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On spending and jobs

What exactly was the point of this story?

About 600 workers already are on the job building the North, Southeast and East End lines, according Metro.

“This is an opportunity for Metro to create thousands of jobs in Houston for local contractors, construction workers, and engineers,” Mayor Annise Parker said in a recent blog post on her re-election campaign website.

In addition to direct hires for construction, Metro says light-rail projects will create other jobs as workers spend money, a process economists call a “multiplier effect.” Citing research by the U.S. Bureau of Economic Analysis, Metro President and Chief Executive Officer George Greanias said the agency’s $900 million in federal grants, nearing approval in Washington, is expected to create 18,000 jobs over six years ending in 2014.

“According to the bureau, for every $1 million you spend, you will create 20 jobs over the life of the project,” Greanias said.

But Barton Smith, University of Houston economics professor emeritus, said the multiplier effect doesn’t apply to local tax funds, which will pay for all of the East End line and part of the other two.

“We have to recognize the tax money you and I are spending to cover the cost of (locally funded) projects is money that won’t be spent on other things in Houston,” he said. “I’m a strong believer that any public investment ought to be judged on its own merits and not whether it’s a job creator.”

Where to even begin? First, Dr. Smith is specifically talking about local tax funds, but Metro is talking about federal grant money, which whatever else you may have to say about it didn’t have to be spent in Houston. Second, even if we were talking about local tax funds, not all such spending is equal from a job creation perspective. To cite a ridiculous example, we could take the money Metro is spending on the Harrisburg line, as that one is not receiving any New Start grant money, and use it instead to purchase artwork from the Menil Collection so they could be hung at City Hall. I’m pretty sure building the Harrisburg line would do more for employment than that would. Finally, since we are talking about spending money on new infrastructure, the benefit goes on past the time when the money is being spent on construction. That’s dicier to calculate, and less important when your focus is getting people back to work now, but it’s still an important consideration.

It’s also a consideration that Dr. Smith mentions subsequently in the story. My quibble isn’t with him, it’s with the bizarre way this article is framed. But there is another consideration that neither Dr. Smith nor the story’s author mentions:

Also, Smith said, this is a good time to do public-sector investment that’s needed because there’s a ready labor supply and construction costs are low.

One reason why construction costs are low is that interest rates are at historically low levels. It may never be this cheap to borrow money again. That makes the case for federal infrastructure spending stronger than for local infrastructure spending, since the federal government is not bound by artificial accounting deadlines for “balancing” its budget, but if you have any need for building new stuff or repairing old stuff, now is the time. And if you do it by floating debt instead of dipping into general revenue, you avoid the made-up conflict that was the basis for this story. See how easy that was?

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