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Dean Baker

Dean Baker is co-director of the Center for Economic and Policy Research

July 31st, 2010 7:28 PM

The Lights are Out in Washington

I was late with my column this morning. It was the first time that I missed a deadline since I started college. This made me angry, not just because I hated to see a 34-year-streak end, but more importantly because of the reason I was late.

Sunday afternoon a storm hit Washington. It knocked out the power not only in my house, approximately three miles from the White House, but also in large chunks of the city and suburbs. Fifteen hours later we still don’t have power. Since the temperatures are predicted to get into the 90s today, we can expect that people will die. Sick and elderly people who cannot get into an air-conditioned facility will have great difficulty surviving in such heat.

This should make everyone very angry. There is no excuse for the nation’s capital not to have sufficient spare capacity and repair crews to ensure that prolonged blackouts do not occur in the middle of a summer heat wave.

Yes, this would cost money and that is why the whole story is damn painful. We have the money. We have the money.

We are sitting here with close to 10 percent of our workforce unemployed. This is because of a lack of demand. If there were more demand from any source, this would employ many of these workers. These are workers who have the necessary skills and desire to work. Remember, the vast majority of them were working before the housing bubble collapsed.

Back then the $8 trillion in illusory housing bubble wealth was creating the demand needed to keep our workforce near full employment. Now that this wealth has vanished, only the government can generate the demand to employ these people. It is only because of the painful ignorance or willful economic sabotage of members of Congress (mostly Republicans) that the government will not spend the money needed to bring the economy back to more normal levels of employment.

This is where D.C.’s power failure comes in. What would be the problem if Congress dispensed $400-500 billion to the states to be spent on upgrading infrastructure such as electric power lines, mass transit systems, and water and sewage treatment facilities? The stimulus passed by Congress last year started on this path, but did not go nearly far enough.

This spending could be financed by requiring the Federal Reserve Board to buy and hold the bonds used to pay for the projects. If the Fed held the bonds, then the interest would be paid to the Fed, which in turn would then be rebated to the Treasury. That means that there is no additional interest burden on our children for the deficit hawks to whine about. Instead our children will get a modern infrastructure that doesn’t jeopardize the country’s economic and physical health.

The new infrastructure could also be far more energy efficient, making important strides towards reducing greenhouse gas emissions. Perhaps future summer heat waves won’t be quite so hot.

A jobs and growth project along these lines should be a no-brainer. The huge number of unemployed workers is actually a source of wealth. It means that the country is currently meeting its consumption and investment needs while still having 10 percent of its workforce on the sidelines. If we can find useful work for many of the currently unemployed workers it makes the country richer, not poorer.

At this point, the budget deficit crew will invariably start yelling that governments will be wasteful in their spending. There is some truth to this, but so what? Imagine that we spend 20 percent, 30 percent or even 40 percent too much for rebuilding our infrastructure. Five or ten years out we still have a modernized infrastructure. Would be better off if we just did nothing so that our children are left with an infrastructure that is 10 years more out of date in 2020?

We also hear the complaints that this plan would generate inflation. This objection is hard to understand. We have massive excess capacity in almost every sector of the economy. Which business is going to start raising its prices because the government is supporting a major infrastructure program? Furthermore, if inflation did start to get out of hand, the Fed has all the tools necessary to keep inflation under control.

What’s the worst possible scenario, we get a recession like the 1981-82 downturn? That was a much more mild recession than the one we are currently experiencing, so it’s hard to see the basis for fear.

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