Friday, October 17, 2008

Fighting Back Against the New Hoovers

NOTE: We've moved! Visit us at the California High Speed Rail Blog.

Not content with denying to Californians the numerous tangible benefits of high speed rail, Prop 1A opponents have retreated into a revival of Herbert Hoover's economic policy in order to try and defeat the most important project Californians have considered in nearly 50 years. Their argument is that in an economic crisis, we should turn to austerity instead of following the tried and true path of deficit spending on infrastructure that provides short-term job relief and long-term economic value.

For a couple weeks this blog has been doing yeoman's work in fighting back against this nonsense, one of the few voices directing Californians to learn from our past successes instead of repeating our mistakes.

No longer.

Today we have numerous articles and media outlets starting to push back against the New Hoovers. From newspaper editorial pages to leading economists there is a growing consensus that we must use deficit spending - in our case, bonds - to spur economic growth through infrastructure projects.

Even conservative observers and federal deficit hawks are seeing the need for deficit spending, as the conservative Washington Times reports:

Conservative Financial Times columnist Samuel Brittan said the fears that short-term stimulus spending by governments will raise deficits miss the point. Even the $700 billion Wall Street rescue plan approved by the U.S. government — part of a more than $2 trillion international bailout of banks by governments around the world — does not change the equation.

"Maxims about debt that might be prudent for families can be the height of folly for government," he wrote.

British economist John Maynard Keynes is credited with the basic insight, arguing that the Great Depression was prolonged because Western governments insisted on balancing budgets, raising taxes and cutting spending at a time when private economic activity had ground to a halt.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a nonpartisan research group, said both candidates must put together a credible long-term plan to deal with the exploding deficit, but that the government should be priming the pump in the short term.

These conservatives are joined by Nobel laureate Paul Krugman, who writes in today's column:

And to provide that help, we’re going to have to put some prejudices aside. It’s politically fashionable to rant against government spending and demand fiscal responsibility. But right now, increased government spending is just what the doctor ordered, and concerns about the budget deficit should be put on hold....

All signs point to an economic slump that will be nasty, brutish — and long....

And this is also a good time to engage in some serious infrastructure spending, which the country badly needs in any case. The usual argument against public works as economic stimulus is that they take too long: by the time you get around to repairing that bridge and upgrading that rail line, the slump is over and the stimulus isn’t needed. Well, that argument has no force now, since the chances that this slump will be over anytime soon are virtually nil. So let’s get those projects rolling.

The growing unanimity of opinion on the need for deficit spending for infrastructure projects is striking. Krugman, MacGuineas and Brittan join leading economic figures like Nouriel Roubini and Lawrence Summers in calling for bold action to mitigate the deepening economic crisis.

They are joined today by the Fresno Bee editorial in favor of Prop 1A which clearly understands the need for infrastructure stimulus, and directly refutes some of the fiscal arguments against HSR:

Sadly, much opposition has come from people who say they like the idea of 220-mph trains zipping up and down the state, but don't think we can afford it right now, in a time of budget disaster and economic crisis.

That sounds prudent, even reasonable, but it ignores an important fact of American history: Many of our most important public works projects have come in times of deep economic distress -- and they have been crucial elements in our recovery in those times.

Recall the Great Depression, when voters in the Bay Area passed bonds to build the Golden Gate and Bay bridges -- projects that lightened the impact of the Depression on that region and were critical to the postwar economic boom. Shasta Dam was built during the Depression, and remains a linchpin of the state's water system.

The closing paragraph of the editorial is a powerful, stirring statement that deserves to be quoted in full:

The high-speed rail project is immense, and that can be daunting. The current economic situation is likely to get worse before it gets better. In the past, Californians have risen to such challenges with vision and determination. Voting "yes" on Proposition 1A is a declaration that we still possess those qualities, and have not surrendered them to a timid faith in a status quo that is no longer sustainable.

