$300 Billion Construction Stimulus Won't Work

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No, President-elect Obama’s plan of economic stimulus via widespread construction projects is doomed to failure. The cost to benefit ratio is never sufficient to justify its approval. Doubt me. Just look at the construction overruns of Yankee Stadium, which is being financed by tax-free bonds.

[Genesis Of The Financial Meltdown]

President-elect Barack Obama has called for a $300 billion economic stimulus by improving the physical infrastructure of the United States, as part of his $750 billion spending proposal. There are several overlooked features to this plan.

The first is what will $300 billion buy? Let us examine two issues relevant to the Metropolitan area.

The first is the subway system. Numerous improvements to the New York City subway system have been suggested. These improvements range in estimate from $5 billion to $20 billion- from building the Second Avenue subway and other subway improvements to expanding the Number 7 line to the West Side, connecting Grand Central to Penn Station, building a tunnel under the Hudson River to New Jersey, etc.

The second is construction of a new Tappan Zee Bridge. The Tappan Zee Bridge is structurally deficient and cannot accommodate the traffic, which now utilizes the bridge. A new Tappan Zee Bridge is estimated to cost $8 billion.

Taking a median estimate of $10 billion for subway improvements and the estimated $8 billion for construction of a new Tappan we can arrive at an estimate that approximately the equivalent of 16 subway construction projects and Tappan Zee Bridges constructed. That is without cost overruns and inflation- both of which usually add 50% to any construction program in the Metropolitan area.

It is therefore readily apparent that a economic stimulus requiring the capital infrastructure of $300 billion is insufficient- and will not have any effect.

The media has always made a comparison between the United States and Japan- noting that in the 1990s Japan spent hundreds of billions of dollars in construction projects to provide a fiscal stimulus. Much note is made of Japan’s construction of its bridges to nowhere- bridges costing tens of billions of dollars.

But always neglected by the media are several lacunae of information.

The first is that Japan was entirely rebuilt after WWII. Almost Japan’s entire infrastructure was destroyed during WWII.

The second is that Japan is the size of California- yes, California. Furthermore, much of Japan is mountainous and is uninhabitable so construction projects are centered upon a narrow corridor running along the coast.

Third, the Liberal Democratic Party of Japan, the LDP, is supported by the giant construction industry. Thus, construction is a means of political patronage.

Fourth, construction workers on federal construction projects have to be paid union wages. A day laborer on a construction site receives wages and benefits totaling approximately $60 dollars an hour. Electricians, sandhogs, etc. receive higher wages. Furthermore, there is not just one union, but a plethora of unions- anyone of which can delay a project and result in cost overruns of tens of millions of dollars per week.

No, President-elect Obama’s plan of economic stimulus via widespread infrastructure construction projects is doomed to failure. The cost to benefit ratio is never sufficient to justify its approval.

Doubt me. Just look at the construction overruns of Yankee Stadium, which is being financed by tax-free bonds.

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