad experiences. The most important difference between USAir and the government is that USAir can't force me to fly their planes. They can't take my bank account. The U.S. government can, so they have a different standard. Both sides make mistakes. Both sides have corruption. But one side has the power to take my money. And when you tell me that you are going to put a bunch of experts in a room, of political persuasion, and they can spend--I don't know how much you want to let them spend, but they can only spend on worthwhile projects--I think we have a long track record of what happens when Republicans and Democrats go behind closed doors to take on construction projects. If you think that's a pretty picture, we just have probably different perceptions.
24:23Blumberg: Let me ask you this: Bob, to Russ's point about, so basically you are focusing on infrastructure; but I'm assuming, and I don't know if this is the case, but I'm assuming that any professional society can tell you a similar story about a number of different aspects. Certainly--I've been doing a bunch of stories about education. You can definitely find people in the education community: If we had $2 trillion spent on education now it will save us $x trillions in the future. Bob Frank: I don't think you could find credible experts willing to say that, because most of the studies on education suggest that the amount of money you spend per pupil has a very difficult-to-detect relationship with educational outcomes. I think that's the kind of claim that wouldn't withstand scrutiny. People have direct experience with the state of our current infrastructure. It's not an outlandish claim to say that it's in tatters. It is in tatters. We're the richest country in the world; we have trains on the most heavily populated corridors anywhere in the world that have top speeds of 70 miles an hour. We're not a third world nation--we're a fourth world nation in terms of our infrastructure. There's just a huge amount that needs to be done just to avoid incurring bigger costs in the future. There are a couple of bottlenecks on I-95, on the rail corridor up the Northeast, which force truck traffic onto I-95. You can't get double decker train cars underneath low clearance bridges on the rail line going up the Northeast corridor. It would cost something like $6 billion to eliminate those bottlenecks; but the moment you did that, you'd cut costs by $12 billion. That's a savings on net. We are wealthier if we spend that money. Russ Roberts: So, why don't we do it now? Why hasn't it been done? These are not things that haven't been done--you know, you have an earthquake, a tragedy. Bob Frank: The reason we don't do it is that people are saying the U.S. government is in debt; we can't afford to spend more money because that would impoverish our grandchildren. That's a false argument. It's true that the debt is an important problem. It's true that in the long run we do need to bring in enough revenue to pay down the debt. But if you are spending on an investment, that doesn't impoverish your grandchildren. Think about it from the perspective of a family. It's a very common mantra to say that neither the government nor business nor a family can spend more than it takes in; and that's just an ironclad rule of economics. No! Not in the short run, and not when we are talking about investment. Here's a family thinking about whether to put insulation in its attic after energy prices have gone up. It's going to have to borrow $4000 or $5000 dollars to pay for the job. That means it's going to pay off a loan for 10 years, $50 a month. It's already in debt. So, should they therefore not do this project? The question has no answer unless we know how much money they are going to save by doing the project. If their utility bills will go down by $100 a month if they do the project, then what's the argument against doing it? Yes, they'll go into debt by doing it, but they'll be better off month by month--$50 a month for the first 10 years; $100 a month thereafter. These are the kinds of dollars we should be spending. Blumberg: And you think there's $2 trillion dollars worth of projects out there, where if we spend the $2 trillion now or next year, we would actually be making back more than that money over the near term? Bob Frank: Yes. But what if it weren't $2 trillion? What if it were $1 trillion? What if it were half a trillion? Do that amount that we can all agree are in that category. Blumberg: And Russ, what do you say? That seems perfectly reasonable, right? Russ Roberts: Well, Bob acts like we live in a world where no one's thought of the idea that government could fix some infrastructure. Government has spent hundreds of billions of dollars on this already. We build roads. We repair bridges. We do all these things. And we do lots of other things. And, let's suppose Bob's proposal doesn't pass. Is he suggesting that government officials can't find any money for these crucial, valuable investments? I mean, that's what government is supposed to do. Government is supposed to spend its money wisely. We have increased the level of spending at every level of government over the last 5, 10, 15, 20, 25 years. Was every one of those expenditures so much more valuable than what he's talking about and we just didn't have enough left over and that somehow there's this ceiling on government spending? I'm all for repairing bottlenecks in bridges. I think they are being repaired now. Bob Frank: Yes-- Russ Roberts: Maybe there are some that haven't been repaired yet that we should. Great! We agree on that. Bob Frank: There we go. Russ Roberts: The question is: What in the current political process stops those repairs? I don't understand that. Bob Frank: What's happened is that the national political dialog has been hamstrung by the perception that we are in a situation now, because Federal debt has grown, largely because of the Bush tax cuts for the first part of this century but then after that because of the financial crisis and the increase in government spending in response to it. Because government debt has grown and because debt in the long run is a serious problem, we need to launch an era of fiscal austerity. This is the thinking that has been governing Europe for the past three years. It's now been shown, beyond any reasonable doubt, that that was exactly the wrong policy. Russ Roberts: There's been no austerity. Where has there been--? Bob Frank: Europe is falling, once again: in the United Kingdom, it's a quite vivid experiment. The Cameron government launched fiscal austerity as its response to the financial crisis. And there goes Britain, slumping back into recession. Russ Roberts: It didn't spend less. Bob Frank: You did not engage in fiscal austerity when the economy is suffering from a severe demand downturn. Russ Roberts: Bob, but the last-- Bob Frank: You fix that by bringing revenues and spending into balance in the long run. Austerity is a negative effect on the economy in the short run, when you are in a recession. Russ Roberts: Where is the austerity? Where is it? In the United States we spent in the last three years a trillion more than we take in. And it's not just because we are spending less and collect even less in revenue. We are spending more. Every state is spending more. Europe is not practicing austerity. The United Kingdom--they are talking about it. You said they are thinking about austerity. But they are not doing austerity. Greece, I think maybe is the only country--there might be one more, I'm not sure, I haven't looked at the data lately--but most countries in Europe are spending more than they did before. There is no austerity. There has been no experiment. No evidence and no conclusive claim you can make now about the impacts of this. And we are certainly not trying it in the United States. Bob Frank: The scatter plots are very clear that it's correlation, not correlation, but you can quibble. If you look at the European countries where government spending has declined the most-- Russ Roberts: Where?-- Bob Frank: you will see a very clear relationship between unemployment and those changes. Russ Roberts: It hasn't declined. It's not a fact. Sorry.
32:15Blumberg: Wait. Let's, maybe, um. Getting back to the infrastructure idea. I do feel like-- Russ Roberts: We're having so much fun! Why do you want to go back to infrastructure idea? Okay, go ahead. Blumberg: I think--yeah, I have to cut this together. Russ Roberts: Yeah. Good luck! Blumberg: Yeah. So, the question of why is this not happening already, I do find that compelling. Like Bob, I definitely believe there is a debate about the role and size of government that has been longstanding and this goes back for decades now. Russ Roberts: Centuries. Blumberg: Yes. And that is clearly a big debate and people will stand up and oppose things based on we can't afford it, we can't be doing it, that isn't the proper role of government. But I also think that roads and bridges--they don't follow along the typical partisan lines. Everyone is pretty much in favor of roads and bridges that work. And I don't--do you have an example of--? Besides the road in Nevada, which I just don't know anything about, are there other examples of situations where they need the money right now and for some reason it's not getting there right now? What's another example? Bob Frank: The water systems--there have been numerous urban water systems that have failed in the last year; there are--the Interstates are by law, by current law, repaired 90% on the Federal budget. If Russ wants to ask: Why isn't the Federal Government sending the money out to repair stretches like the one in Nevada, here's the political explanation: Recall months ago the Senate Minority Leader, Mitch McConnell, said: The main priority of his caucus was to see that President Obama was not reelected. So, now, somebody comes to the Senate with a proposal to have a large infrastructure program to repair desperately needed fissures in roads and bridges. It needs 60 votes in the Senate. How does the Republican caucus vote on that? It knows that if that project is approved, people will be put back to work and the chances that President Obama will be reelected will go up. Might it occur to Mitch McConnell to instruct his caucus members to filibuster against that bill so that it needs 60 votes to pass? I don't know. What does Russ think about that? Russ Roberts: Do you really think that we spend less on highway repair and construction than we did 5, 10 years ago? Do you really think-- Bob Frank: We have more highways. Of course we spend more. Russ Roberts: That's a different question. Blumberg: So, why is this a pressing problem now and it wasn't a pressing problem before. Bob Frank: It was a pressing problem before. But now we can kill two birds with one stone. Blumberg: I know, but-- Bob Frank: We can not only fix the things that need fixing but we can put people back to work simultaneously; and it just so happens, because people are out of work and the economy is in deep recession, the capital that we would need to finance the projects is cheaper than it's ever been. Blumberg: So, just to finish this out: How long have we needed to borrow billions, possibly trillions of dollars? For how long--I don't even know the tense that I want to ask this question in, sorry. Basically, what you are saying is-- Bob Frank: How long has infrastructure been in tatters? Blumberg: How long has infrastructure been in tatters? How long, yeah? Bob Frank: This is a problem that has been accumulating for the last several decades. Russ Roberts: So you can't really blame it on--I don't think you can blame it and I don't think you want to blame it on the political recalcitrance of one party or another. And I think it's a hard argument to make that one party is against spending when both parties have been spending like drunken sailors. You've mentioned the Bush tax cuts. You should mention the cost deficits. You should mention the Bush spending. Bush spent an enormous sum on health care and on the wars that he started. And that's along with-- Bob Frank: Okay, and I'll mention those. Russ Roberts: They are all important. Government spends lots of money. I don't think it's a--I think it's a hard claim to make that the reason we haven't fixed these problems is because people have stood up and said government spends too much. They do say that. They don't act that way. We spend more than we did before. We did that almost every single year. And we spend it on many things that are not the useful province of government. Roads and bridges are one of the better things you can have government do. So, government should stick to that. And other things that the government can do that the private sector doesn't do well. And it should get out of those other things and give up the money. So, bridges don't fall down. Bob Frank: That's why I thought you of all people would agree with the proposal I've made. Russ Roberts: Well, by itself, I don't think it flies. Because I'd like to see it for everything, but I don't think that's part of the American political process. I don't think you can cherry pick and say: Well, the political process is a big ugly mess; it wastes a ton of money. So what we need to do here is this thing over here with this group of experts. That's a fantasy. It's not our political system. Let's fix our political system so it spends money more wisely. Let's fix our Constitution. Let's fix our budget process. Bob Frank: I'm all for that. Russ Roberts: Good! And who is going to play the guitar now? Sing kumbaya. Blumberg: What do you think about the idea that now is the time to do this because our borrowing costs are so low? Russ Roberts: Well, I gave the example earlier, just because I wanted to pick on Bob, of military spending as well. Could make the same argument. Bob Frank: It doesn't matter how low interest rates are. It doesn't pay to buy a bomb you don't need. Russ Roberts: Yeah, and I would say that's true about a bridge repair or a road. The question is-- Bob Frank: Yah. You don't build a bridge you don't need, don't build a road you don't need. Russ Roberts: And we do all those things.
38:55Blumberg: Hold on, hold on. Russ Roberts: We build roads we don't need. Bob Frank: Well, let's put ten of your people in a room with ten of my people. We'll publish the list they come out with, so they'll be embarrassed if they propose something that doesn't need doing. Blumberg: But I think basically, Russ, what you're saying is: we already do that. We put ten of your people and ten of my people in a room; it's called the Transportation Committee. Russ Roberts: The Reconciliation Committee. Blumberg: Or the Appropriations Committee. Russ Roberts: Yeah. Bob Frank: Or the filibuster. Bob Frank: Right. Russ Roberts: Bob, that's not the problem! You can argue-- Bob Frank: Yes it is the problem we have. Russ Roberts: So, for the last, for all the years when there wasn't the filibuster and there wasn't this hard core-- Bob Frank: It's not the only problem, Russ. It's the problem right now that keeps us from doing what would be clearly in everyone's interest to see done. Russ Roberts: So why doesn't it stop-- Bob Frank: There are no losers here. There are only winners. If we fix a road for $6 million now instead of spending $30 million in two years, there are no losers from that process. Everybody ends up richer. Russ Roberts: And again, I say: The reason it hasn't happened before, even though we are spending so much more than we did, even with that filibustering that you are saying is holding spending back, is what? Why hasn't the Transportation Committee allocated spending toward roads that are falling apart and bridges that are falling down? Why hasn't the President of the United States, Republican or Democrat, argued that we need to do this, that we spend plenty, too much, on other things? And yet the total level of government spending keeps growing. And you are arguing that somehow there's this libertarian philosophy that is keeping government from doing what it should be doing. That means that the other things it should be doing, it shouldn't be doing be doing! Because it's gotten bigger! Bob Frank: Things have gotten worse since the deficits came in the wake of the Bush spending increases and tax cuts. Russ Roberts: And Obama's spending. Bob Frank: And spending has grown worse since then. Russ Roberts: Shouldn't it? Should it? Bob Frank: Government is not perfect. You cut what you can. Not what you should cut. That's the way it seems to work. When the Bush Administration was under severe pressure to do something about deficits, it looked for things to cut. Well, what gets cut? People have programs that they want to be there. They are going to scream if you cut their programs. So, when a program is are under consideration for being cut, the first thing that politicians ask is: How loud are the supporters of this program going to scream? And because that's the force that governs it what we cut during the Bush era was, number 1, the Energy Department's program for rounding up poorly guarded nuclear materials in the former Soviet Union. Why should we cut spending to round up those dangerous materials? That was the last thing we should have cut. But nobody knew about that program, so nobody complained when its funding got cut. We cut the budget for the research funding for the National Science Foundation. We shouldn't have been cutting that at a time when America's competitive advantage was dissolving in the face of patents being filed by people all around the world, not us, as historically our natural strength. We are cutting our natural advantage when we cut things like that. That's the way it works. Russ Roberts: So few things have been cut. It's a very short list. Bob Frank: It's hard to cut. Russ Roberts: Right. Most things have gotten bigger. So we have a lot more money to spend than we had before at the state level. A lot more money than we had to spend before at the Federal level. And yet somehow the process wasn't able to fix life-threatening bridges, roads, and water systems. Either we need to radically revamp--maybe, perhaps. If that's true, we need to revamp our political system. What you are suggesting, which is an interesting idea--it would be an interesting private initiative--to get a group of private people of different perspectives to make a list of the most crucial infrastructure needs of the United States. It's a long list. I doubt it, because we've been spending a lot on infrastructure. But maybe it's not enough. It's possible. I accept your possibility. You've got to make the case. You can't just say there's a lot of roads that have potholes. And I assume that case gets made in the Department of Transportation every single day! And they are not winning the day for a reason. Either the case isn't good enough, or there are other things that are more important; or there is corruption--literal or implicit.
43:28Blumberg: Yeah, and so, so, Bob, I have two questions for you. But one: Why isn't that case--? So, you are saying that the reason that you need a new process to sort of fund these infrastructure projects--because I have to agree with Russ that this case is being made at various levels of government all the time. Certainly the-- Bob Frank: But I will say we do need a new process. We need, when the Senate reconvenes after the next election, I think the first order of business should be to eliminate the filibuster, except in very, very unusual circumstances. That would be an institutional reform that I think would free up some of the logjam that we find now. Blumberg: But your idea: would you agree that this case has been made to Congress before? That there are people who are arguing, as you are arguing now: Listen, we are losing money down the road; it makes perfect sense to invest in these things right now; we should be doing this? That case is being made. Bob Frank: Yeah. There are people arguing that case. Blumberg: And so, your plan essentially involves changing the location of where that argument takes place. Right? Bob Frank: My proposal asks both sides to come together and abandon partisan advantage and just agree that we will do, on a short fuse, the projects that really need to be done, because now is the cheapest time that we'll ever face for ever being able to do these projects. Blumberg: Right. Bob Frank: And again, they are not projects that don't ever need to be done. They are projects that will cost more if we wait. Blumberg: Okay. And then my second question. I asked you specifically, aside from the road in Nevada, are there other, like, key projects that I could sort of go and look at and say this is another example of one? Bob Frank: Yeah. I mentioned the two bottlenecks on the rail corridor going up the Northeast. Those are well documented. If you'll go on Slate last week and read Matt Yglesias's report from a rail expert that identified a very low-cost alternative to Amtrak's proposal to spend $150 billion on the Northeast Rail Corridor, there's an alternative-- Blumberg: I read that. Bob Frank: of investments that would get travel times between Boston, New York, and Washington down, almost as far as the next bigger investment for less than 10% of the money. That's an investment that would pay off huge returns in the short run, and would also put people back to work. Blumberg: And Russ, you don't have an argument with that, right, spending $1.5 million versus $150 million ? Russ Roberts: It seems like a winner. Blumberg: So, what's the argument about? Russ Roberts: There's probably a disagreement about whether it's effectively, whether the benefits are as large as are claimed. As there often is. I think this is a--there are a number of things we are disagreeing about here. Blumberg: Yeah; that's what I'm trying to get at. Nobody disagrees that there are things to be done and if we can do it for cheap we should do it. Right? That seems to be. Russ Roberts: I don't think so, but I don't--Bob and I have an interesting difference of opinion about the efficacy of government in action. I look at it the way it is and I don't understand why we need to allocate more money, given that we've already allocated more money to government. And I would suggest that to fix these crucial things we should find other things that are not being done well and do less of those. That's what families do and businesses do when they reach a budget constraint. Bob is suggesting two things: that the budget constraint is not as binding as it appears to be, and that we need a different way to come to agreement on these things. The first point is worth debating, and it's disputing; interesting to question. The second point I think is just not realistic for how politics actually works. Bob Frank: I'll agree with Russ that the U.S. government doesn't function really well. There are in fact long data series that support that point quantitatively. There's a group called Transparency International (TI) in Berlin. They do surveys around the world in which they ask citizens to rate their governments, the quality of the public goods and services that they provide, the level of corruption they perceive on the part of government officials, and so on. There are about 10 countries that consistently score at the top of the TI list year in and year out--the Scandinavian countries are among them, Australia, New Zealand, Canada, a handful of others. We rank about 25th on that list. All the other countries at the top are high income countries. We are richer than any of them in per capita terms. And we're very skeptical of government; and we have built an environment in which it's very difficult to recruit good people to work in government. People make fun of you all the time: why would you want to be a government employee? Really. We have here a nice natural experiment. We had a Department of Motor Vehicles (DMV) that was like all the Departments of Motor Vehicles; when I first moved to Ithaca it was a nightmare. You'd go and you'd wait in line all afternoon and you'd be treated rudely by the clerks. Then about 20 years ago, Aurora Valenti was elected Republican County Clerk, an office that happens to have control of the DMV. She said to the employees there: Look, you are miserable; nobody wants to visit you and do business here. It's like getting a root canal; they'd rather do anything but come here. You are unhappy; the people are unhappy. Why don't we turn that around? And so she made special arrangements with Albany that the clerks who took your money could also process your forms; that was an intervention she did. She gave them sales and personality training, and just emphasized to them that the goal was to have the consumer leave with a smile on her face. And lo and behold now, this DMV that we have is a pleasure to deal with. You know, if you bash the government, if you say government's corrupt, you can't do anything about government, that kind of steers the good people away from government and makes them feel nothing can be done. You need government. There's lots of things that we can't do very well with just relying on ourselves and private markets. And if you have to have a government, why not have a good government? So, I think that's--I agree with Russ. The government's bad in many ways. We should focus though not on trying to strip it down so it doesn't have the resources to do anything, but rather on trying to make it more effective so it can do those things that need to be done collectively more efficiently. Russ Roberts: And if it did those things, it would be much smaller. And that would be good. It would do the things that it should be doing well instead of poorly. And that's where I think we also agree. Bob Frank: How big the government would be is a question to be settled by public input. Russ Roberts: Yeah. Bob Frank: The 10 countries at the top of the list all spend more in the public sphere on a per capita basis than we do. Their roads are well-maintained for the most part; their bridges don't collapse. Everyone has access to health insurance. They've got a well-ordered public sector. And in most cases the rich don't feel stifled or oppressed by the government. The people seem happy in those countries. So, it's time to rethink how big a problem government is.
51:54Blumberg: If I could just come to some closing thought here--indulge me. Because I think we've got all over the place in terms of, we're fighting about the roads and the infrastructure plan, but then, I think it's safe to say a lot of old battles are creeping into this conversation. Russ Roberts: Yeah. It's all tangled together. Blumberg: And, but it seems like the fundamental question, like it just hit me as you guys were talking at the end. Bob, you keep saying there's a role for government and like bashing government keeps it from doing the good things that government is capable of doing. And Russ-- Russ Roberts: And I'm bashing government because government keeps doing the things it shouldn't be doing. So, if government didn't do the things it shouldn't be doing and focused on what it should be doing and doing it well, Bob and I would be sitting around the campfire singing kumbaya. So the question is, given that government does a lot of things badly, spends a lot of money on things it shouldn't be spending money on--and Bob says: Wait a minute, but there's this great opportunity laying over here. He says: Let's have a special kind of government over here that takes care of that because it's so important. I agree with you, Bob. If it is so important, let's get the government to do it correctly and solve it through the political process we already have; it should be approved. Blumberg: Bob, what do you say about that? Bob Frank: I'd say if people will vote for the projects that Russ and I agree on, we've got a winner on our hands. Blumberg: All right. Russ Roberts: I think that's the best we can do. That was pretty good. Blumberg: But there's one other thought that just occurred to me, which is that: Bob, it also sounds like you feel like--Russ, from your point of view, spending is going up and up and up. Russ Roberts: That's not my point of view! That's called a fact. Blumberg: That's a fact. Russ Roberts: You can debate whether it's money well spent. But you can't debate that government has gotten bigger. Blumberg: You have an empirically supported point of view-- Russ Roberts: Thank you-- Blumberg: Some people call it not a fact. Whatever. But my point is simply that you see that happening and you think there is not this crisis that Bob, you see. Which is government is not in danger of withering away; in fact it's spending more and more money. Bob, what about that don't--but you see something different when you look at that same set of facts, right? Do you dispute those facts? Bob Frank: By international standards, we have a very small public sector. It has grown over time because the Medicare generation has gotten much, much bigger with the baby boomers retiring. It's going to grow further as more of that happens. Social Security is going to consume a bigger share of the GDP precisely for demographic reasons. But if you factor all of that out and look at us versus other nations, we have seen a downward trajectory relative to the norm, and that's a fact. Blumberg: Russ, is it conceivable-- Russ Roberts: Whoa, whoa, whoa. Blumberg: Yeah, go ahead. Russ Roberts: First of all, when you throw in state, local, and federal, we are not that different from the rest of the world. You can debate whether that's the right way to spend our money, but the size of government in the United States, it's about 40% of GDP, a little below maybe; it's been pretty close to 40% in the nations you are talking about that are the norm. It's higher than that in some of them, but it's lower in others. And I don't know why their norm should be our norm. I don't know what "norm" means in that. I'm only saying: Government's gotten a lot bigger. There should be plenty of money to spend on crucial things government should be doing. Roads, bridges, infrastructure, water systems. I don't want necessarily private bridges. I'm willing to go with you, Bob, on that. But the question is: Why doesn't the current system fix those already? And I think the answer is: They are not a problem as big as you think it is, or the system is working really badly. In which case I think you ought to be trying to fix the system. I know you are. Bob Frank: You and I would both like to fix the system. And as for whether it is a problem, I would urge listeners to rely on your own sensory inputs. Blumberg: And the two of you actually came up with us with a six-plank platform--I'm not sure you knew you were coming up with a six-point platform--but a six-point platform of things that government should be doing. No-brainers that government should be doing that government is not doing. So, the two of you understand--it seems like you are on the same side of that. Bob Frank: There we go. Blumberg: All right. Bob Frank: So, celebrate that, Alex. Russ Roberts: Yeah. We did that. I think that's good. Blumberg: Is anybody any closer to--Bob, do you have any doubts about your idea after this conversation? Or Russ, are you any more sold? Bob Frank: I meant the proposal to be completely uncontroversial, and I think it is. Russ Roberts: And I clearly need to spend more time with Bob so he can further educate me as to its virtues; but I appreciate him trying. Blumberg: Okay. Thanks, you guys.

