Tuesday, November 22, 2016

Trickle-Up Economics and Labor Infrastructure

When both parties agree then you know something is wrong. Infrastructure spending (IS) has gained a lot of bipartisan support lately. There is a lot of pressure on Trump and Congress to put together a really big package on infrastructure. What does that mean and is that the best we can do with our money?

The usual support for more IS focuses on simple theories. Paramount is that IS is part of the production and delivery process of goods and services. An improvement in infrastructure will accordingly increase our lagging national productivity. When workers are more productive the nation becomes more competitive.  A second logic is that building more infrastructure takes workers and therefore employment will increase. Third, when those workers have more income they will buy more goods and services thus providing more business and employment for other firms and workers. Can you hear the horns blowing? Who could be against more IS?

The reason people can be against more IS is that the above is simple theory. Put all this into the context of 2017. For any of the above magic to transpire we have to have viable projects and we have to have them pretty fast. Unlike a tax cut which immediately gives a tax payer more money to spend, an infrastructure project has to be planned, approved, contracted, environmental regulations checked, and so on. Shovel ready projects are a joke. This spending could drag on long after my ashes are spread in Biscayne Bay.

And then there is the issue of where this infrastructure might be built. Since Harry Reid is a has-been it probably won’t be done in Nevada. Politicians will be in seventh heaven fighting for the next bridge, road, or waterway. What a glorious boondoggle!

And then even if some projects get started, what about the spending multiplier theory? The employment-spending-more employment-more spending theory assumes everything else is the same. In 2017 our nation is deep in debt. Our firms are not expanding. Perhaps construction workers will pocket some money, pay off some bills, and the story ends there.

And finally – tada – what about cause and effect? Is our slow growth these days really caused by potholes? I don’t think so. But one major thing many of us agree is that growth is very much impacted by slow labor supply growth, a mismatch of skills, and generally a poorly-functioning labor market. So why not focus on that? If that is the real problem then more IS is really what liberals usually call trickle down. Why wait years if not decades for an uncertain trickle? No prostate jokes please!

Instead we can use some or all of that IS money to improve our work situation. We could seriously fund training, retraining, and relocation. Rather than spiffy highways we could create the world’s employment champion. Wouldn't it be cool if global companies starting moving to America because we have the world's most outstanding employees for the 21st century?

We know that transition is a constant. If we know that renewables will take a larger share of national and world production, why not have the world’s best labor for that? If we know that the GIG economy is employing more and more millennials, then why not shout to the world that the best labor for that is right here in the USA? If Internet security is going to be a global challenge for the foreseeable future why don’t we have the best minds trained here? Healthcare? Entertainment? Whisky? (You didn't think I was going to leave out JD did you?)

If labor is the problem in this country then it ought to be solution. We need to stop wringing our hands and most of all – we need to stop thinking that the best we can do is use company subsidies to improve the labor market. Companies may or may not decide to spend a subsidy on labor.

And of course notice what there is no trickle down if we focus directly on the labor market. Helping people do better in the labor market has immediate impacts on their employability. It makes them more productive, competitive, and valuable. Perhaps we could call this trickle up economics since the benefits start with the workers and then radiate outward to more successful and competitive companies.

Finally when I say labor I don’t mean labor unions. A sincere focus on training, retraining, and relocation means we are strengthening workers for what they want – better pay, improved mobility, and more sustainable jobs and careers. Labor unions can get on board but this idea is not about enriching union bosses. Remember when we decided as a nation to put a man on the moon. We had a clear focus and we made it happen. America can be the training ground for a revolutionary new center of employment readiness. I'd rather see us spend a lot of money in that way than on infrastructure boondoggles. 

7 comments:

  1. I would like to believe there will an approach that takes into consideration both the debt and deficit. I do not sense this is a priority of either political party. JCBlackstone

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    1. True but it ain't over until its over. We will likely have continuing resolutions at least until spring 2017. At that time there might be a serious attempt at legislation and then the debt is bound to come up.

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  2. Suppose one project was to move the Mississippi river ten miles to the west. It would take billions and would employ people for years. It would also be a monumental waste of money. Until somebody shows me a positive NPV, IS is a pure waste. But what do we expect from a TV Celebrity and his "brain trust" Bannon?

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    1. Hopefully some IS projects show positive NPV!

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  3. I must have had my economics training at the school of Larry. Totally agree a massive training effort makes more sense...we'll get too many useless bridges to nowhere. We have plenty of open jobs waiting for trainees. Rust belt folks would need to buckle down. Forget factory work. Its gone. But even Donald wont tell the coal miners to go back to free tech school.

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    1. Nice to hear from you Bill. Happy Thanksgiving.

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    2. This comment has been removed by the author.

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