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  • Sputnik Moments, Spending Cuts, and (Remember These?) Jobs

    The stand-off in Washington over spending reductions has pushed aside serious discussion about a far more pressing issue:  job creation.

    Granted, the country is long overdue for action on spending cuts. There is much that our government does that we can live without. Bureaucracies’ programmatic lassitude and congressional appropriators’ adolescent-like lack of discipline have contributed to our nation’s fiscal imbalance.

    To be sure, the federal deficit is heading into a crisis zone the likes of which the United States has never seen, and a fairly dramatic policy response is needed to fix it. But one overlooked way to improve the fiscal picture would be to spark economic growth. This is precisely what worked well in the 1990s, something for which both a Republican Congress and Democratic President could legitimately claim credit.

    But the focus on jobs and economic growth has been lost.

    Democratic leadership chooses to focus on a narrow, government-driven idea of job growth, deluding themselves – against the huge weight of evidence – that government can lead the job growth agenda through stimulus. Republicans have made spending cuts the backbone of their jobs growth strategy, and they have embarked on a campaign to convince voters that if we cut enough spending, investor confidence will return, employers will hire more people, and jobs will return.

    President Obama’s Sputnik moment was truly the stuff of science fiction, or at least the Truman Show, in which we all drive our Priuses from our homes to the train station down the street on our way to work or the gym in a carefully planned world that will – voila! – create millions of jobs.  Republicans, for their part, have been primarily focused on non-defense discretionary spending – that part of the federal budget that accounts for only a little more than a third of all spending and which, if you removed all of it, would still leave the entitlement programs intact that add most to our debt and deficit. After the work of the scalpel is done, Republican theory goes, enough space will be cleared up in the economy for Adam Smith’s invisible hand to start generating jobs in an Austrian school-like spontaneous order, which will generate jobs…and so on.

    Now, to their credit, Republicans have begun talking more seriously about introducing entitlement reforms this year that would address the more serious deficit issues. Given the bipartisan nature of President Obama’s debt commission, the plan should get the support of at least some Democratic members, even if the President and Democratic congressional leadership shove it aside.

    But however much GOP congressional leaders might be wising up on addressing the deficit through fiscal restraint, they are AWOL on addressing it through job creation and growth, without which deficit reduction is much, much more painful.

    Voters know this at some level. In a poll of self-identified conservative Republicans at ConservativeHome.com, a site I edit, respondents are eager to see deep spending cuts, but they also give Republican lawmakers low marks on job creation and economic growth. In a poll we conducted last week, nearly half (49 percent) of respondents said they thought Republicans had been doing a good job of pushing for spending reductions, but 69 percent said Republicans were not doing a good job of explaining what they were doing to create jobs. The party of growth and opportunity has not even convinced its most ardent supporters what it is doing on the economy.

    Meanwhile, Gallup’s numbers this past week painted a troubling picture amidst slightly good news. While their survey showed an unemployment drop from 10.9 percent to 9.8 percent in the past year, this came mostly from gains among the most and least educated. Middle America remains pretty much stuck where it was. And then, as if to pour salt in a wound, Gallup released numbers three days later showing deterioration in jobs numbers in February compared to January.

    We can’t keep going on pretending stimulus, on the one hand, and spending cuts, on the other, are a viable economic growth strategy. There needs to be a realistic plan put forward and the party whose candidate figures this out will win the White House in 2012.

    The plan should consist of at least the following:

    First, tax reform. The President’s debt commission put forward some really good ideas. The best idea winning the most bipartisan support is reforming the corporate tax code. Rather than being a giveaway to big business, lowering America’s ridiculously high rate is the most proven way to create jobs. The OECD, not some right wing group, has concluded this after studying the issue across a number of countries. Also, simplifying the tax code by getting rid of costly deductions would help.

    Second, make it clear what being too big to fail means so investors will know, and start putting more capital into businesses that will create jobs. Luigi Zingales at the University of Chicago has a good idea about clarifying the current financial reform bill along these lines.