COMMENTS (100 to date)
spetsnaz writes:

[Comment removed because of repeated policy violations on EconLog and EconTalk. --Econlib Ed.]

ToddR writes:

I'm a dedicated listener. Russ, I really appreciated the way you got a little worked up - your convictions were on full display and just made much better sense than Robert Franks's. Granted, I'm already a Hayek/Mises classic liberal, so I'm biased. However, your exchange illuminated many of the modern left's troubling ideas - for example, this notion that Europe has tried austerity and it doesn't work. I find it laughable that there are people in this world who think that austerity is actually being practiced. Hardly. And a guy with Franks's credentials should know better.
Great show, you truly struck the middle ground between being passionate and also being civil.

Mike writes:

I noticed that one of the themes of "Six Ideas That Economists Like" was a consumption tax instead of an income tax - with the idea that when we tax income, we get less of it - but one that was progressive such that poor people paid a lower tax rate that rich people. How is that effectively different than taxing income, i.e. subsidizing "lack of income"? It just seems like a politically correct maneuver aimed at winning over support rather than an honest solution to a tough problem and that's been a big reason why conservative solutions often "seem" to not work - they truly conservative policies are seldom given a real chance to work.

Keith Vertrees writes:
  • Frank kept bringing up the filibuster for the reason nothing gets passed. How about the fact that Harry Reid won't bring bills passed in the House up for a vote in the Senate?
  • Friedman argued that local government is better. If Proposition J passes in Del Mar, CA in Nov., extracting money from me to pay for roundabouts on Camino Del Mar, I can fairly easily remove myself from that tax (and from the use of said roundabouts). If Frank convinces the federal government to extract $2 trillion for similar projects nationwide, I have fewer options.
Brad Reali writes:

I must say, I do love this podcast. I wish it was longer, and covered more topics.

Frank was trying to argue from the perspective that because we could spend money now, we could save money in the long run for that specific issue. Russ was trying to argue that if we spend money in the short term, we only further ignore the real problem of government waste.

I liked the point that in theory, we could save money. I also liked the point that we could save even more if we were to make government more efficient and possibly less corrupt. To that point, I believe Russ has the better point. If you truly believe that the short term should be used to gain long term benefit, then government restructuring would give a larger return.

If you only attempt to save money on infrastructure you will get some return, but not the full return we should. Perhaps we could try and legislate some of the loopholes out to decrease waste, but politicians are crafty.

