America / Economy / Fiscal policy / Politics / Uncategorized

Investment or Waste

When we invested in the Hoover Dam or the Golden Gate Bridge, or the Internet, sending a man to the moon — all those things benefited everybody.  And so that’s the vision that I want to carry forward. – Barack Obama

This statement, in a nut shell, represents the entire positive argument that President Obama is making in support of his re-election. Government under his leadership, he argues, can do the grand things that individuals cannot and he is the one to lead these grand projects of the future.

Unfortunately, that is hogwash.

Let us leave aside the academic arguments about the merits of Keynesian stimulus and examine the premise that government investment is capable of producing great accomplishments that individuals and corporations cannot.

The Golden Gate Bridge – that great triumph of governmental investment heralded by the president – was actually financed almost entirely by a private corporation after the project was nearly halted because of the slow wheels of government.  The project had to survive two court challenges (one brought by ferry operators who would lose business) and two federal hearings to gain approval from the War Department which thought the bridge would impede naval traffic. The delays took almost ten years to sort out – longer than the actual construction of the bridge. By that time, the depression had taken hold and the local bond issuances originally intended to fund the bridge were not selling. Bank of America founder A.P. Giannini came to the project’s rescue and bought the $35 million worth of unpurchased bonds, almost singlehandedly financing the bridge.

Another private individual, bridge designer Joseph Strauss, should be thanked for the relatively low price tag. The San Francisco city engineer claimed the bridge would cost almost three times as much but Strauss was able to offer innovative design improvements that lowered the price tag.

And thank goodness the feds were not in charge of painting the iconic landmark – the navy requested the bridge be painted yellow with black stripes. The Giant Honey Bee Bridge would not have the same majesty.

But let us ignore the history of the Golden Gate and the individual and corporate accomplishment that produced the bridge.  The other grand accomplishments mentioned by the president did, at least, involve federal funding (although in the case of the internet there were two driving forces: development of computer networking via Department of Defense funding – the only government funding President Obama wants to cut; and the development of the World Wide Web by Tim Berners-Lee, a Brit with no connection to U.S. funding). The problem for President Obama is that he has already tried to carry America “forward” through government “investment” and he has failed.

The failure is self-evident. The president and the Democratically-led house passed an $831 billion stimulus bill with the explicit intention to invest in America’s infrastructure in a way that the private sector could not. Adjusting for inflation, that money could have bought 1484 Golden Gate bridges.  Where are they?

Instead of attempting to lead the grand projects of the future, the stimulus strategy was simply to throw money at any and every project that it could. It replaced the windows in a visitor center that had been closed since 2007 (for $500,000). It spent $7.3 million on two San Antonio area fire stations that had already been funded locally, only to mire the projects in red tape. $500k for smartphones to incentivize smokers to quit, $1.9 million to study exotic ants, $13.3 million to restore a Key West island that almost no one visits –the waste goes on forever. And, of course, we cannot forget Solyndra.

The president has already demonstrably failed at the goal of investing in America, but more importantly, the president’s approach to future investment cannot create the great projects of our nation’s past. The law to fund the Hoover Dam was nine pages long. Congress debated and voted on only funding the Hoover Dam and Calvin Coolidge, one of America’s most conservative presidents authorized funding for only that project. The stimulus was 1079 pages. No one knew about, let alone debated, where that money would be spent – it is unsurprising that more money was wasted than invested. If America continues this approach going forward, it will see the same lackluster results.

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