    Third, make energy the central component of a growth strategy. The U.S. has the capacity to become a net exporter of natural gas and to re-start a generation of nuclear power production that would make us less dependent on nonrenewable energy. We would also be greener in terms of carbon emission and would create jobs.

    Fourth, build more roads. Forget about those train tracks. We should be scraping together every unused stimulus dollar and wasteful penny of DOT funding to add lanes of highway to our most congested areas. Facilitating commerce and reducing lost revenue due to traffic congestion will also have the benefit of creating needed jobs.

    This would be a start. Whether anyone will take up the challenge is another issue.

    Ryan Streeter is Editor of www.ConservativeHome.com.

    Official White House photo by Pete Souza.

  • Rahm Emanuel Wins The Right to Confront Chicago’s Problems

    Rahm Emanuel has won Chicago’s Mayoral election. He now must confront Chicago’s massive problems. The Chicago Sun-Times is already grim:

    Rahm Emanuel’s Round One victory gives him a running start on confronting problems so severe, the painful solutions could seal his fate as a one-termer.

    Whether Emanuel can avoid a one-and-done scenario — assuming he even wants to serve more than four years — will largely depend on how he tackles the biggest financial crisis in Chicago history.
    The city is literally on the brink of bankruptcy with a structural deficit approaching $1 billion when under-funded employee pensions are factored in.

    Mayor Daley borrowed to the hilt, sold off revenue-generating assets and spent most of the money to hold the line on taxes in his last two budgets. The city even borrowed $254 million to cover back pay raises long anticipated for police officers and firefighters.

    Last night’s election results could be a preview of Emanuel’s coming conflict with Chicago’s city workforce. Emanuel lost in some important wards where powerful city workers live. The government unions feel Emanuel might be too willing to cut their benefits and pensions. Alderman Ed Burke, Chairman of Chicago’s Finance Committee, will now be Emanuel’s biggest short-term problem (Burke’s 14th Ward didn’t support Emanuel). Does Emanuel have the votes in City Council to remove Alderman Ed Burke from his committee post? It’s too early to tell. Will Emanuel and Burke cut a deal?

    The new census numbers showed Chicago with population loss of 200,000 from 2000 to 2010. These Detroit style numbers show Rahm Emanuel will need all the help he can get. Chicago is in decline.

  • A $53 Billion High-Speed Rail Program to Nowhere

    Vice President Joe Biden announced today a plan to spend $53 billion over the next six years on passenger high-speed rail projects that will help reach the goal of giving 80 percent of Americans access to high-speed rail within 25 years. According to the announcement, the proposal will place high-speed rail "on equal footing with other surface transportation programs." The initiative includes $8 billion in the President’s FY 2012 budget proposal, of which $4 billion will be focused on building new infrastructure and $4 billion will be dedicated to system preservation and renewal. The announcement makes no mention how the plan will be paid for.

    Congressional reaction to the announcement was immediate. House Transportation Committee Chairman John Mica (R-FL) and Railroads Subcommittee Chairman Bill Shuster (R-PA) issued a press release expressing "extreme reservations" regarding the Administration’s plan. Several congressional sources we reached for comment pronounced the Administration initiative "dead on arrival."

    "What the Administration touted as high-speed rail ended up as embarrassing snail-speed trains to nowhere," Mica said. "Rather than focusing on the Northeast Corridor, the most congested corridor in the nation…the Administration continues to squander limited taxpayer dollars on marginal projects," Mica added. "This is like giving Bernie Madoff another chance at handling your investment portfolio."

    Rep. Shuster was equally critical. "The Administration continues to fail in attracting private investment, capital and the experience to properly develop and cost-effectively operate true high-speed rail," he said. "Government won’t develop American high-speed rail. Private investment and a competitive market will." Shuster was also critical of the manner in which the Administration has administered the program. "Selecting routes behind closed doors runs counter to the Administration’s pledges of transparency. … High-speed rail funding could become another political grab bag for the President. …If the Obama Administration is serious about high-speed rail, they should stop throwing money at projects in the same failed manner."

