Blogger Felix Salmon criticizes my posts on the claim that the every $1 billion in new highway spending creates 48,000 new jobs. He's got me on one thing: That projection is not for 48,000 new construction jobs. It includes secondary and tertiary multiplier effects.
But, perhaps because I wrote in too telegraphic a style, he misses the main point: This story is supposedly about net new jobs, not merely leaving people in other industries unemployed in order to hire the politically favored. The money has to come from somewhere, and if you're simply moving it around, some folks are going to lose their jobs.
To get this sort of projection to work, therefore, you have to assume a signficant disequlibrium in the economy that can be cured with a jumpstart of government spending. There have to be lots of unemployed resources--people out of work and capital wasted on producing things people aren't buying. That is not the situation we're in, and given the ongoing recovery it's most definitely not the situation we'll be in by the time any of this highway money starts to be spent. (I was not using Keynesian as a curse word, merely as a way of saying there's a disequilibrium story here.)
As a side note, construction workers are pretty fully employed, thanks to low interest rates. Spending hundreds of billions of dollars on unproductive transportation projects won't do much for unemployed manufacturing workers, even if some multiplier effects kick in.
Finally, suppose the equation were true and there were a simple, linear relationship between highway spending and jobs. Why not spend even more and get more jobs? Clearly, even if you believe that the first $1 billion produces 48,000 jobs, it's unlikely that the 300th $1 billion will have the same effect. The political discussion never acknowledges diminishing returns, either in job creation or productivity.
In response to my column on highway spending, several readers have asked essentially the same question: If spending goes for maintenance now, rather than new roads, shouldn't we expect the return to go down--and shouldn't we use "maintaining" productivity, rather than increasing it, as the measure of success? That's a good point.
Unfortunately, we still do spend lots and lots of money on new construction. It goes to low-value roads with porkbarrel appeal. It also subsidizes neighborhood amenities like the Katy Trail and disamenities like the McKinney Avenue trolley, just to mention two in my own neighborhod. (I would dearly love to see this beautiful bridge by Santiago Calatrava rise over the Trinity River, but it's not clear why anyone outside Dallas should pay for it.)
New spending also ignores all the "micro allocative efficiencies" that transportation economists like Cliff Winston spend most of their time worrying about: Could pricing make roads more productive? Should we target spending and construction toward the most congested areas? Are the roads the right thickness? Should cars and trucks be segregated? Are construction costs artificially high because of Davis-Bacon and other political constraints? Are we building too many roads in rural areas? What is the right tradeoff between capital costs and maintenance? And so forth... These questions simply don't get asked, because highway spending is entirely political. It isn't about making the roads more efficient.
Saturday evening, Steve and I went to the Hollywood media and blogging panels organized by Cathy Seipp, whose site has lots of links to accounts of the event. It was all extremely civil, and a fun time was had by all.
Amid all the praise for blogging, however, there were a few warning notes. Roger Simon joked that he hadn't written any novels or screenplays since he started blogging--in response to a question, he later said he had a couple in the works--and admitted that blogging is a great form of procrastination, much easier than real writing. The general consenus was that blogging takes four to six hours a day, which makes it good for workaholics and people who don't have other jobs. But even one of the latter, Mickey Kaus, said that after more than four years of blogging, he's starting to suffer from burnout. He also mentioned carpel tunnel syndrome.
All of which provides a great excuse for my approach to blogging: I may not do it every day, but at least I'm not going to burn out.
Thanks to everyone who bought books. They're in the mail. Sales are now closed, though I may do another round later this summer. This process was a lot easier than the last time I sold books (The Future and Its Enemies, in that case), thanks to my new DYMO LabelWriter 330 Label Printer. It's true what they say on the commercials: Dymo does save you tymo.
I'm off for a little working vacation in L.A., where I'll be checking out Cathy Seipp's bloggers forum Saturday night. I do expect to keep blogging while I'm gone.
