Could Significantly Upping Defense Spending Help the Economy Recover?

[loseyourname]

Sure, I don't think running the odd deficit is necessarily indication of poor management. However, not having any slack in the state finances, through failure to create rainy day funds and the like would be poor management to my mind.

Some states definitely kill their flexibility. I don't know much about the specifics of every state (even though I've lived in a lot of them), but in California, where I was born and went to college, a lot of spending measures, both tax and bond financed, get passed by ballot initiative, which the legislature has no power to overturn, so it's essentially spending that can't be cut except by getting it back on the ballot and having it overturned by the voters. Not to defend the California legislature because it sucks, but a large part of the problem is that huge chunks of the budget are stuck in place like this and can't be changed.

 

[nismaratwork]

Some states definitely kill their flexibility. I don't know much about the specifics of every state (even though I've lived in a lot of them), but in California, where I was born and went to college, a lot of spending measures, both tax and bond financed, get passed by ballot initiative, which the legislature has no power to overturn, so it's essentially spending that can't be cut except by getting it back on the ballot and having it overturned by the voters. Not to defend the California legislature because it sucks, but a large part of the problem is that huge chunks of the budget are stuck in place like this and can't be changed.

That's insane! I mean... no, that's just insane. I can't believe a state as critical to our economy as CA is so reckless... wait... yes I can believe it, I'm just depressed to learn the specifics. Thanks for the good info, but I think I'll go fill a mason jar with bitter tears now.

 

[brainstorm]

a large part of the problem is that huge chunks of the budget are stuck in place like this and can't be changed.

Many jobs/salaries are protected by contracts or unions and politicians just work around these when trying to cut spending. This is a problem when the general idea of budget-cuts is to reduce income-levels generally instead of decreasing some people's incomes relative to others. The problem is that to convince unions or individuals to accept a salary-cut when they don't have to would involve assuring them that they're not going to get left out in future growth when that occurs. The way to do that, imo, would be to pay people a certain portion of their salary in fixed-duration savings bonds/certificates. That way, if the economy re-grows, they can cash in on their lost salary - but if it doesn't, the bonds could contain a provision to only pay a fraction of the value according to some measure of long-term GDP shrinkage.

 

[loseyourname]

Yeah, they can't change the salary structure entrenched in a contract without a new collective bargaining agreement, but we've seen what happens when people won't accept pay cuts. They either end up getting laid off, or we get creative solutions like the furloughs in California, which effectively cut the salaries of all state employees by 10%. Of course, it also cut output by 10% since they aren't working on the days they aren't getting paid, which ends up hurting more than a regular pay cut.

This is actually a more general problem in economics called the "ratchet effect" or the downward stickiness of price levels. Wage cuts are tremendously difficult to push through even though doing so would increase employment levels during economic downturns. And business owners are reluctant to sell at a loss even if not doing so means they won't sell at all. I'm sure there's more to it than that, but for whatever reason, the empirical evidence is clear that prices move upward a lot more easily than they move downward. Surpluses can persist for a long time because of this.

 

[brainstorm]

Yeah, they can't change the salary structure entrenched in a contract without a new collective bargaining agreement, but we've seen what happens when people won't accept pay cuts. They either end up getting laid off, or we get creative solutions like the furloughs in California, which effectively cut the salaries of all state employees by 10%. Of course, it also cut output by 10% since they aren't working on the days they aren't getting paid, which ends up hurting more than a regular pay cut.

This is actually a more general problem in economics called the "ratchet effect" or the downward stickiness of price levels. Wage cuts are tremendously difficult to push through even though doing so would increase employment levels during economic downturns. And business owners are reluctant to sell at a loss even if not doing so means they won't sell at all. I'm sure there's more to it than that, but for whatever reason, the empirical evidence is clear that prices move upward a lot more easily than they move downward. Surpluses can persist for a long time because of this.

Well, clearly anyone is always happy to raise their prices without seeing sales drop. The same is true of salary raises. The question right now, imo, is whether a coherent image of what kind of future can be expected will emerge. I think many people just assume that decreases in demand and depreciations are temporary until GDP goes back up and "everything returns to normal." But my question is when do people actually reach an idea of what to expect from a reformed economy that would stabilize by settling into new forms and levels of work and consumption.