The ultimate issue, is how? As a nation we have already shown that we elect people who do the same, no matter the party affiliation. We as the people are supposed to be the ones to guide government, but what happens when the watchers stop caring? We can talk about government waste all day, but we are the ones who can cause the most change. Maybe it’s time to stop blaming others for problems, and look at ourselves. The elected officials are only in power, because we put them there.

Speed writes:

The Minneapolis I-35 Bridge Collapse is used over and over as an example of poorly maintained infrastructure. Not so ...

WASHINGTON — The deadly collapse of a Minneapolis bridge last year began at steel plates in a main truss, attributable to a design flaw and not corrosion, federal safety investigators said Thursday.

National Transportation Safety Board investigators said the bridge collapse was unavoidable once U-10 steel gusset plates failed. Investigators also ruled out any pre-existing cracking as a factor in the accident.
http://www.usatoday.com/news/world/2008-11-13-628592230_x.htm

Randal O'Toole writes,

The United States has over 600,000 highway bridges, and the fact that four failed due to maintenance problems in the last 50 years -- and none in the last 20 years -- hardly suggests that the nation has some sort of infrastructure crisis.
Gridlock: Why We're Stuck in Traffic and What to Do About It

Also, the "Lets put some experts into a room until they come up with a plan" meme was tried recently ... The National Commission on Fiscal Responsibility and Reform (often called Bowles-Simpson / Simpson-Bowles).

Dave writes:

Russ, I would encourage you to post links that support specific arguments you made (for instance, I know you've done blog posts on European austerity), and give Frank the opportunity to do the same (for instance, a link that supports that the only increase in federal spending has been the stimulous and recession-related safety net spending). The conversation was good, but hard to determine the truth of disputed facts.

Robert Promm writes:

Russ,

Well done.

This did not come up. If it did, I missed it. Most of the stimulus money was spent to maintain and/or increase public sector employees and not on infrastructure and to shore up banks.

All of it Keynesian. No real positive result.

Robert Promm writes:

Russ,

Well done.

This did not come up. If it did, I missed it. Most of the stimulus money was spent to maintain and/or increase public sector employees and not on infrastructure and to shore up banks.

To the "put 10 of your people and 10 of my people in a room" comment. What was Simpson/Bowles?

All of it Keynesian. No real positive result.

NormD writes:

I am surprised by Robert Franks lack of knowledge and inconsistent arguments.

The Democrats held an effective filibuster-proof majority from 2008-2010 when the stimulus bill was passed.

"Austerity" in Europe means increased taxes not decreased spending.

The Congress just passed the latest version of the Highway Bill which spends $105B in the next two years. Lots of spending on new projects, not so much on maintenance.

Shovel Ready projects aren't. The average environmental review takes 8 years.

He conflates fixing things with building new things (potholes vs speeding up trains). Our trains are not “crumbling” because they are not high speed.

How should we deal with two states, one of which fixes its roads and one of which does not? If the federal experts are going to step in and fix things, you would be a fool to fix them on your own.

Why would any politician vote for a bill that did things in other districts but not their own?

Environmentalists look at bad roads as a feature not a bug. They think bad roads will force people into trains ands resist plan to fix them.

And lastly,

Every two years like clockwork my local school district proposes a new $100-$200M bond issue. The lead justification is ALWAYS "fix leaking roofs". Most of the last bill went to put solar panels over school parking lots (with a 40 year ROI!) and install football stadium lighting. A few months ago they passed another bond issue, again to fix those pesky leaking roofs. They have no intention of fixing the leaks! They know that no one would pass a bond for solar panels so they purposely keep a few leaky roofs for the next bill.

Speed writes:

Spending two trillion borrowed dollars on transportation infrastructure would certainly be a bold move with all the risk borne by US taxpayers. More rational would be to finance (or try to finance) the projects by selling revenue bonds (with no government guarantee) to be paid off from highway/bridge tolls or in the case of NE corridor rail, the fare box.

Speedmaster writes:

>> Bob Frank: "Well, I think one reason is that there are many people who say that anything the government touches turns into waste the moment they get their hands on it, and so we don't dare give any money to the government. A starve-the-beast argument that I think has cut off our ability to fund useful government projects in this country for many decades now."

I know this is a Leftist/Collectivist/Statist meme, but I don't understand how anyone can believe this is happening. What does the U.S. federal budget look like year-over-year for say the last 40 years? How often does it get smaller?

Are there any states whose budgets are smaller than they were 3 years ago? 5? 10?

DougT writes:

Russ, great podcast. I like to hear your passion, and I'm a dedicated listener. Speaking objectively, purely on style, I'd have to give the debateto Franks, however. He was calmer, spoke more slowly, didn't interrupt as often, didn't sigh off-mike, and so on.

Passion is good. It impels us. But it must be channeled to be effective. To paraphrase Dale Carnegie, first they have to trust us, then they'll trust our message.

Again, thanks. I like the idea of putting up links to the research and information referenced, but remember, the audience here is generally already convinced.

mh writes:

Illuminating and lively. The most interesting aspect to me was that Franks claimed to think that his proposal would be noncontroversial. Statists typically believe that all reasonable people will agree with them.

One of Frank's claims was perhaps not sufficiently addressed. He implicitly claimed that his idea was the best way to now put people back to work. Russ did say something about unemployed carpenters not being helped by infrastructure spending. But suppose a) the spending would be targeted to occupations with high unemployment, and b)for some reason this proposal was the only politically feasible way to do that. I would have enjoyed hearing the arguments against trying to reduce unemployment in this way. This is essentially the Obama unemployment argument: if Republicans would let us spend the money, we'd create projects that put people to work.

Mark Crankshaw writes:
There are no losers here. There are only winners. If we fix a road for $6 million now instead of spending $30 million in two years, there are no losers from that process. Everybody ends up richer

That's absolutely hilarious!

No, I'm afraid that's patently absurd, Comrade Frank. The winners will be the Unions because, surprise, surprise the Democrats will insist that the infrastructure contracts go exclusively to Union workers.

Whenever these type say "people will be put to work"-- that's lib speak for "people" who just so happen to be Democrat-voting Union workers. And now he wants us to believe that stuffing money into the backpockets of a bunch of Democrat Union thugs will "enrich" the rest of us? Talk about Keynesian "trickle-down" economics!

Will these wonderful politicians insist that the most pressing infrastructure problems are addressed first, or will first up be the infrastructure "problems" in the committee chairman's district? On the contrary, Mr. Frank, the most pressing infrastructure will be addressed last, if at all, since there will need to be a pretext for more infrastructure spending next year.

What libs like Frank want is to bypass the democratic process in its' entirety. He wants to short-circiut the political will of the tens of millions of voters who vote for politicians who stand in the way of his planned economy. To make Frank's argument in its most bald form: Frank basically is calling those voters who oppose government "stimulus" spending too dull, ignorant and stupid to even comprehend what is in their own best interest.

He's pooh-poohs the lack of social and political distrust that millions of Americans feel towards the political class. Notice he doesn't argue that the lack of distrust in government is unwarranted: it's just that US Air in Philly is inefficient and they generally trust the government in Sweden. And, hey, his wife "works hard" after all. Swell. That might serve as reasoned debate within the Ivy clad confines up in Ithaca-- but not in the real world.

This multi-racial, multi-cultural mongrel isn't Sweden, and US government at the Federal, State and Local levels has a nasty reputation and for a very good reason. Government workers have a penchant for stridently demanding high levels or pay and benefits in exchange for a poor and meagre level of service.

This con has been played by the Left once too often, Mr. Frank. A big spending splurge, a few fat paydays for your Union friends, no benefit to the rest of us and the original justification of the spending left unfixed or unaddressed. And when the plan fails, as it always does, just repeat the same dance but with even more tax dollars...

This part below really jumped out at me:

"To say that the states ought to do them is just to miss the point of public finance in the United States. States are not allowed to run deficits. They must run balanced budgets under their constitutions."

Well, I can't speak for other states, but I don't believe that's the case for NYS (a not insignificant state). I could definitely be wrong but I think that NYS has a sizable budget deficit and debt. ( http://sunshinereview.org/index.php/New_York_state_budget )

Il Falcone writes:

Around 34:00m Bob mentioned other examples of where we need the money right now: Numerous urban water systems have failed in the last year.

What does this mean? People stopped getting water entirely? I guess that could have happened in one or two isolated incidences but I haven't heard of city after city going dry. It seems a lot of his "evidence" and "support" is rather flimsy, i.e. my brother's cousin's dog's mother read in her local paper that...

Also, I appreciate how despite Bob's attempts to turn this discussion partisan, Russ continued to cast fault on both parties.

David B. Collum writes:

There is a form of Keynesianism that I can wrap my brain around: Governments act as a self-interested financial entity, spending money when goods and services are cheap and saving money when they are expensive. Unfortunately, this only occurs in the land of unicorns and Skittles rainbows. I concur with my colleague (different department) Robert that we are attempting to spend when goods and services are cheap. Unfortunately, we spent all our booty over the last half-century and are now spending money we don’t have. It’s much worse: Kotlikoff estimates $220 trillion of unfunded liabilities-- >$2 million per taxpayer. We are broke. The Paradox of Thrift isn’t a paradox; it’s wrong. We are now in no position to do all the things that the neo-Keynesians want us to do.

On the issue of shovel-ready projects, all one has to do is read Peter Schweitzer’s, “Throw Them All Out” that served as the foundation for the “60 Minutes” episode on Congressional insider trading. Schweitzer also tells harrowing tails of crony capitalism. Anybody--ANYBODY--who was a donor to the president’s campaign or connected to anybody in power was offered time at the trough. (Then there’s Cash for Clunkers, which would get my post vetted if I expressed my real views.) The gain in GDP per dollar of debt has been plummeting for decades. We have nearly reached the asymptotic limit of 1-for-1.

One last point. There is something that has changed with the filibuster. In the olden days, you had to stand at the microphone and burn the clock at great cost to your brain and psyche. They used to read cake recipes and garbage like that. Now they just declare it and skip that painful part. Is this correct? If so, is this because they do not wish to burn the clock in living color on C-Span? If so, bring back that old protocol.

Robert is correct: Our DMV is not bad and greatly improved. Our high school is also good, but we have something like 22 “typists” on the roster. The municipal crisis coming our way on a national scale is caused by such inefficiencies.

Great podcast and congrats to Robert Frank for showing up in the Lions Den to chat with the lions. Russ also deserves kudos for not popping a gasket. (Never heard you that animated.)

Speaking as someone who has actually repaired potholes and sealed bridge decks, I can say that Robert Frank lives in a fantasy world.

Barack Obama was correct to say that there is no such thing as a shovel ready project. Larry Summers more or less told him that--there weren't that many--when they designed the stimulus. Summers said they couldn't spend more than a couple of hundred billion dollars, because of the logistics involved.

Omar Bradley tells how in WWII they wanted to simultaneously invade both Normandy and the south of France, but couldn't because they didn't have enough LSTs to do both. So, they did Normandy first, then shipped the landing craft to the Mediterranean for Audie Murphy and friends.

Something like that faces the infrastructurists. Add to that, problems of traffic congestion when highways are shut down for the work (a huge headache, believe me). And, that in many climes you can't do much, if anything, in winter.

Robert Frank's grand scheme falls apart under a little scrutiny.

Greg G writes:

Interesting change of pace here. EconTalk and Planet Money are two great podcasts and I was very excited about the prospect of some synergy between them. That said, I was a little disappointed with the actual debate.

I am not among those who want to celebrate the "passion" shown here. I thought the thing came off the rails early and it was Bob Frank's fault. He started by saying that his ideas were "so reasonable that no intelligent person could oppose them." If that was true there would be no point in having the debate in the first place. Of course, it was not true. It was insulting to Russ and the thing went downhill from there with agreement on little more than fixing bridges before they fall down.

Question for anyone:
Infrastructure is a smaller percentage of government spending than it used to be. Is it a smaller percentage of GDP? That would be relevant.

Question for Russ:
I agree that specific projects need to be justified on their specific merits and simply throwing money at infrastructure in general will probably get bad results.

Even so, when you actually do that cost/benefit analysis won't you find that negative real interest rates lower costs substantially resulting in more projects passing that test than in more prosperous times?

And won't high unemployment have the same effect by lowering labor costs enough on the margin to result in more projects passing the cost/benefit test than would at times of higher employment?

Taylor writes:

You said you don't want private bridges, Russ. Why not? You agree there is some role for government but could you substantiate how you decide what government should and should not do?

Jon Steele writes:

Nice job, Prof. Roberts. I must respectfully ask, how did you make it through the entire hour and never (unless I missed it) utter the words "public choice"?

It seems to me that things got a little bogged down in your point about previous spending not addressing urgent infrastructure needs, and why we'd expect that to change. So much so that you never supplied the answer I kept expecting you to: when resources are allocated by political means, the process itself will always be political, and political actors have and respond to their own incentive structures. Locking "both sides" in a room -- and by the way I love Prof. Frank's repeated implication that getting both Democratic and Republican input covers all perspectives on every problem! -- won't result in the right projects getting prioritized, it will result in horse trading. You approve this pork for my district, and I'll approve this pork for yours.