An economist friend writes in response to my post below:
I believe it was Stravinsky who said that "Lesser artists borrow, great ones steal."
As [Joel] Mokyr pointed out in The Lever of Riches, technologically successful economies were happy to borrow the best ideas regardless of their source.
To the extent that the US is the least obsessed with protecting ideas in culture, science, and industry, we will continue to produce the goods with the highest economic returns that are also among the most difficult to copy whether in research, movies, music, or software.
To the extent that we close up or another country succeeds in replicating the US intellectual melting pot, we will decline. Otherwise we will continue to lead.
I agree--plus I'm happy to take any opportunity to plug Joel Mokyr's work. His Gifts of Athena: The Historical Origins of the Knowledge Economy is also a great book. (Here's my NYT column on it.)
The Supreme Court has agreed to rule on whether states can ban shipments of wine from out-of-state wineries to individuals. From the San Francisco Chronicle report:
Virtually every day, David Jones of Lava Cap Winery gets telephone calls from out-of-staters who have visited his Placerville tasting room and want a few bottles of wine shipped to their homes.
Virtually every day, Jones has to turn down one or more customers from such states as New York and Florida, explaining that their 1930s-era liquor-control laws prohibit his wines from being delivered to their doorsteps.
In a year's time, the situation could be much better, or much worse, for wineries and consumers. The U.S. Supreme Court agreed Monday to weigh in on the legality of direct alcohol shipping, and laws in at least half-a-dozen states hang in the balance.
I wrote about state regulations, including anti-wine rules, that hinder Internet commerce here. The Institute for Justice, which brought one of the cases, has background here. (Steve and I are donors to IJ, which does great work.)
In response to my posting of David K.'s note on trying to track down the factoid that $1 billion in highway spending generates 48,000 jobs, I received the following email, which I'm posting in the interest of fairness.
My name is Dr. Arthur Jacoby but most people call me Jake. I'm a Senior Staff Economist in the FHWA Office of Policy and lead a small research program called "Highways and the Economy". I was sent a url linking me to the article "KNOWLEDGE PRODUCTION, WASHINGTON-STYLE". In it you write, "To summarize, the whole study was bunk, engineered to arrive at a predetermined conclusion that would suggest the biggest number possible. (I suspect that's one reason that DOT doesn't make it available on their website -- they know it wouldn't withstand methodological scrunity)." [Actually, this is a quotation from David's note.--vp]
I think you and/or David K have it wrong. The JOBMOD income and employment estimation model is a much better product than you indicate. It follows a rather standard I/O [input-output] assessment methodology and has withstood considerable methodological and statistical scrutiny by CRS, OMB and others.
However, you are correct that the JOBMOD income and employment estimation model is not posted on our web site. Because of the size of the model I have been distributing it on CD. I would be happy to provide a copy to you upon request. Also, the Highway and the Economy research web page is currently undergoing reconstruction. I assure you JOBMOD documentation will appear there eventually, along with related macro-econometric studies I have initiated including works by M. Ishaq Nadiri, Barbara Fraumeni, and Clifford Winston.
I am attaching two files to introduce you to the employment research. The first is a widely distributed summary of JOBMOD results for a $1 billion federal-aid spending scenario. It was the basis for initial statements about employment impacts of Federal-aid construction spending by Secretary Mineta and Administrator Peters last summer, and is the likely source of many Congressional statements as well. The second file is the User's Manual for the model. You will notice the manual contains several caveats concerning appropriate uses of the IO methodology. Please let me know if you would like to receive the model on CD.
So neither DOT nor anyone in Congress simply made up the claim that $1 billion of spending produces 48,000 new jobs. Taxpayers paid experts to come up with the calculation.
But it still doesn't pass the smell test. Federal construction jobs pay more than $20,000 each, and this isn't the Great Depression; most people hired would be doing something else if they weren't building government roads. Keep in mind that these job projections are not based on the assumption that highway spending is investment that increases productivity. Rather, they assume that the spending is jacking up employment directly through the hiring of construction workers and indirectly through their spending. That Keynesian story only works if you assume lots of slack in the system.