 

[mheslep]

Some states definitely kill their flexibility. I don't know much about the specifics of every state (even though I've lived in a lot of them), but in California, where I was born and went to college, a lot of spending measures, both tax and bond financed, get passed by ballot initiative, which the legislature has no power to overturn, so it's essentially spending that can't be cut except by getting it back on the ballot and having it overturned by the voters. Not to defend the California legislature because it sucks, but a large part of the problem is that huge chunks of the budget are stuck in place like this and can't be changed.

Yes California has ballot initiatives, as do nearly a dozen other states, and thousands of localities. Regardless of the effectiveness of popular initiatives, I believe the view laying most of California's financial woes at the feet of these initiatives is mistaken, a misdirection offered by legislative overspending especially in non-education public salaries and pensions, for which they are solely responsible. Since their creation in 1911, Ca has approved 300 plus initiatives, and very few of them force spending with which the legislature would disagree, or is blocked from overturning. See, e.g.:

Have Voter Initiatives Paralyzed the California Budget?
John G. Matsusaka
University of Southern California & Initiative & Referendum Institute

Abstract. Many observers blame the California budget crisis on a series of voter initiatives that unrealistically appropriated spending while prohibiting tax increases. However, a review of all initiative measures approved by the voters since 1912 shows that no more than 32 percent of appropriations in the 2003-04 budget were locked in by initiatives. Virtually all of the earmarked spending was for education, and would have been appropriated by the legislature even without an initiative mandate. Initiatives placed only minimal constraints on the legislature’s ability to raise revenue. The facts suggest that voter initiatives are not a significant obstacle to balancing the budget in California.

November 2003

http://www.google.com/url?sa=t&source=web&cd=1&ved=0CBUQFjAA&url=http%3A%2F%2Fwww.iandrinstitute.org%2FNew%2520IRI%2520Website%2520Info%2FI%26R%2520Research%2520and%2520History%2FI%26R%2520Studies%2FMatsusaka%2520-%2520CA%2520Budget%2520and%2520Initiatives%2520-%2520IRI.pdf&ei=8h6RTMqIM4OKlwfy1YnkAQ&usg=AFQjCNEpwXMyE_ELi-2SdjdxokROXAjk1w&sig2=us2uiZ9uE7IiCGaLBFWJMQ

 

[loseyourname]

Since their creation in 1911, Ca has approved 300 plus initiatives, and very few of them force spending with which the legislature would disagree, or is blocked from overturning. See, e.g.:

Have Voter Initiatives Paralyzed the California Budget?
John G. Matsusaka
University of Southern California & Initiative & Referendum Institute

http://www.google.com/url?sa=t&source=web&cd=1&ved=0CBUQFjAA&url=http%3A%2F%2Fwww.iandrinstitute.org%2FNew%2520IRI%2520Website%2520Info%2FI%26R%2520Research%2520and%2520History%2FI%26R%2520Studies%2FMatsusaka%2520-%2520CA%2520Budget%2520and%2520Initiatives%2520-%2520IRI.pdf&ei=8h6RTMqIM4OKlwfy1YnkAQ&usg=AFQjCNEpwXMyE_ELi-2SdjdxokROXAjk1w&sig2=us2uiZ9uE7IiCGaLBFWJMQ

Yeah, there probably needs to be more systematic study of how much of an impact this has. 32% still seems high to me, and that's in addition to any mandatory spending based on entitlement legislation. Making more of the budget non-discretionary and requiring legislation outside of the actual budge to change hamstrings the budgeting process either way, even if it's mandatory spending that would be included in a budget anyway.

But I would dispute some of his specifics, too. For instance, he mentions that $522 million in direct spending was locked in by Prop 10. Sure, but Prop 10 also had a $15 billion trust fund built up by that time. That was $3 billion a year being collected that couldn't be spent. That alone closes 10% of that deficit. Also, though the Prop 13 property tax cap doesn't affect the state directly very much because income, sales, and corporate taxes are typically larger sources of state revenues, it very much hamstrings cities and counties and school districts, in which property taxes are typically the major, if not only, source of revenue. These are now forced to rely heavily upon transfers from the state, far more than in any other state, killing the autonomy of sub-state governments and their ability to collect their own revenue. I'd also argue he's being misleading in only considering initiatives and not referendums. Sure, referendums are placed on the ballot by the legislature, but they still produce spending and collection levels that can't be changed except by popular vote, removing flexibility in the normal appropriations process. And with relatively short term limits in California, you can't even argue that the current legislature is responsible for the continuing outcomes of past referendums.