To redress this, Prof. Frank mentions the idea of, essentially, "naming and shaming". Mr. Blumberg buttressed this with his example of the doctor whose profit motive causes him to over-diagnose. I think the answer to both is the same: consider the feedback mechanism. In Prof. Frank's example, a congressman who is particularly adept at bringing home pork may be widely reviled as corrupt and wasteful. Citizens in 434 congressional districts may wish he could be thrown out for wasting their money. The problem is that he's likely to be very popular in the 435th district: his own, where he brings a lot of money to the only people who get to participate in his election.

Likewise, it should be clear in Mr. Blumberg's doctor example that a private actor competing in the marketplace faces a far different feedback mechanism than a politician does. Certainly there are some unscrupulous actors in every service industry, but there are also plenty of people who realize that it's in their long-term interest to deal with people honestly, and reap the resulting word-of-mouth and repeat business.

The broken feedback mechanism in Prof. Frank's plan is a big reason why I think it's a bad one.

Mark Crankshaw writes:

@mh

One of Frank's claims was perhaps not sufficiently addressed. He implicitly claimed that his idea was the best way to now put people back to work. Russ did say something about unemployed carpenters not being helped by infrastructure spending. But suppose a) the spending would be targeted to occupations with high unemployment, and b)for some reason this proposal was the only politically feasible way to do that. I would have enjoyed hearing the arguments against trying to reduce unemployment in this way. This is essentially the Obama unemployment argument: if Republicans would let us spend the money, we'd create projects that put people to work.

The Bureau of Labor Statistics (BLS) has data from the Current Population Survey (CPS) that details the demographic details of the unemployed (example: http://www.bls.gov/lau/ptable14full2011.pdf). The problem with the Obama/Frank narrative is that few of the unemployed would be hired even if infrastructure projects were given large dollops of Fed money. The typical profile of the unemployed in the US: young (less than 30), minority, little education, and no experience in the construction business.

The principal "beneficiaries" of stimulus spending would be older, mostly white, unionized construction workers who are quite comfortably employed today. Is there any guarantee offered by Frank that such workers would be passed over in favor of the unemployed? No, just a hand wave that stimulus money would, as if by magic, wind up in the pockets of the unemployed...

Could it be that the bulk of the unemployed from this last recession would remain unemployed even if consumer demand were stimulated? That there is a mismatch in the skills/education of the unemployed and skills/education that is currently in-demand for labor? If so, how would Keynesian stimulation even work to cure unemployment of that nature?

Nick writes:

Holy cow , the host of this thing is a professional radio presenter? No stutters and stammers his way through this entire un-listenable discussion. Bill Clinton recently said "Ideology puts answers before evidence". Mr. Frank certainly was an example of the truth of that statement in this podcast. Unfortunately neither side came off particularly well, with both parties talking past eachother and spouting talking points. Nothing was learned a low point for this podcast, unfortunately

Emerich writes:

Great discussion. Frank never answers Russ’s objections to how, in the real world, you can actually get those “experts” to draw up that list of uncontroversial projects with eye-popping cost/benefit ratios and get them implemented. It’s an example of a long tradition of leftists comparing the real world to an idealized alternative. You can still catch leftists arguing that socialism works, it’s just that the systems calling themselves socialist weren’t done right. On the other hand, their proposals are uncontroversial, just look at the potholes and congestion! By the way, has anyone made a list of unnecessary construction projects that were implemented? It would be a long one.

Actually, the economist Bent Flyvberg gives some examples in a paper a few years ago whose title says it all: “Survival of the unfittest: why the worst infrastructure gets built—and what we can do about it.” From the abstract: “The projects that are made to look best on paper are the projects that amass the highest cost overruns and benefit shortfalls in reality.” Reality can be so annoying! He might make a good Econtalk guest. http://oxrep.oxfordjournals.org/content/25/3/344.abstract.

By the way, Frank managed to sneak in a very faulty premise with his introductory comment, in which he said “we are in the fourth year of a demand shortfall recession.” As an alternative, how about, “we’re in the fourth year of a recession driven by perverse incentives and fiscal irresponsibility”?

Richard W. Fulmer writes:

Politicians get a lot of publicity for spending money on new roads and bridges and none for filling potholes. As a result maintenance suffers.

Here's a suggestion: Prohibit naming any road or facility after any politician until (say) 100 years after he or she has died.

Jon Steele writes:

One other point. Prof. Frank mentions a few times that capital for the investments he favors is the cheapest it's ever been. In the Keynesian model of capital, that may be true, but I think it's a point worth challenging.

It's true that interest rates are very low and the government can borrow cheaply right now. But is that really the same as capital being available? I'm no economist myself, but I think what an Austrian would say here is that it depends on what's driving the low rates. If it's a high rate of savings, representing high levels of unconsumed resources in the economy, then indeed the economy should be able to afford allocating lots of real resources towards infrastructure investment. But if interest rates are being contained by the creation of new money to purchase government paper, then the real resources needed to complete the projects may in fact be scarce. Much more scarce than planners assume. Attempting to acquire them with all that easy credit may simply bid up the price, resulting in enormous cost overruns and ruining all those numbers from the CBO.

Won't somebody think of the poor bean counters in the CBO?

I'm not necessarily taking a position on who has the best capital theory. As I said, I'm no economist myself. But I don't think it suffices to say that interest rates are low, and, ipso facto, there are resources available (idle, even) to complete these projects. As Prof. Roberts would say, "you have to make the case."

Adam Frandson writes:

I am 20 minutes into the podcast and felt compelled to comment on what I've heard so far. Also, I am a Civil Engineering PHD student at UC Berkeley so I know I have some bias.

The investment into infrastructure from the ARRA is not a good example of what Frank and ASCE have in mind because it only included "shovel ready" projects. I'll agree with Russ that some of those projects probably did not need to be funded, but using it as evidence of "we've tried this already" is incorrect because the projects that were able to be financed from ARRA were very limited.

I'd also like to point out that the report card states that $2.2 trillion is the total spending required to maintain and account for growth. The estimated actual spending is around $900 billion, so the ASCE is not claiming that the US needs to spend an additional $2.2 trillion to maintain our current infrastructure.

The biggest infrastructure issue in the US right now is water related, not transportation. As an example, the SF/Bay Area gets its drinking water from a gravity driven system with elements that are over a hundred years old. It is far past its design life and in the next few decades it will cost billions to renovate. I've visited and talked with a number of individuals in the public sector and it's the same story: the infrastructure is getting old and is past its design life. Part of the cause to this is that projects get built without a decommissioning plan or budget.

Lastly, using design-build-bid as a project delivery system is not the most efficient means of procurement and the government needs to adopt alternative project delivery methods. This would reduce some of the waste involved with government spending that Russ Roberts mentions.

emerich writes:

Adam,
Since this is your metier, you will probably find much that's relevant in this article on what goes wrong with infrastructure projects:
http://oxrep.oxfordjournals.org/content/25/3/344.abstract.

Mike C writes:

Great job Russ. Nice to see a little more passion than you normally show on the regular podcast. My only question to Mr. Franks, are you concerned only with republican obstructionism and not the democrats?

Keith Vertrees writes:

A thought on the DMV tangent. Rather than cajole apathetic, overpaid, pension recipients to treat customers like customers, suppose the DMV function was put up for bid to private sector service providers? I contend that there would be:

  • more automation of menial tasks (directly reducing costs),
  • no unfunded pension liabilities,
  • and, provided that the contract must be renewed periodically, better customer service.

lloydfour writes:

Economists discussing government spending without Bruce Bueno de Mesquita gets no where. This discussion sorely needs his expertise on how our elected leaders go about their work. Please add him next time.

David G writes:

Franks: "It was a pressing problem before...and it just so happens that b/c people are out of work and the economy is in deep recession recession, the capital that we would need to finance the projects is cheaper than it has ever been."

A vivid reminder that when the marginal cost of borrowing approaches zero (as it does under QE 1-3) that the demand for debt becomes infinite. This is especially true when it's Other People's debt.

Christian Peel writes:

Excellent podcast.

The fundamental question of the podcast is how to stimulate the economy and to do things like create jobs. It seems to me that a progressive tax on businesses (and maybe individuals) is one way to encourage creative destruction. Small companies are the ones that create jobs, disrupt industries, and grow bigger. Large companies are much more likely to be stagnant, not growing as much, and become too big to fail :-). So why not tax the large companies more, and encourage the small companies grow? Has a progressive tax always been just a liberal tool to reduce income inequality? Has it ever been studied or proposed by economists as a tool for growth?

Adam S writes:

Host: "Name one wasted-money program in the 2009 stimulus"

Russ: "I can't. But the government spends too much."

I appreciate Russ's intellect and greatly enjoy EconTalk, but in this podcast I'm afraid he comes off as petty and angry.

Ralph writes:

The entire premise here is that we should put Republicans and Democrats in a room together and let them behave like Keynesians. The "compromise" is no compromise - everyone is spending. There is no discussion of cuts - which you implied, but the subject was lightly pursued - the other guy just blamed Bush. The federal government dispenses highway funds, and often threatens to withold them from states that don't fall in line with a specific administration initiative.

As you noted, government at all levels has only increased spending. Presumably it was budgeted appropriately - so where is all that money for repairs? Like New Orleans’ levees that failed from disrepair despite the federal money allocated - it has disappeared down some other rabbit hole. The same argument is important in education.

That renders the argument for more government spending a difficult one to make.

The federal government hasn't had a budget for more than 1200 days. How can anyone demand more money when there is no budget to work from initially? Mises said "Budget control by the people’s representatives, the most effective weapon of democratic government, disappears in a socialist state."
We have no current restraint on government - what it cannot claim in taxes it borrows from China. Regardless, the taxpayer, and thus the private sector, suffers. And that's in addition to the inflation that would result from more government spending and competition with the private sector.

You did well - it's hard to keep your cool when someone is presenting false claims: "It's not a fact, sorry." You can't keep up with the barrage of red-herring factoids from these people. You would spend your entire time substantiating or disproving their 'facts' rather than presenting your own argument - that's their angle.

Make a basic clear argument on ideals and another modification based on political and economic reality - all the rest of the factoids are extraneous. When they are blatant lies, call them; otherwise pursue your own argument. When you chase red herrings you don’t make your own case and you don't give people a chance to agree with your argument.

Glad you called him on the appeal to international 'norms' - that's a dangerous fallacy. Interesting that no one ever calls them "Eurocentric" when they point out European nations as models - what about all those others, like Libya, North Korea, Argentina, Sudan or Afghanistan - they're part of the international community as well.

Thanks for the podcast, Russ.

Steven H. Noble writes:

So Bob's point of view is that we can all agree that people who he disagrees with (which seems to be Republican senators?) should have less influence over government than they currently do? Can we all agree on that for the people who I disagree with as well?

How about we vote on who we agree with and give them authority over government in some agreed upon constitutional agreement? Oh, wait...

Kirk Logan writes:

Russ,
Despite the fact that I agree with you on many of the overarching points discussed in this podcast. Specifically, with the notion that if these infrastructure projects are so crucial then why are they not getting done already given the governments outlandish budget. I do believe that Bob has a valid point, although he appears to be overly idealistic that the government can efficiently take on this type of bipartisan program without the typical waste, misuse, and abuse that comes with compromise from very polarized points of view.

That being said I could get behind an infrastructure plan of much larger scope and scale. Projects such as the High Line in New York, provide huge returns on investment. They also do wonders for property values which could eliminate any need for QE3. Which most people agree will do nothing but kill our economy anyway. If we are going to have any infrastructure spending at all it should only be spent on large-scale ecosystems combined with mass transit. As I believe David Owen said on this program what we have in America is a driving problem. The sad truth is that in todays America just about the only construction one can engage in is the retrofitting of old structures, Ed Glaeser in his new book "Triumph of the City" so effortlessly points this out.

If America wants to dominate the next century then we have to find a way to accomplish private-public partnerships that are not hampered by crazy regulations and lengthy environmental impact studies that often take up to 8 years. In that amount of time the Chinese would probably have built a hundred new airports.

Bpc88 writes:

Adam S: The facf that Russ was unable to, on the fly, come up with an excellent example of this sort of program in no way indicates that a program like this.

Can you factor 73495683173745033848364539 in 20 seconds? I doubt it. Do you know it has factors? You should.

Greg McIsaac writes:

Here is a link to a Reason Foundation study that agrees with the Civil Engineers who call for more investment in interstate highway maintenance:

http://reason.org/files/restoring_highway_trust_fund.pdf

But rather than using general tax revenues as advocated by Robert Frank, the authors identify funding mechanisms that are more akin to user fees. The Highway Trust Fund has been mostly funded by taxes on gasoline, which is like a user fee. But about 25% of these revenues have been diverted for non-highway projects, such as promoting mass transit, which may reduce wear and tear on the highways. Also, as fuel efficiency of vehicles has improved, fewer gallons of gasoline are consumed per mile driven, and because voters have resisted increases in the gas tax, revenues collected has not kept pace with usage.

Adam S writes:

@Bpc88

Robert was able to come up with an example of a project that could use federal funding on the fly (his example of an expressway in Nevada, I forget which one). Russ is extremely skeptical of the efficacy of these programs, which is fine, but he offers no countervailing argument. It would be nice if he had some data, even an anecdotal account, of why he is so skeptical. I am sure there are many in the news. I completely believe that there is huge government waste going on, but in the context of the podcast, it makes Russ look paranoid with no data to back up his gut feeling.