    The strong condemnation by two leading congressional transportation spokesmen poses a serious obstacle for the Administration’s proposal on Capitol Hill. They are not alone. House leadership has called for cancelling the high-speed rail program as part of its deficit reduction plan.

    Opposition from governors and state legislatures adds another hurdle to the Administration’s plan. Without state support high-speed rail projects cannot go forward. But, as we have seen, the governors of Wisconsin and Ohio have declined to participate in the Administration’s HSR programs. Other governors, concerned about potential operating subsidies, open-ended risk of construction overruns or unable to raise the required matching funds, may do likewise.

    Florida’s Gov. Scott, in introducing his budget proposal on February 7, offered a hint about his thinking, that makes HSR boosters uneasy. "Over the last few years,’ the Governor said, "Florida accepted one-time hand-outs from th federal government. Those temporary resources allowed state and local governments to spend beyond their means. There was never any reason to think that Florida taxpayers could afford to continue that higher level of spending once the federal hand-outs are gone. The false expectations created by the federal hand-outs are the reason we hear about a multi-billion dollar deficit." The words "high-speed rail" and  "operating subsidies" were not mentioned, but the implication was clear.

    Several other high-speed rail projects are in danger of collapse because of stringent conditions demanded by the Federal Railroad Administration (FRA)— conditions that the host railroads find unacceptable. As reported by the respected railroad observer Fred Frailey, high-speed rail projects in Washington State, North Carolina and Virginia, totaling $1.4 billion in HSR grants, are in jeopardy because the service agreements negotiated by the states with Class 1 railroads have been rejected by the FRA as not strict enough. At the core in each case is the railroads’ insistence that passenger train operations must not interfere with freight operations and their refusal to accept penalties for potential delays suffered by passenger trains.

    If these projects fall through, there will be little to show for the $10.5 billion HSR program other than a 48-minute reduction in travel time between Chicago and St. Louis as a result of an ongoing project with Union Pacific (see, "The Uncertain Future of the High-Speed Rail Prgram," InnoBrief, January 5, 2001). It is revealing that the only example the White House announcement chose to highlight  was a $38 million program of track improvements between Portland and Brunswick, ME to permit a 30-mile extension of the five Downeaster round trips to and from Boston at slightly increased speeds, as Frailey pointed out.

    Given this meager progress, given more than ample evidence of congressional and state-level opposition, and with so many, much more deserving infrastructure needs awaiting federal support (incl. rail in the Northeast Corridor), one wonders why the Administration has chosen to doggedly pursue its unrealistic vision of a nationwide high-speed rail network. We hope Congressmen Mica and Shuster will try to get some answers.

  • The President’s Unserious Proposal

    "Within 25 years, our goal is to give 80 percent of Americans access to high-speed rail." With this ringing statement in his State of the Union address, President Obama injected new hope into the flagging spirits of high speed rail advocates. Predictably, spokesmen for industry associations, progressive advocacy groups and other stakeholder interests praised the President’s goal as a symbol of his renewed commitment to support investment in infrastructure. But hardly any one we spoke to at the TRB meeting took the President’s ambitious goal seriously.

    "After listening to President Obama’s remarks on high-speed rail, I am left with more questions than answers," observed Rep. Bill Shuster, Chairman of the Subcommittee on Railroads of the House Transportation and Infrastructure Committee, who addressed the TRB Committee on Intercity Passenger Rail. "These promises mean little and the White House knows it," observed a railroad industry consultant attending the meeting, "it’s not within Obama’s power to commit future Administrations and Congresses to this pipe dream." "The President is out of touch with reality; where does he think the money will come from?" was a succinct reaction of a former senior U.S. DOT official.