Amazon is now selling beauty products, interestingly including Avon (no Avon lady required) and Sephora (which itself aggregates hard-to-find brands in its stores).
And now a word from our sponsor: Please remember that this site receives a percentage of any Amazon purchases you make from a link on this blog. Start your shopping here, or at another blog you like.
Reader David K. writes in response to my column on highway spending and the earlier related blog item:
Up until a few months ago, I worked for a U.S. Senator who was fond of quoting that $1 billion in highway spending = 48,000 jobs figure. Like you, I thought it sounded suspect, so I started looking for sourcing on it. I started with a Google search on the keywords. All the hits came up as coming from either members of Congress or other politicians and highway/transportation lobbies and associations -- which made me even more suspicious.
I pored through these and found one who credited it to a Dept. of Transportation study. With that lead, I checked the DOT website and some others, but still couldn't find the specific study (or even a title or a researcher's name). Frustrated, I called in the big guns -- the Congressional Research Service. One of the experts over there explained to me that the figure was basically a garbage number that was cooked up for a DOT study in the mid-90s. To arrive at the figure, the economist included as many "ripple effects" as possible (e.g., if we spend xx amount of dollars on highway funding, it will not only create jobs for highway construction and suppliers, but also for the guy who serves lunch to the highway workers, the bartender where they stop after work, etc etc etc). While I suppose there is sound economic principle behind looking at these ripple effects, in this case that principle was probably abused in order to generate the largest possible number. Also, as it was explained to me, the study effectively assumed that we would be starting from a baseline of ZERO highway construction jobs -- that no one would be currently employed in highway construction or supply -- again, to inflate the number as much as possible. And there was no consideration of how that money might be spent in other ways that might create jobs more effectively and efficiently. To summarize, the whole study was bunk, engineered to arrive at a predetermined conclusion that would suggest the biggest number possible. (I suspect that's one reason that DOT doesn't make it available on their website -- they know it wouldn't withstand methodological scrunity).
The punchline: After telling me all this, the expert source said that we might as well go ahead and use the number, since everyone else does.
It's a case study in how 'knowledge' is created and propagated in our nation's capital!
Dan Weintraub of the SacBee reports on a California regulatory initiative that could do some real damage:
Dr. Marcy Zwelling-Aamot is sick of being told how to care for her patients. So the Los Alamitos physician--and president of the Los Angeles County Medical Society--says that as of July 1, she will no longer be working with health insurance companies.
"I am divesting myself of every insurance contract," said Zwelling-Aamot, an internist. "I can offer better care less expensively to my patients. I have a list, a waiting list, and I haven't even started advertising yet."
Zwelling-Aamot hopes she is on the leading edge of a wave of the future, which would really be a return to the past. She envisions an era when doctors and patients once again deal directly with one another, without the reams of paperwork, authorizations, second-guessing and billing nightmares that come with the current system.
Most consumers would pay for routine doctor visits, and even for treatment of minor maladies, out of tax-free savings accounts, visiting any doctor of their choice without having to check first with an insurance company. They would carry a relatively simple form of insurance coverage only for major, unexpected medical problems whose costs would pose a threat to their financial independence.
But Zwelling-Aamot's dream of bureaucracy-free medical care is clouded by one thing: SB 2, the proposal heading for the November ballot that would require California companies with more than 50 employees to provide health insurance to their workers.
The idea sounds good at first. So good that it was enthusiastically supported by the California Medical Association, the state's largest professional physician group and the parent of Zwelling-Aamot's county medical society.But Zwelling-Aamot and a number of prominent CMA members fear that the measure, if approved by voters this fall, will bring the downfall of quality health care in California by putting still more distance between doctors and their patients.
"The politicians say that people are uninsured and we need to cover them," Zwelling-Aamot says. "But coverage doesn't mean care."