I believe government spending in defense was drastically cut recently, which is something that no one addressed in the conversation. I wish they would have discussed that more.

Also, I'm interested why Russ doesn't think the market mechanism of Treasury notes is a useful one. Interest rates are extremely low, as Robert pointed out. Russ suggests that infrastructure money might just as well be spent on defense which is fine, but he still doesn't respond to the idea that roads and bridges DO need repairs eventually, and currently the financing the US government can get is extremely favorable. That opportunity might not exist next year.

Why aren't we spending the money already, he asks? I think its the allergy all politicians have to raising the national debt, even when taking on the debt in the short term at a very favorable rate would pay off in the long term. If Treasury bonds were soaring, I think that would be a more clear indicator that the US debt is outrageous and spending has to stop. But that's not the case at all.

I think Robert's claim about restoring employment is greatly exaggerated (100% of unemployed Americans have the skills to build roads? Even 50% is a stretch). But the financing aspect is a temporary advantage that is not properly being utilized, in my opinion.

taxpayer writes:

(1)The discussants seem to assume that if government is to spend money on infrastructure, that money must be obtained by issuing debt (or increasing taxes). They don't consider issuing greenbacks, new money printed and spent by the U S Treasury, as Lincoln did to pay much of the cost of the 1861-65 war. (Advocates say this would not be inflationary, as the value of improved infrastructure would theoretically equal the amount of money added. )

(2)There is no discussion of who are the "we" who might benefit from infrastructure investment. "We" usually are the owners of particular land and other privileges in areas served by the infrastructure, and a tax on those things seems a fair way to fund those investments which are economically justified.

(3)There is no discussion of the position taken by Mason Gaffney in "After the Crash," arguing (I guess from an Austrian perspective) that the smartest way for government to boost the economy is to provide working capital to small businesses, who have difficulty obtaining it.

Bogart writes:

I heard three statements made by the guest Robert Frank that were shockingly wrong:

1. If Robert Frank stated that his ideas were a win for everybody. How does he know what is a win for me? Only I know that and I certainly do not gain anything through road construction in Nevada or worse any passenger rail construction even in the city where I live. In fact I lose as any dollar holdings I have get devalued in the process of funding these projects.

2. The infrastructure is crumbling? Having been to maybe two dozen countries outside the USA I can state that the infrastructure especially roads and bridges is vastly superior to any other place. Look at the legendary traffic in Toronto, Montreal, London, Paris, Sao Paulo, Tokyo, Madrid, etc. which are all worse than the legendary traffic in LA, Atlanta, Philadelphia (Well maybe not), NYC, etc.

3. Robert Frank stated several times that capital has never been cheaper. This is incorrect. Interest rates are lower, but the interest rate is fixed through force not through the market process. In reality we have no idea what the cost of capital is at this point in the USA or anywhere else under a fiat currency. The reality of the situation in the USA and EU is that currency holders are losing what the borrowers are gaining.

Jason Elliott writes:

Wonderful debate. I just have 2 points.

Frank stated "let each side pick its own trusted representatives, send them into a locked room with all the data that either side requests, and have them emerge from the room with an agreement on which projects are legitimate and should be done."

To many this should sound quite familiar. Wasn't this the process to get Healthcare/Obamacare passed. The same process that outraged many voters because of the shady deals that were made to get the needed votes. Skepticism seems the only way to respond to that as a solution.

Second, I was shocked environmentalism did not enter the discussion. The question of "why not spend 6 million and save 30 million?" seems easy to explain.

Propose the new roads for 6 million and the environmentalists will find a "rare" animal or plant, thus causing you to redraw the new road. The cost of the new road is now increased to 30 million and any savings have vanished.

Kryx writes:

Excellent Job, Russ! I really enjoyed the debate and it was nice to see you get in to a scrap or two with Roberts - you were a formidable opponent.

John Berg writes:

Gen. Eisenhower initiated the interstate highway system as a military project in keeping with the strategic concepts of his generation. A large, contiguous mass of land (Remember: border to border, ocean to ocean.) could be defended better with improved movement of forces from one part to all other parts. The German autobahn is another instance of this concept.

John Berg

govicide writes:

The commenters so far have made some really great points. I'd like to add a couple that haven't been mentioned.

1. I'm surprised nobody has brought up the Broken Window Theory yet. I mean, if the answer is paying people to fix the allegedly bad infrastructure before it collapses so as to stimulate the economy, then it must be doubly good to pay additional out-of-work people to destroy the good infrastructure and fix it as well.

2. I'm also surprised no one has mentioned the welfare state. The true reason infrastructure gets ignored--if that is actually what is going on--is because people prefer food over roads. Healthcare over bridges. Houses over sewers. Free cellphones over streetlights. They may think a quality water system is important. But, if that goes bad, they'll just get the government to give them free bottled water. When the infrastructure was built in the USA--a legitimate government function, the welfare state was much smaller. Since those times, the welfare state has grown exponentially and crowded out things like roads and bridges. Someone mentioned Europe. That's what's happened there. It's also the reason most countries can't maintain a decent military anymore. People prefer Goods and Services over guns and tanks. The unconstitutional stuff in the USA is crowding out the constitutional stuff. So, people like Robert Frank have to come up with these crazy, Rube Goldberg ways to finance what should be the easiest of projects if in fact they're even needed--but never mentioning how the welfare state is the real problem. Simply: there's no money left. The private sector is tapped out--low interest rates, negative interest rates, bonds, etc. don't make a difference.

3. I'm not an civil engineer. I'm not a construction worker. I'm just a guy with a car. So, when I hear these crazy numbers thrown about regarding how much fixing roads costs, I start to think: what exactly are they building? It's like the comparison between government buildings and private buildings. Government buildings are put up with price no object because, well, it's other people's money. Private buildings, not a penny is spared. So, when I hear people needing money for infrastructure I think of those government buildings and think: so . . . that's what they want to do with my money. Drivers have simple expectations. We don't need Golden Gate Bridges across every creek. We expect a couple potholes, not surfaces as smooth as glass. Stoplights that work. Roads that actually need fixing not under construction for years. But, I know if government believes it can spur the economy through infrastructure, they're going to way overspend and get fancy just because they believe spending more money is better. Hey, if a trillion dollars can spur the economy, just think what 2 trillion can do . . . and the roads will be beautiful!!!

mariusz writes:

This is just to support a few posters above - very poor podcast with both speakers coming off as unprepared and talking past each other, Frank at least kept calm and composed. In a recent speech Richard W. Fisher (of Dallas Fed, http://www.dallasfed.org/news/speeches/fisher/2012/fs120919.cfm?print=1) said while commenting on QE3 - "The truth, however, is that nobody on the committee, nor on our staffs at the Board of Governors and the 12 Banks, really knows what is holding back the economy. Nobody really knows what will work to get the economy back on course." -- both speakers (and most posters) would do well to keep that in mind - it is a thick causal environment Russ and me thinks a little compassion never hurts.

Danny writes:

Bravo, Russ. I'm embarrassed for Robert Frank that his arguments are so weak. I guess the most important point is that Bob Frank know better than anyone else how to spend our current AND future tax dollars. He must be way smarter than me since I have my hands full just trying to spend my own money wisely, much less yours and everyone else's. Government gridlock is not a curse. It's a blessing!

Please, please, write a response to his NY Times Op Ed.

PS the Fillibuster should NEVER be abolished since its purpose is to protect minorities from the tyranny of the majority.

John Berg writes:

An interesting topic,as proven by the number of commentators, possibly spoiled by a weak debate format(rules and control).

Many of my reactions have been covered already but Franks' basic argument is based on cheap capital but is not that cheap capital subsidized by the Federal Government? Let's fix the US Constitution by limiting the Federal government to the EXPLICIT enumerated powers.

If the US Constitution is so great, why has President Obama been able to run rough shod over it? Because the Constitution depends on other Federal office holders defending it. They have forgotten their responsibilities as our representatives.

John Berg

David writes:

I really appreciated the debate. I am very proud that Russ properly addressed his concerns and avoided using logical fallacies. Libertarian minded individuals have been elevating dialogue and when people "wake up" for lack of a better term, they become aware that so many Keynesian arguments are little more than appeals to experts, begging questions, and at their basest ad homonym attacks. As more and more of us learn about the use of logic and become aware of trivium education more generally, these specious ideas will fall by the wayside.

I'm always struck at the infrastructure idea. Why not build a port every 3 miles down the coast? Why not put an airport in the middle of Lake Michigan? Why, we could have everyone working in no time to build that island. It staggers me that people still believe that the central planners just haven't done enough. Maybe without the big freeway plans in the 50's we would have better rail. Maybe I could drive my car onto a train for longer travel. Maybe all that money would have gone into virtual reality machines so none of us need to travel to see exotic things. There's just no way to know. Amazing how in one issue we see Bastiat's seen and unseen and Hayek's pretense of knowledge.

To tie up my point, I think it's troubling how so many seem to say, "Look how badly the distorted market works," and immediately start dreaming up ways to put more capital in the distorted market. I can only imagine what travel would look like without deficit spending on roads and every fuel either taxed or subsidized depending on the whims of some 500 people.

Ken From Ohio writes:

How about a new way to develop infrastructure projects? This new way would - at least in theory - use the money the most effectively.

Let's have the government loan money to private construction companies with the loan being contingent on the company actually building a road, a bridge or water system of some sort.

The company then buids out the infrastructure of their choice and can charge tolls or use fees to generate revenue to pay back the infrastructure loan provided by the government.

Doing it this way would insure that the infrastructure devoloped was REALLY needed and REALLY wanted by the public-as opposed to a wasteful, overbudget, unneeded government make work project

James writes:

Illuminating to see so many logical weaknesses in Robert Frank's arguments. The causal inversion in his argument that government is bad because it has critics simply laughable.

Claiming Mitch McConnell causes bad policy so he can defeat Obama was a classic begging of the question - you still have to have actual arguments that the policy is bad before you can steal that base, professor.

The idea that "good people" don't go into government because they don't want to be bashed by those cruel critics seems absurd. This is an easy to argue question, I would think - how many top grads, (or grads from top schools, or however you would like to quantify it) go into government now versus other times? What does their pay/perks/benefits look like vs the private sector now vs. previously? I'm always very skeptical of people making this kind of argument when there are easy to find data that would make the point, if the point were true. This is especially true of an econ professor who hopefully understands the concept of using data to make an argument.

There certainly seem to be no shortage of Ivy League grads in the top positions.

One other thing that I think is important that went unremarked is the enormous cost differential that exists between public and private building costs. Things like family wage laws/regulations, as well as the increasing cost of environmental impact studies required to get infrastructure projects build are injected into the infrastructure process by the left following (among other things) Keynesian economic reasoning. This is effectively arguing that raising the cost of each individual project is another benefit of the project.

And now, because there is not enough money made available to fix these critical problems (granting for the sake of argument that they are real,) we hear Professor Frank essentially explaining what we all know is wrong with Keynesianism in the first place - it matters what you spend the money, and how efficiently you do it. And he's doing to argue for more Keynesian spending!

My mind is in such a funhouse hall of mirrors trying to follow the illogic of his worldview, that I don't even know if I can effectively explain what is wrong with it.

Russ,

You were a bit passionate, (ok, aggravated) at times, but I for one don't know how you remained as restrained as you did faced with the wall of non-sense in that podcast...

Chris writes:

I am really happy you posted the entire interview. I listen to NPR money and I was just telling my friend the other day how I am not a fan of their interview style where they talk about what was said and then play a clip of the interview.

Great episode.

Eric writes:

Wonderful, wonderful debate!

Bob Frank's argument boiled down to that our elected representatives do not properly decide on the marginal value of investments, so get some new representatives that do represent that (his, actually) point of view and make that $2 trillion in investments.

Russ, you did a good job of pointing out that there is virtually no difference between those groups, be it Republican, Democrat, or Bob Frank's partisans. In fact, most politicians today are more like the old Ithica DMV than Bob would like to admit. They "know" what is good for us and have made the correct decision. No smiling allowed, the facial recognition software won't like it.

Keynesians would say the government needs to make the decision while Austrians would say that the market should make the decision. The problem is that the decision makers are neither Keynesians nor Austrians. They are politicians who will only get re-elected if they bring the bacon back to their constituents.

And a small point about Bob's comments about government... there are many, many people who would love to have a government job and the security that it provides.

KMP writes:

There were 5 main thrusts to Prof Robert's argument against infrastructure spending and NONE of these were on economics merits. The key points of his arguments were: 1) it was tried before and it did not work, 2) you can't trust the politicians to do it correctly, 3) regardless of what is stated in the ASCE report, the empirical data suggests otherwise, 4) there are other 'worthy' projects (e.g. defense) on which we could spend money, and we don't on those so we should do so on infrastructure, and finally 5) the states should do it. The other talking points were fluff. And in the end, he did NOT convince me that the proposal has no merits.

On the first issue, that '$250B (1/3 of stimulus) of initial infrastructure spending did not work to restore the economy to full production therefore more will not' is a lame argument. First, he admits the criteria of that spending was different than now (in terms of goal and urgency). Second, he does not present any convincing argument as to why the opposite is better. What he is implying, by this argument would be similar to suggesting, in an example of a malfunctioning airplane, that if bailing out with a tiny parachute is ineffective in protecting jumper from harm, then a larger much heavier parachute would even less effective. I accept that a bigger stimulus may not work, but not that it cannot work.