I'd agree that no California budget crisis has ever been solely attributable to ballot initiatives, though, which is what he seems to be arguing against. I wasn't trying to claim that. It's just one of many obstacles. The main obstacle is the same it is everywhere: Democrats refuse to cut spending and Republicans refuse to raise taxes. So we end up with crap like furloughs and securitizing the lottery because no one will address the structural issues. Then it's worsened by the heavily gerrymandered districts in California creating more ideologically extreme legislators that refuse to compromise even more than normal legislators.

 

[talk2glenn]

I'd think commuter rail projects are a better investment than inter-regional rail. First, the competition with automotive commuting is more clearly in favor of rail. It's faster and clears the roads to make highway transportation and shipping more cost-effective. It also doesn't cost as much as building rail lines from New York to DC.

Outside of the major centralized metropoli, of which there are very few in the United States (New York and San Francisco in my experience - possibly Chicago and central LA, but cannot say from experience), commuter rail is in no way more practical than travel by car, which again is why it needs to be heavily subsidized by the state.

I currently live and work in Phoenix, and did some consulting for the Corporation Commission. One of the issues we dealt with recently was the light rail proposal.

At no time was it imagined that it would be "cost competitive"; instead it was justified as an environmentally friendly substitute for public buses, as a subdsidized method for the transit of the poor and the young (students), principally. Estimates for the number of cars it would remove from the road were low and liberal; actual affects on traffic congestion in covered areas said it would get worse due to lane removal (elevated rail was rejected by voters a decade earlier due to cost).

This is why there is no planned light rail service in the wealthier, older cities of Phoenix and Scottsdale, proper, and the first route opened serves Tempe and the University.

It is simple point of fact that in the United States cars and gasoline are cheap, highway infrastructure is reliable and thorough, and distances are huge. Metropolitan rail is only competitive with automobiles at distances between 3 and 10 miles in "high congestion" conditions (speeds up to 15 mph). Anyone who lives in any major American city other than NY or SF and maybe a few others knows few trips outside of rush hour satisfy those twin conditions. For perspective, the Light Rail currently operates at a less than the expected 25% cost recovery rate, despite higher than expected ridership. The other 75%+ is tax-supported.

Similarly, high speed regional rail generally cannot compete with aircraft at ranges greater than 200 miles, which again barely gets you halfway across the American state.

This is not Japan, and it is not Europe. It's a big country. The car and the plane are much, much more efficient than rail systems, in almost every case. Hell, even in these much more systemically mass-transit-friendly states, the rail systems are heavily subsidized, while car and air transportation systems are revenue generators.

 

[brainstorm]

This is not Japan, and it is not Europe. It's a big country. The car and the plane are much, much more efficient than rail systems, in almost every case. Hell, even in these much more systemically mass-transit-friendly states, the rail systems are heavily subsidized, while car and air transportation systems are revenue generators.

They generate revenue in a self-aggrandizing economic way. They produce various kinds of revenue and income, and jobs that keep people busy and as a result people need to use that income to pay car payments, repairs, gas, tires, insurance, etc. The income they generate is sufficient for some people to buy new cars with total warranties but as they get older, they become needy and get passed on as hand-me-downs to people who have to invest a lot more in repairing and maintaining them.

Rail systems are great, but more competition for Greyhound would be more bang for the buck. If middle- and long- range busses were cheaper, faster, and easier to use than driving, they could eliminate many lanes of traffic on existing highways. Currently many people have some kind of cultural allergy to busses but if busses were made with well-partitioned sitting compartments and good wifi, etc., they would be great. I just read on yahoo news that people in their 20s dislike driving b/c they can't operate hand-held devices and they see them as polluting, which is true not just for air-pollution but more importantly congestion, which is also a form of mobile pollution.

The problem is the obsession with GDP growth causes a catch-22. Any cultural innovation that would actually save lots of people money, such as widespread bussing, gets criticized for cutting GDP and jobs. Yet if you make the bus industry lucrative enough to bolster GDP and jobs, it gets criticized for being more expensive than cars. So it seems like the discourse is rigged to promote the status quo as being the only alternative that doesn't cost more than itself while maintaining or increasing GDP growth.