    Lack of a Financial Plan

    There is good reason for these expressions of skepticism. Although some likened President Obama’s expansive vision to President Eisenhower’s historic call for a 42,000-mile Interstate Highway network, there is a vast difference between the two initiatives. The Interstate Highway proposal was backed by a reliable and steady revenue stream in the form of a federal gas tax. The high speed rail goal lacks a financial plan. It is not supported by a dedicated source of revenue that could maintain the program on a self-sustaining basis over a period of years. Nor can the Administration count on borrowed money or annual appropriations out of general revenue in the current political environment in which deficit reduction rather than new spending is the top congressional priority. Calling expenditures on high-speed rail "investment" does not obscure the reality that we would be spending money that we do not have. As if to underscore this point, the Congressional Budget Office announced on January 25 that this year’s federal budget deficit of $1.5 trillion will be the biggest one in history and the largest as a share of the economy since World War II. "Obama’s proposal is likely to land with a dead thud on Capitol Hill," opined National Journal’s transportation editor Fawn Johnson.

    States’ Ambivalence

    A second reason for skepticism is the ambivalent attitude of the states toward high speed rail. As Federal Railroad Administrator Joseph Szabo, speaking at the TRB meeting, correctly pointed out, the high-speed rail initiative is a state-driven program. Hence, support of governors and state legislatures will be essential if the Obama vision is to succeed. But, as we have seen, several fiscally-strapped states (Wisconsin, Ohio, Iowa) have declined to participate in the Administration’s HSR program while Florida’s Governor Scott still has to be heard from.

    Other governors and state legislatures may well follow their example should they conclude that high-speed rail projects will burden their constituents with massive annual operating subsidies and possibly open-ended risk of construction overruns. The protracted and still inconclusive track-sharing negotiations with the Class 1 railroads suggest that more than one state is having second thoughts about the wisdom of proceeding with these projects (at least on terms demanded by the Administration). About one-half of the dedicated HSR funds still remain unobligated according to the latest Federal Railroad Administration report.

    Fred W. Frailey, a respected writer and commentator on the railroad industry and author of Twilight of the Great Trains thinks that enthusiasm for high-speed trains has peaked and is on the wane. Writing in the current (March) issue of TRAINS, Frailey says the collapse of support is not merely a partisan event. Election results suggest that the public was never really won over. Nor will the Association of American Railroads or its member railroads fight for HSR. "So anyway you cut it, the high-speed show is over," Frailey concludes.

    A Fresh Congressional Posture

    This does not mean that fast trains will have no role to play in America’s future. There is a need to diversify travel alternatives in crowded travel corridors to accommodate future population increases. But, as a congressional hearing in New York City on January 27 made clear, federal efforts should be refocused on places where passenger rail investment is economically justified and where there exists a potential of sufficient ridership to attract private capital. As Congressmen Mica and Shuster correctly concluded, this means concentrating on the densely populated and heavily traveled Northeast Corridor with its serious air traffic congestion and well-developed urban transit distribution networks in major metropolitan areas.

    A majority of the witnesses testifying at the hearing seemed to agree with the two congressmen. They included such influential advocacy groups as Building America’s Future (Gov. Ed Rendell and Mayor Michael Bloomberg), America 2050 (Petra Todorovich) and U.S. High Speed Rail Association (Thomas Hart).

    Thus, the need to involve the private sector and to focus on the Northeast Corridor as a matter of first priority could well emerge as the core elements of a new congressional posture on high-speed rail. Instead of lavishing money on projects in numerous states in an unrealistic and fruitless attempt to make high-speed rail accessible to 80 percent of Americans, Congress would use targeted financial incentives to attract private investment and encourage private sector involvement in a few corridors where high-speed rail service makes economic and transportation sense. The inducements could include long-term operating concession agreements, loan guarantees, tax credits, availability payments and other creative financing arrangements. Whether additional federal funds to bolster such a policy will be forthcoming in the deficit-conscious 112th Congress, remains to be seen.

    Ken Orski is Editor and Publisher of Innovation NewsBriefs, a Washington-based transportation newsletter in its 22nd year of publication.