On the second issue, while I will not argue the politicians are feckless, this does not disprove the economic validity of infrastructure spending. At best, this would make a case for adopting a different process by which the spending is allocated, not that the spending in itself would be ineffective.

On the third point, it is a circular argument to suggest that because no one is fixing these roads and bridges, it mustn't need any fixing. This, however, completely contradicts the second point, that political process (which is the means by which these decisions are made) is inept. Moreover, the counterargument would be that, 'If the amount of effort in repair and maintenance on a bridge/road is a reliable measure of its disrepair, then why did the was the I-35 bridge not being serviced, and why did it collapse?' The presence of the design flaws, the recommended remedies and the result of inaction were all known a priori, yet there was no honest effort to address the deficiencies in the bridge.

On the forth point, to suggest that because we might get equal effect by spending similar money on defense, does NOT invalidate the argument that there is a economic stimulative effect of infrastructure. At best, you could argue that both should or could be done. But, in contrast to military spending, infrastructure improvements has a compounding return on investment in that it further 'greases the wheels' of the economy.

Finally the fifth point, his argument that the states should spend the money is, again, not an argument against the economic impact of infrastructure. It is, in effect, playing an economic game of Chicken. Another words, 'why should the Fed do it if the states won't do it?' Or, 'they are negligent in their duty and for the fed govt to intervene would only enable them.' Again, these are political issues, not economic. It doesn't not make that case that infrastructure spending would not stimulate the economy, and, if it were to be agreed that such would be the case, I'm sure there are ways we can entice (politically, through rewards and punishments) the states to take on these projects.

Prof Roberts presented good reasons to doubt that the proposed plan could be effective executed, but at not time did I hear a good argument that, if done right, that there would be no tangible benefits from infrastructure investments. Indeed, he even admitted there are these repairs would be worthwhile, but in the end, he conflates politics with economics to make the case against the proposal. In my opinion, at best, he makes the case that the political process itself is broken and must be repaired before we can tackle the issues of economic or infrastructure failures. And here is where, I think, the US is in big trouble. Is simple: you get bad results, from bad processes! Take Greece, for example. The clearly have an accounting problem with regards to income and expenditures. But this is not caused by a generous welfare system, but rather and completely worthless political system. Nevertheless, inaction, as suggested by Prof Roberts, is not a valid solution to malfeasance.

Justin P writes:

Russ,

My only quibble with you is how you pronounced Nevada. If the webmaster will allow a short clip on how it's supposed to be pronounced.

There is not much more that I can critique Dr. Franks argument that hasn't been said.

The one thing I can say about infrastructure projects, is that Dr. Frank must never talk to his college of business associates, particularly anyone that teaches Project Management. Dr. Frank must believe in magic because he assumes that those unemployed construction workers in Las Vegas are going to just up and move to Reno for those I-80 improvement. He seems to overlook the fact that moving costs money. Moving upstate for a temporary job verses staying where you are and getting unemployment benefits is a decision that real world managers would have to deal with when getting a work crew.
Dr. Frank seems to overlook that the majority of the work done on ARRA project were done by fully employeed Union Road construction workers, not the unemployed carpenters and plumbers. Why retrain carpenters when you have an experienced crew willing to work? Why move capital equipment from Arizona to build a train line in New York?
Since Dr. Frank is obsessed with experts, why not talk to Project Managers and maybe he'll find out why his projects would do nothing for unemployed workers.

Justin P writes:

Russ,

My only quibble with you is how you pronounced Nevada. If the webmaster will allow a short clip on how it's supposed to be pronounced.

There is not much more that I can critique Dr. Franks argument that hasn't been said.

The one thing I can say about infrastructure projects, is that Dr. Frank must never talk to his college of business associates, particularly anyone that teaches Project Management. Dr. Frank must believe in magic because he assumes that those unemployed construction workers in Las Vegas are going to just up and move to Reno for those I-80 improvement. He seems to overlook the fact that moving costs money. Moving upstate for a temporary job verses staying where you are and getting unemployment benefits is a decision that real world managers would have to deal with when getting a work crew.
Dr. Frank seems to overlook that the majority of the work done on ARRA project were done by fully employeed Union Road construction workers, not the unemployed carpenters and plumbers. Why retrain carpenters when you have an experienced crew willing to work? Why move capital equipment from Arizona to build a train line in New York?
Since Dr. Frank is obsessed with experts, why not talk to Project Managers and maybe he'll find out why his projects would do nothing for unemployed workers.

kebko writes:

A point of fact about government spending:

You made the point that US spending is in the same realm as Europe as a percentage of GDP. Robert Frank himself mentioned earlier in the podcast that we have higher income than those countries. So, I think the absolute level of per capita spending in the US is higher than almost all of the European countries. The idea that our problem is that our government isn't allowed to spend enough is difficult to understand, given this.

Also, his continued use of the Nevada interstate example and similar projects seems to me to be a failure of thinking on the margin. I don't see how an economics professor could knowingly use that rhetorical technique without feeling a little bit ashamed. Using this rhetorical device, I could argue that you should give the entire GDP of the world to me, because I promise that after I spend all but $1 million, I will use the last million to make wishes come true for children with cancer, and what could be a better use of the world's GDP than that?

James Newlin writes:

Houston has a financially awesome toll road system (ignore the urban sprawl thing), and a horrible public transit system, with a history of waste and corruption.

Portland, Oregon has many unpaved roads, and a financially bad, extensive, and largely unnecessary light rail system, though the rail looks good for the image.

I think we need some better centralized planning here.

Todd S writes:

A couple of things:

1 - If there is a bridge that needs to be repaired in Oregon, why do families that live in in say Florida, families that will never use that bridge, why do they need to go into debt for that? Frank says there are "no losers" in that scenario. Well, someone has to pay for it, so I would suggest that the people in those communities pay for the bridge, or even better, the people who use the bridge should pay for it with tolls.


2 - He implied that states cannot borrow money because they must have a balanced budget. My understanding is that states can finance certain projects that will generate revenue by issuing revenue bonds. If a bridge needs to be repaired, issue bonds that are then financed by tolls. With borrowing costs so low, more and more projects should get the green light.

3 - Frank referenced a Mitch McConnell quote about wanting the President to fail. That quote was taken out of context and has been debunked, as pointed out in Bob Woodward's new book.

http://newsbusters.org/blogs/noel-sheppard/2012/09/17/woodward-gets-scarborough-apologize-misreporting-mcconnells-make-obam

4 - Frank was quick to blame Republican obstructionism, despite the fact that the Democrats controlled everything in 2009 and 2010. And he fails to mention that the administration decided to spend time and money and political capital on other priorities - namely the health care bill.


Overall, it was disappointing to hear Frank be such a partisan.

Greg G writes:

To me the most revealing part of this debate is the fact that it grew out of a discussion that wasn't originally intended to be a debate at all. The original Planet Money episode was supposed to be a collaboration that would expand the number of things a diverse group of economists could agree on. And yet, it quickly led to this.

This was an argument about two opposing ideologies. It made me think of Clinton's recent remarks where he said that the problem with ideology is that you get the answers before you get the facts.

Russ, you like to blame our governmental dysfunction on public choice issues for the most part. Well, neither you nor Frank had any of the constraints of running for office here. And yet you guys were no more able to agree than our politicians.

Floccina writes:

I agree that we should try to do any needed infrastructure improvement now with interest rates as low as they are. As Frank says now is a great time to upgrade but transportation is only about 2% of the federal budget. Could we even possibly spend 1 trillion dollars on infrastructure in a few years?

Also as mentioned Government is already 40% of GDP and they cannot keep the roads and bridges in good shape! Aaaaaah! And transportation is always what people bring up when they want us to open our wallets, the 2% of the budget. It reminds me of the scam that I have seen run in some school districts they will say that we need more money for schooling and say so we are cutting down on paper use. The parents get that massage that they are running out of paper and so need more money BUT PAPER IS INCREDIBLY CHEAP they pick on paper because they know that the parents will react. One less administrator will pay for a lot of paper!

Rufus writes:

After listening to this episode today, I found myself agreeing that clearly the highway departments of the country are actually planning and estimating and considering cost vs benefit every day or at least in every budget.

There are always things not done, and the competition is with things that are already existing expenditures. If you can't trade off a bridge to nowhere that is being built while some other bridge is in danger of collapse, then the decision of the expert committee would be too limited.

Also, this has an echo of cash for clunkers. The premise is that we can "pull forward" demand and save money at the same time. Another way to look at it is, why not wait two years and then pay $30M for a $6M repair. Wouldn't that employ even more people? It's like a great jobs bank that we're saving for the future generations. Here's all this broken stuff we left for you. Get to work!

David Zetland writes:

Frank's example of a "spending gap" on water systems is inappropriate, as these are LOCAL (not even state) systems that can be funded by LOCAL water users (i.e., user fees). His appeal to water as a "mom and apple pie" issue is disingenuous. There WAS a federal revolving "trust fund" for water infrastructure in the 70s -- set up in part to help locals meet federal clean water guidelines -- but that's gone.

Users need to pay for their water instead of waiting for subsidies from taxpayers.

Seth writes:

I love debates, but I was disappointed that two scholars seemed to have the same propensity of avoiding the issue with fallacies (straw men being fairly persistent in this discussion) as us laypeople.

Frank lost me early on.

1. I didn't find his case that infrastructure was in tatters at all convincing. Reports and anecdotes don't square with most of our experience with very good infrastructure that actually fails at a very low rate.

Further, citing water main breaks in a year with drought conditions and high temps signals to me that Frank doesn't think very carefully on these issues and grabs info that confirms his biases and stops there.

2. Frank wasn't at all convincing that his bipartisan committee imprisonment ("lock in room") strategy would be at all different than any other group decision-process that is not held directly accountable by the feedbacks provided by the direct benefits of the investments.

3. Frank wasn't at all convincing that he has thought very carefully about the actual benefits these investments would produce. Generalizing an anecdote about one stretch of road is not convincing. And, even that anecdote sounds suspect. I'd love to have a link to that so we can know exactly why waiting two years to repair a stretch of road will cost 5x more.

Brian writes:

@ taxpayer,

Congrats on providing the most important commentary on this podcast.

There is no justifiable reason why the citizens of the United States should have to pay interest on money used to build infrastructure. This is nothing more than legalized extortion by the Federal Reserve and its members banks. The people gave their government the power to coin money for a reason. Amazing and tragic that this point is not raised in a discussion like this.

With regard to austerity in Europe, the CATO institute podcast a debate dated 12/8/10 between Desmond Lachman and Anders Aslund about the merits of austerity measures undertaken by the Baltic States in 2008. The actions of the Greek govt are widely described as austerity measures. And while Iceland adopted a mixed approach to its financial crisis, some austerity steps were undertaken there as well. There are probably other govts in Europe that have adopted austerity policies, I just haven't taken the time to look closely.

John Thurow writes:

The Federal and State Governments collect taxes per gallon of gasoline that is purchased. According to wikipedia the average amongst the several states and the federal government is 48.9 cents -18.4 cents goes to the federal government. Each government body whether it be the state or the federal government has congressional committees assigned to oversee the infrastructure of their respective jurisdictions. Those committees are well aware of the infrastructure priorities based on a whole slew of different criteria one being those structures in poor condition that need repair right away. But the monies received from said gasoline tax isn't 100% allocated to infrastructure but rather goes into the overall congressional budgets with a smaller amount most of the time coming back for infrastructure and unfortunately most likely that money is put to use where it will make the most political impact and not necessarily where it is needed the most.

I looked but couldn't find what the federal gasoline revenues from the gas tax has been over the last 4 years. I would guess that it has stayed somewhat constant. Also I couldn't find how much of that revenue was actually budgeted for roads, etc.. Unfortunately the Senate and the President has not passed or signed into a law a budget for the last 3.5 years so that makes it hard to know where any of the money is going to.

I really doubt that 6 trillion in new debt over the last 3.5 years was all due to triggers for medicaid, social security etc.. The trouble is there seams to be no accounting for where this money is going...

The bottom line is the Federal and State Governments already have a source of revenue and cash flow to fund infrastructure projects. So the question Russ asks "Where is the money going to now and why isn't the projects to fix the bad infrastructure being funded" is a good one.

txslr writes:

An interesting side note: All of I80 in Nevada runs through a Republican congressional district.

listener writes:

This debate style podcast was a excellent format. I'd enjoy listening to more of these in coming weeks. You could continue debating other economists, or you could serve as the mediator between two people with opposing viewpoints (might be tough to be unbiased though!).

John Berg writes:

From the back of this classroom, I raise my hand to ask a question: what is the present cost of capital in the US? I recently looked into re-financing my home and found the costs significantly higher than the 0.025% the Fed is asking--and the capital source asked for points, too. If the government has to pay (say) 5% on 30 year mortgage-based bonds that the Fed is buying, is the difference coming from that "Obama stash" I once heard about? I'd appreciate an explanation.

John Berg

Ken from Ohio wrote;

Let's have the government loan money to private construction companies with the loan being contingent on the company actually building a road, a bridge or water system of some sort.

The company then buids out the infrastructure of their choice and can charge tolls or use fees to generate revenue to pay back the infrastructure loan provided by the government.

