Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

31 January 2009

Infrastructure, Industrial Policy, and Economic Recovery


[For comment on Tom Daschle stepping down, click here.]

Yesterday David Sanger, one of the New York Times’ most astute reporters, posed a rhetorical question. “Can the government,” he asked, “fashion a fast and efficient economic stimulus while also seizing the moment to remake America?”

To those of us of a certain age, he implied we have a Jerry Ford problem. Can we walk and chew gum at the same time?

Two days before, Sanger’s colleague, conservative pundit David Brooks, made the point same point as a complaint. The recovery bills now moving through Congress, he nagged, are too diffuse, too little focused on short-term, immediate stimulus, and too devoted to a Democratic wish list of projects (like health care) that have languished for forty years.

Both men haven’t done their arithmetic. The present recovery bills may indeed be too diffuse. But over 56% of their funding would put money quickly in individuals’ or local governments’ hands. Only about 17 percent would go for infrastructure and industrial policy.

So if the bills have a fundamental flaw, it is not a focus on long-neglected Democratic initiatives. It is a failure to remove the lasting spell of Republican economic fairly tales.

That spell has held us in thrall for several decades. It still does. Despite all the evidence of our economic collapse, we still believe that putting more money into the hands of individuals and private business will improve our sorry state. We still see Adam Smith’s “invisible hand” holding a magic wand.

But markets cannot cure what ails us. Unregulated financial markets are what destroyed our economy. We have the world’s most inefficient, costly and inflexible transportation system, brought to us by free markets. We rail against China’s and India’s use of dirty coal for fuel, but our hinterlands rely on coal for close to ninety percent of their electricity. Our electric grid is barely adequate to prevent the sort of multi-city blackouts that plagued us in the nineties, let alone to support modern, distributed wind and solar energy. Our military industrial-complex is bloated, inefficient, bureaucratic and corrupt—so much so that it takes four years to write a contract for a new tanker plane.

Our infrastructure is beyond decay. Roads, bridges and aqueducts are falling apart. New Orleans died and must be resurrected because we neglected the kind of basic civil engineering that tamed the Mississippi and made human habitation there possible in the first place. Basic research in physics has moved to Europe with the Large Hadron Collider. Basic research on stem cells has moved to Europe and Asia because we valued religion over science. Our health-care efficiency is abysmal in part because the nation that invented the Internet can’t get doctors, hospitals and insurers to use it. Our food, drug and cosmetic regulators have become apologists for marketers, rather than scientists honestly studying new products’ safety and effectiveness. Our air traffic control system is virtually obsolete and will be utterly overwhelmed when the economy recovers.

I could go on and on, but you get the idea. We have neglected vital infrastructure that we must build collectively—as a society—so badly and for so long that we barely know where to begin.

So we don’t just have a Jerry Ford problem. We have a Handel’s Messiah problem, too. Our free-market fairy tales have reduced us to a state best described by that plaintive verse: “Oh we, like sheep, have gone astra-ay, every one to his own way.”

We need to get together again and rebuild our country as a nation, not a congeries of hypothetically rational individual economic actors. We need to make our sheep a flock again. For that, we need national leadership, including industrial policy.

Once our public sphere was the world’s most robust and effective. Here is a partial list of what our public and nonprofit sphere accomplished in the last seventy years alone:

1. Winning World War II. To help win history’s greatest conflict, we nationalized most basic industries, including cars (to make tanks), aircraft, aluminum, and rubber.

2. Running the Manhattan Project. We built the atom bomb, whose prospect itself arose out of government-sponsored research in physics, in a massive secret project run entirely by our military. It was the most ambitious, expeditious, expensive and successful development of advanced technology in human history. During its uranium enrichment phase, the project drew about 10% of the nation’s total electric power. Our government developed the Tennessee Valley Authority, with its massive generators, in part to provide that power.

3. Inventing Synthetic Rubber. When Imperial Japan captured Malaysia’s rubber fields, we invented synthetic rubber, called “neoprene,” for tires. The project was entirely financed and managed by the federal government as part of the war effort.

4. Stopping the Scourge of Polio. When I was a kid, swimming pools were closed regularly, and every mother’s greatest fear was polio striking her child. We banished that fear and polio with the Salk and Sabin vaccines, which we developed in universities and nonprofit institutions with government support and research management.