I've never seen it put so well. The Fresno Bee clearly understands that our state's very future is at stake and that Californians should be able to meet that challenge just as we have done in the past.

And what about the arguments that the financial crisis makes this a bad time to float bonds? The Sacramento Bee reports "unprecedented demand" for California's short-term bonds:

California has secured commitments for nearly $4 billion in short-term loans thanks to unprecedented demand from individual investors Wednesday, averting a need for federal assistance and allaying fears of a cash shortage....

California secured orders for $3.92 billion in short-term bonds from individual investors Tuesday and Wednesday, 98 percent of its original $4 billion goal, according to state Treasurer Bill Lockyer....

This week's bond sale reassured state officials that traditional lending markets would suffice.

Translation: capital markets WANT state bonds. If we float Prop 1A bonds they will be quickly gobbled up by a hungry market desperate for a safe investment.

All the HSR deniers have left is what was at the core of their belief all along - opposition to passenger rail:

"This is like losing your job and then using your credit card to put in a new swimming pool to help provide work for others," said [Kris] Vosburgh [of the Howard Jarvis Association] of the jobs argument.

Have fun with that ridiculous "swimming pool" analogy in the comments...

16 comments:

Anonymous said...

Why don't you just come out and admit you're a socialist?

Robert Cruickshank said...

So are you saying that Paul Krugman, Lawrence Summers, Nouriel Roubini, the Fresno Bee, the SF Chronicle, the LA Times, conservative columnists like Sam Brittan and deficit-hawks like Maya MacGuineas are all socialists?

Hoover would be proud of you.

Brandon in San Diego said...

Gee, I thought it was he republicans sounding like socialists... with the $700 billion rescue plan and soon-to-be-efforts to begin buying banks.

I, for one, see the value in government spending. The economy relies on goverenment spending for about 1/3rd of our country's growth. With private sector economic activity slowing, federal and stateefforts are needed to keep things going.

Pantograph Trolleypole said...

LOL the trolls are getting restless. They can't argue the point so they just result to the Blue and Yellow scare (Sweden, not CAL). I don't even think they know what socialist means. Not to mention that the whole highway system is socialist.

Rob Dawg said...

Translation: capital markets WANT state bonds.

Snigger. Really, I try to stay respectful but the capital markets just warned California about encumbering additional debt. What about that explicit, rare and ominous warning is in your opinion an encouragement?

Have you seen CUP, RAN and GO bond spreads lately? THey also make it unambiguously clear that the market appetite for California debt has soured.

I am not attacking CAHSR nor even the ultimate wisdom of using debt to finance CAHSR. I am calling you out on your assertion that new debt would be treated favorably.

Rafael said...

In all this discussion of debt, let's not forget that prop 1A bonds will not all be sold into the current mother of all bear markets. In fact, only a small fraction would be offered fairly quickly to support existing railroads and project-level EIR/S work by CHSRA.

The HSR project would not add $647 million in debt service load onto the 2010 budget. Instead, the burden would ramp up over the course of a full decade. Not only can California afford HSR, it should do so to help reduce the severity of the coming recession.

Only after the economy begins to recover should legislators start cutting services (e.g. shorter prison sentences) and/or raise taxes (e.g. on gasoline) to really balance the budget. That trade-off will be painful to make, but because of the credit crisis, right now is not the time to do so.

mike said...

The other advantage to building during a slump is, of course, that prices are low. There's a ton of excess capacity in the construction industry now, prices of key commodities have fallen considerably and are likely to continue to do so, and land costs, well, obviously those are much lower now than a couple years ago. So not only do you get crucial economic stimulus, but the taxpayers get a much better deal than trying to build the system during an economic boom.

mike said...

An aside: Almost every day, a new article comes out in some California newspaper about HSR/Prop 1A. For example, SJ Mercury just published a (fairly positive) article on Prop 1A. Each time a newspaper publishes an article, that is an opportunity to write a letter. Rather than spending all of our time on this blog, I would submit that each Prop 1A supporter should write one letter per day to a newspaper with positive, on-point comments regarding HSR.