Which is pretty much how the first New York subway was built in 1904, as well as the Millau Viaduct on the highway between Paris and Barcelona in 2004. Both of which came in on time and made (make) money.

Bogwood writes:

A question for Russ: how many sociopaths does it take to screw up a light bulb? There is a J or U shaped curve to the invisible hand process.. The more steps,the more division of labor the more opportunity for a defective product, a CFL bulb that only lasts 3 weeks (see Catton).
More activities need to be non-financial , "non-covered",or very local.

For Frank: if taxes were voluntary which three executive departments would actually be supported? The majority would not be missed.

SaveyourSelf writes:

When Russ and Frank were arguing about the wisdom of "investing" wealth (borrowed or otherwise) through the government in order to solve problems like broken-roads, Russ pointed out that private-entities cannot force citizens to behave in ways they think ill advised. In contrast, the government can and does force individuals to behave in ways they think ill advised. Given that fact and the legendary track record of ill-advised government decisions throughout all of history, it is irrationally dangerous to ask the government to do anything that could be performed by a non-government entity. Doing so guarantees bad ideas will be forced upon good people, dumb ideas on smart people, immoral ideas on moral people, and substandard roads on a very mobile public.
Probably more important to this particular discussion--yet unmentioned--is that "private" entities will--usually--go out of business when they perform badly or inefficiently. This apoptosis-like-behavior (programmed death) is the mechanism markets use to allocate scarce resources efficiently. Self-pruning, if you will. For governments, particularly in the short term where interest rates can be artificially held down making borrowing potential unlimited, there is no mechanism whereby ineffective or wasteful programs are destroyed. It is therefore IMPOSSIBLE for a government to allocate resources in anything like an efficient manner. Governments allocate public resources to EVERYTHING. It is not surprising, therefore, that the spending increases Russ noted in this discussion have occurred in ALL areas of government. This is why so little of the TARP money actually went to infrastructure projects. This is also why, Mr. Frank, only a fraction of your additional 2 trillion dollars in borrowed money will go towards eliminating cracked roads and rusting bridges if you task the government to spend it for you....for us, rather. Governments cannot ration resources in an efficient manner, no matter how smart or moral the "10 of your people and 10 of my people locked in a room" are in their private lives. Governments and businesses are not substitutes for one another. Only one of them has even the potential to produce an efficient--ie desirable--outcome.

As a side note, and this may be a real advance in economic theory, governments could be made to perform apoptosis (pruning) just like markets do. Consider the statement "a dollar spent in a market is the same as a vote cast in an election". Voting for a product leads to increased likelihood of a particular businesses survival. Similarly voting for a candidate leads to an increased likelihood of that candidates ideas becoming a new government program. The important difference between voting with dollars and voting in an election is the fact that the dollars must be re-cast over and over for the business to remain alive. Even short periods of decreased capital influx can cause a business to go bankrupt. If you establish a government where government-programs must be continually re-elected from a scarce pool of votes, then that government would be capable to market-like efficiency (self pruning). Probably the simplest way to make this work is to let people use their tax money as votes for “purchasing” government programs and/or government leaders.

Just a thought.

Thanks Frank and Russ, for a delightful conversation.

Alexander writes:

Two points:

1) While Frank argues that the countries in the top of the list for less corrupted spend more than USA, it should be noted that so do the countries that are more currupt. So there is no correlation. But there is strong negative correlation between spending and income.

2) If Frank is such a Keynesian, why dont advocate for tax cuts, instead of more spending?
Or maybe he is just seeking income distribution????

Erik writes:

Great debate. I thought Russ got off to a good start but failed to put the nail in the coffin.

1) key issue that didn't come back up was the scale of the proposal. Yes, everyone in the room agreed we should address urgent infrastucture projects, but it's a courageous leap of faith to buy that there's 2 TRILLION dollars worth of urgent projects. Frank indicated his bias when he stated on numerous occasions that infrastructure was a convenient opportunity to exercise his Keynesian agenda.

2) I was surprised that Russ signed off so quickly on the "improved" political process that Frank proposed. Concentrating decision making and leaving massive investment decisions to a small group of "experts" is very anti-Hayekian. Even if they're well intentioned, well informed, and bi-partisan, you still have significant incentive problems. There's no real incentive to be prudent or wise with tax payer dollars. History suggests that if you allocate x amount of dollars for a political cause, than associated committees will spend x amount of dollars and ask for more. Is there any doubt that the special committee would come out of their den and announce that there is at least 2 trillion dollars worth of urgent infrastructure projects. It's not that they're incompetent, ill intentioned or evil, Bob's words NOT Russ', they share a common trait with the rest of humanity: self interest. Politicians do well for themselves when they spend money and bestow federal projects on their home turf. Frank and others bemoan the partisan gridlock known as congress, I see it as a necessary check on fiscal insanity.

SaveyourSelf writes:

I would like to take a moment to address Frank’s assertions that the drop in consumer spending is the major driver of massive unemployment and that increasing government spending by borrowing money can correct that problem. He is correct, but only partly and only in the short term. A more detailed and nuanced description of economic principles than he gave can make finding and understanding a long term solution possible.

The drop in consumer spending that occurred when Americans’ credit cards maxed out following the housing bubble led to decreased demand for many products. Decreased demand for products led to a drop in the price of products. Decreased product prices led to decreased production of those products. Decreased production led to the freeing up of human resources (labor) made idle when factories reduced their production. “Freeing up human resources” means people became unemployed or under-employed which also means there was an increase in the supply of laborers looking for work. In a healthy market, when a surplus develops on the supply side, prices (in labor markets they are called wages) drop. As the price drops on the cost of labor, demand for labor increases and unemployment vanishes. Unfortunately, these latter market adjustments did not occur. Why not? The answer must be that there are obstacles to wages dropping—also called price supports or price fixing. The only entity capable of such widespread and prolonged price supports is the government. The government’s price fixes include : 1) Government unemployment payouts which make unemployment more profitable than employment 2) Minimum wage laws which literally make it illegal for wages to drop below a fixed point 3) labor laws which mandate additional costs on business to both hire and pay and fire employees (invisible wage hikes).

Now. With the above understanding of prolonged unemployment using price theory, we can finally address Frank’s proposal regarding borrowing to make up for overall lower consumer demand. Borrowing money and spending it through the government artificially increases the demand for some types of labor (road crews in this case). Increases in demand for labor raises wages and decreases unemployment. Once the money gets used up, however, the demand for labor will decrease again. In fact, the demand for labor will drop to even lower levels than they were previously. Why lower? Because nothing changed in the markets to allow prices to ration labor naturally (price supports are still in place) plus there is an additional burden on everyone to pay the additional debt and interest on that debt which reduces consumer spending even further. Thus, Frank’s proposal will make unemployment a little better in the short term in exchange for making unemployment worse in the future. If Frank is concerned about unemployment in the long run (and who isn’t), he need only suggest the removal of the government’s obstacles to price changes to remedy that problem quickly and forever.

Bruddah Iz writes:

Great Podcast Russ!! Do this format again soon.
So it sounds like Frank is pushing for the 2nd round of ARRC? If so, chances are they won't be asking former SIGTARP Niel Barofsky to oversee ARRC 2 despite being the best qualified. This also reminds me of the backlash the GOP endured for stalling a veteran jobs bill a few weeks ago. The Post 9/11 G.I. Bill and the VA's Vocational Rehab Program are sufficient for helping vets to find a job if they are willing to take advantage of the program and work hard.

John A. writes:

This debate gives me even more appreciation for Russ's skill as an interviewer/host in all his other podcasts. The debate was interesting as far as it went, but with a more skillful host, it would have been even better. Sorry, but Bloomberg was in so far over his head that he couldn't utter a coherent sentence, let alone provide clarity or direction. If Russ had been the host, he would have eventually steered the debate toward a fascinating meditation on evidence in economics, empiricism vs. ideology, etc. He's one of the few podcast hosts who's deft and respectful enough of others' views to do that.

Thomas A. Coss writes:

Preparing for Vietnam as a young Medic, we had triage training. This was a parking lot scattered across which were casualty actors, and each corpsman had to briefly assess and sort "triage". Time/resources are fixed, some will live, some will not, still decisions had to be made, and this one day I had to make them, and the outcomes would be permanent.

Local governments do similarly, if infrastructure is failing we must first understand what other services or expenditures crowded out what we now perceive as more important ones. To suggest that the federal government should bail out local governments for their bad decisions seems to be similar to bailing out banks, and that didn't work either. The present discounted value of bailing out municipalities for bad decisions in the past would likely erase the perceived cost savings Frank suggests in today's market.

If you compare our infrastructure to that of other countries, I think you'll find things are not as bad as Frank would have us believe.

Additionally, Austerity means non-extravagance, few want austerity while many believe not being extravagant in our spending is a good thing.


Don writes:

There were several topics being discussed at once and it would be good to address them one at a time.

1. Is infrastructure an area government should be in?

2. Is recession a better time to engage in infrastructure projects then boom times?

There were other questions that were not about theory but about the facts.

3. Is our infrastructure in need of repair?

4. How do our highways and water systems needs compare to education or health etc.

I think the government probably collects enough money but I don't think there will ever be a consensus on where that money should go and what is the best way to spend it. I don't think there is a consensus on what sort of mechanism should be used to make these choices. As long as we live in a world where large sums of money go to very bad places ( financial bailout and war)I vote not to be so generous with it.

Craig S. writes:

Just one comment on the Bob Franks assertion that roads and bridges are falling apart and not being fixed. I'm not sure what things are like in New York state where Mr Franks lives but where I live, in Reno Nevada, we have never witnessed so much road and bridge construction (primarily on Interstate 80 and 580 both federally maintained highways). The construction starts on the California side of Donner pass and continues all the way to Elko Nv. Much of the work in the Sierra Nevada has been long overdue but other sections of highway particularly in Nevada seemed to be "make work projects". Not being an engineer my observations may not hold much credence but a large portion of the resurfacing projects in Nevada seemed totally unnecessary and on stretches of highway that were in perfectly good condition. It brings up the question are we really spending infrastructure money where it is truly needed or just in states or districts that have the most powerful political lobby in Washington?

EricG writes:

The two sides agreed to not turn this discussion into an argument about whether Keynesian spending stimulates economic growth. But the core disagreement about the plan isn't whether infrastructure should be built or repaired, it was about whether it makes sense to further increase government spending in the current economic climate. That's why the discussion didn't really go anywhere.

Roberts says that government should provide roads and bridges, and do it well. Setting aside the necessarily subjective issue of whether these things are currently being under or over-funded, Roberts would presumably have no problem finding large sums of money within the federal budget that he feels is being misspent, or spent on items that are not the proper role of government. So he would have no problem with reallocating this misspent money to infrastructure, a valid function of government. It is the allocation of additional money, whether through taxing or borrowing, that Russ objects to, because he doesn't buy the Keynesian argument for stimulus.

Frank, for his part, proposes this plan precisely because he wants the government to spend additional money. I'm sure the plan would lose much of its allure to him if the money had to be reallocated from other government programs, because he is convinced of the Keynesian stimulus argument. He talks about this plan as a second-best, more politically acceptable alternative to another round of stimulus, but in reality that's exactly what it is and why he supports it.

I also thought it was disingenuous of Frank to present his plan as uncontroversial among intelligent people. It's clearly uncontroversial only among those who share his economic and political outlook. "All the experts think A, therefore A" is rarely a good debate point, especially in economics in the midst of a largely-unforeseen depression. It's an even worse debate point when for it to be true, you have to define "experts" as "people who think A". Those kinds of statements serve only to create an illusion of consensus.

MannyC writes:

Great and timely podcast.

King County in Washington State is having issues getting funding to preserve its roads and bridges and this has resulted in a lowering of the quality of the infrastructure. Previous voter initiatives have limited tax money going to Public Works. I'm sure there are other local governments experiencing similar issues because of the financial crisis. I think Mr. Frank's idea can be a white knight in these situations.

Schepp writes:

As an unconventional member of ASCE, Dr. Roberts, listen to you has made my career more interesting, but I have no complaints. First, I don’t recommend this format all the time, and truly Dr. Frank and Dr. Roberts talked passed each other a lot, but the debate was illuminating. This may be overboard, but this topic convinced me to share. Thank you, Dr. Frank, Dr. Roberts and Alex Bloomberg and the organizations that support and funded this conversation.

Tatters? I offer 3 pieces of evidence that our at least our roads are not in tatters.

1. Fatality rate per mile driven has never been lower (more than 50% lower than 1980).(1)
2. The average age of a car has never been higher at 11.1 years.(2)
3. Congestion as measured by the Texas Transportation Institute (TTI)in 2010 was at 1998 levels(3) and Inrix the data supplier to TTI estimates that congestion has continued to fall since 2010.(4)

How can it be cars are lasting longer than ever, fatal accidents are way down and Traffic congestion has stop increasing and our infrastructure is in tatters? So I do think that “there is a question about tatters.”

I disagree with the leadership of my American Society of Civil Engineers insisting infrastructure is in bad condition. To a degree ASCE is implying engineers are not doing their jobs well. It is matched by the Chairman of the American Road Builders Association who claimed in August 2012: “As a result of underinvestment, the total cost of logistics for U.S. companies has increased from 8.8 percent of GDP in 2004 to 10.1 percent in 2008—a $412 billion increase in four short years.”(5) Does the fact that the logistics costs were 7.7% and 8.3% of GDP in 2009 and 2010 respectively(6) mean that infrastructure investment rebounded or are energy prices the more likely key driver changing the logistic costs?