5. Building the Interstate Highway System. President Eisenhower began this project in the late 1950s, as a better, more versatile version of the national railroad network that had made our nation a leading industrial power. It was designed, managed, operated and funded by the federal government, and paid for by taxes.

6. Eradicating Smallpox. This awful disease had been a scourge of mankind since the Middle Ages. Federally initiated and managed vaccination programs eradicated it from our nation and, with others’ cooperation, from the world—all during my lifetime.

7. Inventing High-Altitude Flight. Federally run aerospace programs invented pressure suits (later, space suits) and pressurized aircraft. These federal projects made above-the-weather flight possible, allowing air travel to become reliable enough for routine use.

8. Putting Men on the Moon. Federally run aerospace programs put men in orbit around the earth, then around and on the Moon. They accomplished the latter feat within the ten-year deadline set by President Kennedy in his inaugural address.

9. Developing Air Transport. From the days of the Wright Brothers, the federal government controlled the progress and development of aviation. Our military supported rapid development of aircraft before, during and after the two great world wars. Our government started regular air mail and package service as part of our Post Office, in part to demonstrate the commercial capability of aviation. For about fifty years, a discontinued federal regulatory body called the Civil Aeronautics Board supervised and guided virtually every aspect of the industry’s development, including safety, routes, schedules and fares. Even in today’s “deregulatory” environment, government agencies (the FAA, NTSB and TSA) insure the industry’s viability by regulating safety and security and providing air traffic control. (If you want to see at a glance what careful government planning developed and nurtured, take a look at this stunning video of daily global air traffic. It’s quite revealing.)

10. Running the World’s Best Post Office. Our Postal Service is the most unjustly maligned government institution in the world. If you can find a better post office in any foreign country—let alone one with self-stick stamps, Web-vended postage, cheerful agents available by telephone, and inexpensive overnight service with Web tracking—please let me know. I’ve traveled to about twenty foreign countries and have lived in two, and nothing I’ve seen abroad even comes close.

11. Curing Cancer. When I was a kid, we all thought cancer was a single disease. People spoke the word in hushed tones, because it was a death sentence. Now we know it’s a huge collection of diseases caused partly by genetic defects and partly by environmental impacts (smoking, viruses, chemicals and pollution). Now people live for years—sometimes decades—after the fateful diagnosis. Virtually all of this progress derives from basic research funded and managed at the federal level and supported by your tax dollars.

12. Defanging AIDS. When the AIDS epidemic began in the early 1980s, everyone feared a new Black Plague. The disease decimated gay communities in New York and San Francisco and put those cities in a vise of fear. Scientists from our federal health research centers, in cooperation with France’s Institut Louis Pasteur, identified the virus and quickly established the limitations on its transmissibility, averting a global medical panic. Then they began the long, slow search for a cure. Now people infected with HIV, who once died in years, can live long, fruitful and fear-free lives. All this progress came with federal tax dollars and federal management and control.

13. Inventing the Internet and Giving it to the World. The Internet began as a defense project, planned and funded by DARPA, our federal Defense Advanced Research Projects Agency. The idea was to make our strategic national communications system fully decentralized, so that no nuclear strike or natural disaster could disable it by destroying a single control point. The federal government managed, controlled and funded the entire development. Only after government had created a sizeable working nucleus of federal laboratories and universities did President Clinton release the Internet to the world for commercial use, creating the most convenient and versatile mode of communication in human history.

The most impressive achievements of human civilization—atomic energy, air travel, the Internet, and much of modern medicine—arose or were developed under government control and guidance, at least initially. As this brief list of stunning achievements shows, the notion that government lacks the competence, vision or vitality of private industry is nonsense. With his legendary self-restraint and understatement, President Obama would call it “inaccurate.” I would call it a lie—an untruth deliberately perpetuated by a class of people for their own short-term enrichment, political aggrandizement, and personal power. Now we all know where that lie has led us.

Unfortunately, national ideology is like a secular religion. It doesn’t change overnight. Vladimir Putin is one of the smartest and best-educated leaders on the planet. He knows that Communism destroyed Russia’s economic infrastructure and industrial potential for nearly a century, as he recently admitted at Davos [subscription required]. But when things get scary he instinctively turns to state control over basic industry. Old habits die hard.