That's what I have started doing, and if we all do it, hopefully one of the letters will get selected. Remember, shorter is better. If you can make your point in 150 words or less, the chance that they will run the letter is much better.

nikko pigman said...

When one fears defeat, cry "communist!".

This is an article on Keynesian Economics. Keynes was a US banker who argued for deficit spending to restart the economic sector (in this case referring to loaning money to the ruined European economy after WW1). He argued that it would ultimately circulate back and help the US in the long run.

http://en.wikipedia.org/wiki/Keynesian_economics

Anonymous said...

nikko pigman said...

When one fears defeat, cry "communist!".

Well I would think the observation from the San Jose Mercury article that in 1994, during a financial crisis much less intense than this one, all the bond propositions went down to defeat. those weren't nearly as controversial as Prop 1A and much smaller in size.

I certainly at this stage, in opposition to Prop 1A, do not fear defeat.

Rafael said...

Kris Vosburgh argues that approving HSR would amount to blithely ignoring the fiscal realities of the state of California. His reasoning is actually sound at the level of the individual, which is why it sounds beguilingly sensible for the state as well.

Unfortunately, economists such as Nobel laureate Joseph Stieglitz tell us that governments sometimes have to act in counter-intuitive ways to achieve a chance of achieving the desired result. In an op-ed in Time magazine, he argues that "the original Paulson plan is like a massive blood transfusion to a patient with severe internal hemorrhaging." Conservative ideological rigor almost led to a misallocation of $700 billion of taxpayer money. Even taking equity stakes in banks is a poisoned chalice if you consider that Wall Street bankers are still awarding themselves $70 billion in bonuses for 2008.

Stieglitz presents a five-point plan for dealing with the crisis. Step one is now being enacted.

Step two calls for a reduction in the foreclosure rate to buy time and, to prop up the values of adjacent properties. Negative equity is a strong incentive to default on a mortgage and/or to massively cut back on discretionary spending. This amplifies the foreclosure crisis into a full-blow recession. One possible mechanism Stieglitz does not discuss is foreclose-to-rent, which allows tenants to remain in their homes while banks to generate at least some cashflow from their assets.

Step three echoes other economists like Michel Roubini: a massive federal public works program in infrastructure and new technology, intended to limit spending cuts at the state and local levels in response to declining tax revenue. Of course, construction jobs will allow workers in that industry to keep paying their mortgage or rent (see step 2).

California's high speed rail projects (prop 1A) is ideally suited to capture a slice of a federal deficit spending package, which is looking more likely with every passing day. It deserves to pass, for this and the many other reasons that have been discussed on this blog and elsewhere in recent months.

Anonymous said...

What has happened to the discussion of this project lately is the discussion has moved from a discussion of the project per se, to a discussion of the fiscal crisis the State and the Country is now immersed.

Robert talks about defeating the new "Hoovers". He won't recognize that the history of the 30's was one where huge WPA projects did ease the depression but certainly did not take the country out of depression. Only World War II accomplished that.

Now we are hardly right now in a depression. What may happen in the future no one can say for sure, but to be promoting this project as it must be approved because we need to get out of this fiscal crisis in not appropriate.

In any case, those kinds of projects need to be instituted at the Federal level. The Feds can literally print money; thank heavens the State doesn't have that ability. The State by constitutional law must approve balanced budgets. To my way of thinking, the State's budget is hardly balanced. It is contrived; it would never pass accounting standards for publicly listed companies.

Now here is a project that from the beginning has never been about moving people from from the south to the north. One only need look at the routing and see all those bends so that the train will pass through the urban areas of the central valley to understand what this is all about. The project is welfare for the central valley. This project is a dream project for developers and land speculators. The project has been led by politicians who are only interested in feathering their own nests. When a highway was built to move us from south to north, I-5 was built. Look at its routing. Pretty straight isn't it? That was a project designed for moving people and freight efficiently and has accomplished its goal.