As for the 10 mile stretch of Interstate 80 in Nevada, this really isn’t good reference. Where is it? I emailed the Nevada DOT earlier in the week asking for project details. I have not received any information yet. I believe it may be real but in terms of this debate the quality of the reference is sub-standard if it cannot be easily verified.

Who should be responsibility for paying for this stretch of road repair? Nevada has a total of 51 cents per gallon gas tax and $33 vehicle registration fee which are supposed to be user fees. On an average 10 mile stretch of Rural Interstate should generate around $700,000 in user fees collected per year. I think part of Dr. Roberts’ point is that this maintenance project should be funded by these user fees to start with. I would add that resulting roadway is different with the two approaches: The first likely is pavement patching with an overlay and the second a likely a new road bed to drive on. The second costs more but also provides more value in longer run. But Dr. Frank’s description in this case misses a key variable of what is the cost to the user with and without this project. This chance of avoiding wear and tear on you vehicle would be a key driving in getting drivers to put in more to fix the road.

The materials needed to do the job may not be cheaper than they'll ever be in world markets. A key material in roadway surfacing is asphalt, a petroleum product that has a price making road contractors about as happy as the everyday person at the gas pump.

As for falling down bridges, over 30,000 people a year die in Auto/street accidents. I asked the National Highway Safety Administration if they kept track of fatalities from collapses. They replied that they do not, and the closest thing they had was fatalities for collision with bridges. I would guess because the average number is so low. On average, looking at the Wikipedia, about 4 fatalities per year from US bridge Collapses.(7) Many of these fatalities result from Collapse from construction (as was in part the case in the I35 W collapse in Minnesota), or earth quakes, or poor boat drivers hitting the bridge below. The point is that the term “Structural Deficient” is not fully evaluated in terms of real costs and benefits. The term “Functional Obsolete” really means not meeting current operational design standards. These terms are wielded in marketing arguments and the difference between the literal meaning of the words and the technical definitions is substantial.

I don’t buy the filibuster argument either. It does not take a congressman long to figure out if they do not pass a transportation bill and States do not get their gas tax that their state residents are paying, they will a lobbyist and not a Congressman in the next term. For these reasons a transportation bill is always past, sometimes with extensions but never lapsing for long, if at all.

I thought the $150 billion to $1.5 billion transformation to $150 million to $1.5 million by Mr. Blumberg was extraordinary. I am sure it was not malicious. But we are talking huge amounts of money here. I, even with my conservative perspective, would much rather invest $1.5 Billion on the Northeast Corridor than the $3 billion the Federal Government is planning on spending on California’s $60 to $100 billion HSR rail line that only has $6 to $13 billion lined up to be spent on their oversized vision, but it needs to be a choice. I think the choice made shows how inefficient government is.

In closing a total of 100 billion of the 787 billion was spent on infrastructure. Only 28 billion was spent on roads and bridges.(8) I support the ASCE and others who think ‘the headlines used to sell the stimulus as building infrastructure’ seems misleading at best.

Successful projects should emphasize the need to have user fees in place to repay loans or financing options that focus on collecting the revenue for building the project from those that benefit from the investment: the travelers along I-80, the freight trains in the northeast corridor, the water and sewer service recipients, and the high speed rail passengers. The key driver I would emphasize is the revealed preference that the payment received from the users exceeds the price of implementing and maintaining the project.

Thank you to all of the great commenters. I found them in total to be as important as the podcast.

(1) http://www.bts.gov/publications/national_transportation_statistics/html/table_02_18.html

(2) https://www.polk.com/company/news/average_age_of_vehicles_reaches_record_high_according_to_polk

(3) http://d2dtl5nnlpfr0r.cloudfront.net/tti.tamu.edu/documents/mobility-report-2011.pdf

(4) http://scorecard.inrix.com/scorecard/

(5) http://transportation.nationaljournal.com/2012/08/a-plan-for-freightand-a-fight.php#2240445

(6) http://www.supplychainbrain.com/content/nc/home/single-article-page/article/cost-of-business-logistics-last-year-more-than-8-percent-of-us-gdp-report-finds-1/

(7) http://en.wikipedia.org/wiki/Bridge_collapse (I welcome an comments improving my lacking source)

(8) http://www.pcecompanies.com/html/AmericasInfrastructureAnalysisoftheARRA2009.htm

Eric Jablow writes:

Some government construction projects fail because environmental reviews take too long. This may be the fate of the California high-speed rail project, which would be a good thing.

Others fail because construction at union rates and rules would just be too expensive. And others fail because governments make changes without discipline, leading to cost overruns. Why should citizens pay for those?

You might want to look at Nicole Gelinas' cautionary tale of the Tappan Zee Bridge, North of New York City.

Noah Carl writes:

Fantastic podcast, Russ!

EricG makes a good point that, insofar as Russ acknowledges that infrastructure spending is a legitimate function of government, *assuming* many infrastructure projects did need to be undertaken, Russ presumably wouldn't object to reallocating government spending away from sources with low social returns at the margin (e.g., farm subsidies, certain entitlement programs etc.) to infrastructure projects (which I'm temporarily assuming have high social returns at the margin). It would have been really interesting to hear Bob's response to this hypothetical proposal. In particular, I would have like to hear whether he thought this was (a) preferrable to additional government spending, (b) less preferrable to additional spending but more preferrable to changing nothing, or (c) less preferrable to changing nothing.

Noah Carl writes:

*(b) less preferrable than additional spending but more preferrable than changing nothing, or (c) less preferrable than changing nothing. (Sorry, I have an obsessive compulsion about correcting errors in my grammar.)

Regarding additional infrastructure spending, a recent article in the AER concludes that road-pricing is a far more effective measure for reducing congestion than building new roads. The authors found that vehicle kilometres travelled increases in direct proportion to roadway lane kilometers for major road types. (The study is entitled, 'The Fundamental Law of Road Congestion.')

Jakob Engblom writes:

Interesting podcast indeed. A bit unstructured, and I felt it kind of strayed off-topic a bit much (discussion about what government is and should be rather than about infrastructure per se).

I found the argument about austerity interesting - it has indeed worked, at least in Estonia a few years ago. And before that, most the currently not-in-too-bad-shape countries like Finland, Sweden, Germany and Denmark have also had various bouts of austerity... 10-20 years ago, generally.

But what I found most interesting was how the discussion about infrastructure never brought up the cost of broken infrastructure. At least here in Sweden, that is a big topic in the public discussion. When the trains stop on important routes, it is easy to calculate losses in millions of Euros... and that makes for a very good argument for making sure things work. It ought to be the same in the US: poor roads cost people time and lead to lower incentives to take jobs far from home, leading to less overall economic efficiency. But the Keynesian argument while brought out by the current opposition is not what is used to motivate investment. It is about fixing broken things while prices are comparatively low for the work, not about employment.

As a visitor to the US, it is also glaringly clear how little value the US in general puts in the public good. I had the unfortunate experience of driving around central California last month (SF, Silicon Valley, Sacramento), and the roads (while functional) were pretty dreary things. In pretty bad shape, and ugly as nothing else I have ever seen. Big roads in Europe tend to be much better planned and built with grass and landscaping to make them quite pleasant to drive on. The CA roads were just concrete monsters that made no attempt to melt in with landscape or provide any kind of vegetation or gently curving roads. It was quite interesting. You got the feeling that road engineers are not allowed to spend a little extra to make the roads beautiful and attractive. Just make it as cheap and functional as possible.

So, the spontaneous impression is that US maintenance and investment in infrastructure is lower (at least in relationship to the amount of traffic) than in comparable countries.

Antwone writes:

Russ is stuck in this caveman mentality that more spending = bad and came out fighting without even listening to the argument. Makes him come across as very unreasonable. Pretty similar to what's happening in congress right now.

Why aren't these projects being done already? They probably are... but why not do more? oh yeah, it's because we're "broke".

The fact that we're borrowing right now at close to 1% interest didn't really enter the discussion it was all about an emotional plea attacking "big scary" debt numbers.

David writes:

I didn't read every comment, so I'm not sure if someone posted a similar belief, but I think that main reason why infrastructure doesn't get fixed is because representatives done think it is worthy of their time to fight for it. I know that seems like a bold statement, but what representative wants to go home to his/her constituents and say I got $XB allocated to fix these 100 year old bridges vs. I got $XB for a new football stadium or military base.

I do love all the comments about Simpson/Boles being completely ignored, and the suggestion that some committee would get something as proposed by Frank to work.

Thanks for all you do Russ.

Steve writes:

Russ - I know you want to listen to opposing viewpoints to guard against confirmational bias, but Professor Frank was painful. And to think that he teaches economics. Wow!

Divakar writes:

I listened to this podcast today evening on my way back to home from office, and it must be said that Russ did not sound convincing enough and did not back up his arguments with facts adequately. I loved listening to Robert Frank and his sober explanations which sounded so credible to a neutral listener who has no particular leaning.

Glenn Donovan writes:

Frank's points are truly absurd, and I think he also misses that they are ultimately political strategies, not economic ideas. He seems to believe that since we have "gridlock", ergo we should go spend a trillion plus - I mean, is he for real? Just taking what he says politically, it's nonsense, as if we can't get the basics of government funding done, how will we get another stimulus through? It's so unrealistic politically, it almost makes the economic criticism unnecessary. Almost...

What is stunning is how much Frank believes that simply isn't true. Russ does a good job pointing much of this out, but Frank isn't affected by his underlying assumptions being disproved. Which I can't fathom, truly.

Gandydancer writes:

This podcast was painful. EricG's is the best post on this page, and points to the fact that Frank's proposition makes no sense without its Keynsean underpinnings and Roberts' willingness to accept the ground rules that the elephant in the room would not be fought over crippled his never-strong ability to be pithy at the price of being blunt. His arguments were better, but never focused, particularly on the essential point: money is fungible. Printing a new $2T to pay for things we -ought- to do (and ought to do and to some extent will do under existing constraints, minimal as they are) is a terrible idea to the extent it frees up the government to spend (consume resources!) even more in even crappier ways than it could before. (Roberts addressed this obliquely with his derision at the idea that the beast was being starved... but the obliqueness is the problem -- he sometimes badly needs simple, clarifying and brutal directness, but doesn't muster it.)

And the way Frank conflated low interest rates with cheap capital was inexcusably not refuted, that I can recall. There are several worthwhile comments on this upthread, but the simple illustration of this point is that the Fed can be -instructed- to buy $2T in ZERO-coupon notes from the Treasury, but the resultant possible expenditure will not be an example of cheap capital. The price would be high in all the ways that the price of QE3 will be high, but on steroids ($2,000B vs $40B/mo).

Jim Bryan writes:

I just couldn't make it through the podcast because I so fundamentally disagree with Frank.

Borrowing from the future and our children's future to avoid short term discomfort is immoral and in the long term, economically destructive!

Jim Bryan writes:

After reflecting on my previous comment, I couldn't make it through the podcast because I found many of Frank's arguments to be more ideological than intellectual. I enjoy discussion of ideas more than slogans and talking points.

Matt Cooper writes:

Here's the problem with the notion that government should borrow now because money is cheap (leaving aside that money is cheap because of Fed policy). When a business makes a capital budgeting decision, they weigh the expected cash inflow versus the weighted average marginal cost of capital. They expect to retire the debt from the anticipated cash inflows. The federal government will never retire the debt and there usually is no cash inflow to the Treasury expected anyway, so the relevant cost of capital is the long run average cost of capital which today will be a much higher than current interest rates.

Also, I must say I found it impossible to give Mr. Frank a respectful hearing after the insulting tone of his opening statement. He makes several tendentious, dubious assertions and then says "no intelligent person could oppose them". Well, I oppose him even if he will call me stupid. Then he cites a "study" by a lobbying group that asserts said lobbying group's contributors should have more of other people's money. His target audience must be very naive. Like so many academic economists, Frank is a sophistical apologist for the powers that be.

Mark writes:

I really enjoyed this episode, despite some of the issues pointed out earlier. I wished they hadn't talked past each other quite so much, and that Prof. Roberts hadn't interrupted so often, but otherwise... if the presidential debates were like this I'd actually pay attention.

One thing I felt like I had to respond to was Dr. Frank's repeated assertion that our infrastructure is in tatters:

It's not an outlandish claim to say that it's in tatters. It is in tatters. We're the richest country in the world; we have trains on the most heavily populated corridors anywhere in the world that have top speeds of 70 miles an hour. We're not a third world nation--we're a fourth world nation in terms of our infrastructure.

Later he appealed to the listeners to use their senses and decide for themselves. Well, I did about 400 miles of driving this weekend, and I can't agree at all. The claim that "we're a fourth-world nation" is just incredibly ridiculous. I have lived in Venezuela, Ireland, Russia, and Niger, and visited a number of other countries including Greece, Guatemala, France, Spain, and Italy. American infrastructure is not worse. It's insulting to our engineers and our workers and our intelligence to claim that our infrastructure is below third-world quality.

Niger is fourth-world. They have dirt roads in their capital, with a few paved highways. Venezuela has sections of their highways on which the locals alternatively fill in and dig out potholes while panhandling for road repair contributions. Do either of those remotely sound like the US?

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