We have the opposite problem. We, too, thought the Cold War was an ideological jihad. We thought we “won” because our Free Market God was stronger than the Russians’ Central Control God. We, too, have to rediscover a proper balance between private and public enterprise after nearly a century of true belief. The only difference is that we approach the problem from the opposite extreme.

One of the saddest commentaries on our current sorry state came in a recent feature of Paul Solman, PBS’ economics commentator. Apparently the only successful company he could find in his foray to Los Angeles’ Port of Long Beach was a small firm that makes “Tummy Tuck” jeans.

Now I’m all for private enterprise. Far be it from me to deprive women who eat too much and get too little exercise of the chance to look good by buying a pair of jeans. But anyone who thinks that “innovations” like Tummy Tuck jeans, Facebook or MySpace will restore our industrial predominance is smoking something very strong.

Take a good look at my baker’s dozen list of government projects that made our nation great. Those are the kinds of things we have to learn to do well again. We have get our entire nation—meaning government—involved in repairing infrastructure, building new infrastructure, and supporting and directing basic research and industrial development in energy, physics, chemistry, biology, medicine and materials science. We need to create a National Battery Development Consortium to organize the development of good batteries for electric transportation and energy infrastructure. We need to have government setting goals, limits and standards for private industry as it transforms our energy, transportation, health-care and air traffic systems, among others, for the twenty-first century.

All this requires industrial policy. That’s something every other country in the world has, but which we still abjure as inconsistent with our national ideology.

Rebuilding our national infrastructure will take money. But industrial policy won’t necessarily. All it requires is adult supervision and guidance at the national level. For examples of how government can aid progress by setting goals and standards for private industry, without great expense, see this post, especially parts 4, 13, and 14.

Fortunately, we now have a president who most definitely can walk and chew gum at the same time. He knows that we have to get government involved in building infrastructure and setting national directions again, particularly in energy, transportation, communication and health care. And he understands that we have to do so at the same time as we give individuals, local government and private enterprise enough support to keep people from starving and our economy from collapsing utterly.

The recovery bill moving through Congress provides a good start (56%) on the second problem. But it barely provides a small down payment (17%) on the first. President Obama must turn his full attention to infrastructure and industrial policy before his honeymoon expires.


Footnote: The stated percentages are drawn from an early itemization of the stimulus plan, but against a larger $900 billion (really, $890 billion) denominator due to alternative minimum tax relief, as later added in the Senate. Infrastructure investment consists of the following: $20.1 for health information technology, $10 billion for scientific facilities and research, $6 billion for broadband Internet access, $82 billion for energy grid, energy, flood control and other infrastructure investment, $30 billion for highway construction, and $10 billion for rail and other transportation infrastructure. Against a total expenditure of about $900 billion, that’s a total of $156.1 billion, or about 17 percent. Immediate expenditures include $87 billion for Medicaid, $39 billion for temporary health insurance, $54.6 billion for aid to schools and colleges and increases in Pell grants, $43 billion for unemployment benefits and job training, $20 billion for food stamps, $29 billion for high-priority state needs, including public safety and law enforcement, $275 billion for tax cuts, and about $70 billion for AMT relief. That’s about $508 billion or 56 %. The other 27% is mostly medium-term, non-industrial infrastructure investment, such as modernization aid to local school districts ($41 billion), bonus grants for school performance ($15 billion) and repairing and weatherizing public housing and modest-income homes ($22 billion).

The Curious Case of Tom Daschle

The last line of Carl Orff’s immortal Carmina Burana comes from an ancient Latin folk song. It translates as follows: “For the strong [man] whom fate fells, [let] all cry with me.”

So fell Tom Daschle. He was once the most powerful man in the Senate. He’s got a preternaturally calm and soothing personality and unmatched political skills. Everyone loves him, apparently even his ideological enemies in Congress. Virtually everyone with reason to know believed him the best person to bring rational health care to our nation, after half a century of trying. Yet there he is, back on the outside again, when we need him most.

Numbers don’t explain his fall. The $140,000 of taxes and penalties he paid too late amount to less than 0.00002 percent of the proposed stimulus plan (or our TARP program), less than 0.0008 percent of the $18.5 billion of undeserved bonuses recently spread around Wall Street. Compared to amounts misspent daily in our deranging economy, his peccadillo did not even rise to the level of rounding error.