How many faults does one have to point out in order to get voters to recognize this project for what it is. It is a boondoggle, as many media publications have written. No business plan. A route from San Gilroy that is not available, since it is owned by another RR, and they won't allow it usage.

No, this is bummer. Kill it. Vote No on Prop 1A.

Spokker said...

"When a highway was built to move us from south to north, I-5 was built. Look at its routing. Pretty straight isn't it?"

Yeah, and the I-5 doesn't serve Bakersfield, Fresno, Modesto, Merced, San Jose or San Francisco directly. The I-5 has highways that feed into and out of it. Interstate 5 was also built in the 50s in an extremely pro-automobile environment.

And if we build HSR in a straight line, from LA to SF, like the I-5, are other cities going to vote for LA-SF's rail line? The point of the routing is to get as many cities on-board as possible while still maintaining high speeds.

I don't think we could accomplish building this system piece by piece because our legislature is gutless and people will not vote for something that does not directly benefit them.

I don't like that it has to be all or nothing, but the reality is that it's the best shot for building high speed rail in this state.

Spokker said...

Is this about CAHSR serving Palmdale or something? Whoever wrote this in the Wikipedia page for California State Route 14 covered it well I think.

"Rapid exurban growth in Santa Clarita, Lancaster, and Palmdale has made the Antelope Valley Freeway one of the most congested in southern California, with average rush hour speeds well below 20 miles per hour (30 km/h). In response, the government of Palmdale has successfully campaigned for the proposed high-speed rail line between Los Angeles and San Francisco to follow the Antelope Valley Freeway's right-of-way and stop in Palmdale before crossing the Tehachapi Mountains at Tehachapi Pass. Such a route would add 20 minutes to the train's travel time between Los Angeles and San Francisco"

Yeah, what basically amounts to "OUR FREEWAY F'ING SUCKS. PLEASE BUILD US A FAST TRAIN FOR THE LOVE OF CHRIST" sounds a lot like these sinister land speculators! The routing will impact MY ride from LA-SF, since I have zero reasons to go to Palmdale.

But my mantra ISN'T, "Hey, I got mine. Fuck 'em." I'm voting yes on Prop 1A.

Rafael said...

@ spokker -

the official reasons for choosing the detour via Palmdale:

a) CHSRA conducted extensive computer-aided variation modeling of possible alignments out of the LA basin based on what is known about the geology near the I-5 Grapevine and Tehachapi Pass. The results showed only a single viable alignment featuring both short tunnels and at-grade crossings of both the Garlock and San Andreas faults. There were many such variations for Tehachapi. Since current knowledge of the geology at small scales is imperfect, Tehachapi represents a far lower construction risk.

b) the one and only viable I-5 alignment also passes very close to a wildlife preserve near Lake Castaic

c) the city and county of LA wants to leverage Palmdale airport to relieve LAX, since nearby residents have blocked the construction of a new runway. In addition, it wants to leverage Ontario airport, one reason why the route to San Diego runs past Riverside.

d) the Antelope Valley is indeed one of the fastest-growing areas in Southern California, with a total population close to 1 million. Metrolink does serve Palmdale and Lancaster but it is slow.

The city of Palmdale has plans for some transit-oriented development, but the local geography favors sprawl. Hopefully, civic leaders there will consider the impact of becoming a bedroom community for LA, in particular on water distribution, electricity consumption for A/C and, noise issues that would limit the value of the airport. Strategically placed high-density housing would address all three risks and facilitate local transit.

Spokker said...

Thanks rafael.

I also favor the project going into Ontario and Riverside before heading south into San Diego.

The only real sketchy station placement related to this project was Los Banos, and that station is gone now. I'm glad it is.

Hopefully they can refrain from building Visalia and we can be all set.