 

[johnnymorales]

The question in and of itself is utter insanity, for it proposes to stimulate the economy increasing the already massive 1/2 Trillion (NOT 50Billion as someone said) Military budget.

Two wars did NOT stop us from going into a deep recession in the least. (50,000 still in Iraq and still fighting).

One myth that needs dispelling is the military automatically buys American NO IT DOES NOT.

Thanks to NAFTA, and a variety of free trade agreements the American Military buys from various suppliers around the world.

I take it nobody who believes this myth recalls Senator McCain's struggle to cancel a multi-billion dollar buy of Military stuff from overseas?

 

[mheslep]

[...] Estimates for the number of cars it would remove from the road were low and liberal; actual affects on traffic congestion in covered areas said it would get worse due to lane removal (elevated rail was rejected by voters a decade earlier due to cost).

The reality has apparently turned out differently. According to relatives I have in Phoenix, downtown traffic has dropped markedly since the opening of light rail there.

And BTW, single vehicle parking is the elephant in the room generally left out of mass transit comparisons (and yours). Figure parking into light rail comparisons - space dedication, cost, etc - and light rail has a chance of comparing favorably.

 

[talk2glenn]

The reality has apparently turned out differently. According to relatives I have in Phoenix, downtown traffic has dropped markedly since the opening of light rail there.

And BTW, single vehicle parking is the elephant in the room generally left out of mass transit comparisons (and yours). Figure parking into light rail comparisons - space dedication, cost, etc - and light rail has a chance of comparing favorably.

That may be the case; I haven't done any public work in years, so I'm not up to date. However, always treat anecodtal evidence with a skeptical eye :)

You are correct, however, that parking conditions weigh heavily in any discussion on mass transit. I left those considerations out for simplicity and brevity, but when formulating cost comparisons, we make deliberate efforts to internalize all "external" costs, including:

1. Parking
2. Fuel/Electricity
3. Time
4. Construction and Maintenance
5. Pollution
6. Traffic Congestion

This was a big part of the Metro systems projected success in Tempe; the cost of student parking on campus is prohibitively high, and parking at the stations is free.

Even when internalized, the cost figures still don't add up for urban commuter rail, except in select circumstances. Further, when looking at consumer preference side, we find that people are willing to pay more for the luxury of a higher form of transportation, even when a lower form is more cost effective.

For example, at less than 3 miles it is more efficient to walk, but many people would opt to take a bus or train. And at over 3 miles, it may be more efficient to take the bus or train (given certain conditions), but we find that many consumers opt to drive if they can afford it. Technically, public transportation is an inferior good (inverse relationship between income and demand), and private transportation is normal.

But you are correct; there are external factors like parking that I did not include in my original post but which can increase (or decrease) the competitiveness of rail. These things are included to the best of our ability in opportunity estimates.

 

[mheslep]

That may be the case; I haven't done any public work in years, so I'm not up to date. However, always treat anecodtal evidence with a skeptical eye :) [..]

Sure, but that's all your presenting in your post (most of them in fact, far as I can see).

Even when internalized, the cost figures still don't add up for urban commuter rail, except in select circumstances.

Source?

 

[johnnymorales]

next year's military budget is going to be $726 billion.

This years was approx. $700 billion

All that money 2 wars and we're mired in a deep recession with a sloooow recovery.

That's about all the info/data anyone needs to understand that MORE military spending wouldn't do squat.

And why in the hell would anyone want to spend billions more building weapons we don't need.

INFRASTRUCTURE was the result of WWII.

In order to fight the war we had to build it faster than ever.

After the war it was still there to use as we developed further.

The notion that simply spending on the military causes recovery is inane.

The notion that military spending is better spending (greater return) than other types of spending is insane and stupid.

It goes to so few people relatively speaking. Most of it goes to major corporations building military equipment.

Other types of spending spread it much wider and benefits society in many multiples as it filters outward from the spending source.

Military spending is used up destroying something. It doesn't nearly go as far.

 

[nismaratwork]

Sure, but that's all your presenting in your post (most of them in fact, far as I can see).

Source?

More important than a source, what circumstances, then source for that.

Not to be his echo johnnymorales, but... source?