But fall he did. You might even say he was pushed, not so much by the usual suspects, but by his natural allies—the New York Times and generally liberal political cartoonists (1 and 2).

You might be excused for calling his self-recusal an anomaly. Dubya brought us an unnecessary war, trampled our civil rights, ignored checks and balances, and watched idly while stupid, greedy bankers wrecked our economy. Cheney usurped the powers of the Attorney General, the Cabinet and some of the presidency. When accused of destroying our Republic, he arrogantly said “So?” Rumsfeld is responsible for most of our 4,236 deaths and hundreds of thousands of Iraqi deaths. Alberto Gonzales and Karl Rove sent political operatives to remake our Department of Justice in the image of its Soviet and Red Chinese counterparts. George Tenet presided over dysfunctional, turf-warring intelligence agencies that let 9/11 slip by. John Thain and hundreds of stupid, greedy bankers like him (investment and conventional) destroyed our economy.

So far as I know, not a single person who visited these disasters upon us has paid any price at all. John Thain and Michael Brown lost their jobs and the chance to do further harm, but that was all. Many made out like bandits, including all the Wall Street minions too far down the ranks to pursue. In our current social and political climate, Maureen Dowd’s cry for disgorgement is nothing more than a pipe dream.

Every human society on the way up had a way of dealing with screw-ups, malefactors and misfits in high places. In ancient Rome, they fell on their swords. In Imperial Japan, they committed seppuku. In our own heyday, we were more civilized. We fired them. They left with the words “fired for cause” figuratively emblazoned on their foreheads. They lost not only reputation, prestige, opportunities and social capital. They also lost salaries, bonuses and even pensions.

Now they lose nothing. They are rewarded for failure or worse. George Tenet got the Medal of Freedom. Karl Rove makes a fine living as a pundit for our clueless media.

What a society we have built! Celebrity is the coin of the realm. Fame and infamy are equal tickets to the easy life. No one acknowledges error or fault except on the way to jail. A governor whose criminal acts were caught on tape brazenly maintains his innocence and public spiritedness until removed by unanimous vote of his state senate.

Juries in criminal cases have become the ultimate arbiters of social morality. We are all perfect and above reproach unless and until convicted of crimes beyond a reasonable doubt.

How strange, in such a world, for a good man with flaws so tiny to step down!

Can some good come of it? Maybe. Maybe Daschle’s selfless act will teach us that there can be no national renewal without accountability. Maybe he will help us know the meaning of “shame” again.

But shame means little to people who measure their worth in dollars or the number of homes they own. Until we replace them—all of them—with people whose higher values include the meaning of shame, our society will continue to decline, even if our president turns out the best in our history.

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2 Comments:

  • At Mon Feb 23, 04:21:00 PM EST, Blogger LazySusan said…

    I’m passionate that we need to take it further with regards to green energy. The best way to bring the changes we need in the economy and the environment is by creating local jobs to improve our infrastructure to lessen the impact on the environment. I feel really inspired after reading Thinking Big, especially the essay called An Inclusive Green Economy by Van Jones and Jason Walsh. They took the idea of green collar jobs farther and suggest a Clean Energy Corps be created that is a combined service, training, and job creation effort, concentrated in cities and struggling suburban and rural communities. Basically the idea is that price and the market are too slow to base the shift to a green economy on, which I totally agree with, and we should have a governing body put into place that coordinates green collar efforts to maximize efficiency and opportunity creation for Americans. We need the government involved in creating jobs, not just handing money out to industries.

     
  • At Tue Feb 24, 09:59:00 AM EST, Blogger jay said…

    Dear LazySusan,

    Your passion gives me hope. Change can come from the bottom up, and I hope you help make it happen.

    I agree with all of your comment except the part about the market. In our disgust with others’ ideological delusions, we progressives shouldn’t ignore the power and reality of markets.

    In fact, market economics strongly supports rapid development of clean energy, as I’ve outlined in a post on energy economics. Market economics also teaches that oil prices will skyrocket again as soon as the global economy begins to recover.

    Renewable energy is not just good environmentalism. It’s good economics, industrial policy, and national security policy, too. Teaching those points should be an important task of everyone, including the President.

    Jay

     

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