Promoting a Second Stimulus with the Goal of Actual Job Creation

» Unlike the first stimulus, whose benefits will produce major investments in new transit systems and intercity rail, a second economic push could highlight operations support.

In case you missed the news, the first economic stimulus wasn’t a panacea for the struggling U.S. economy.

Unemployment, around 8% when the bill was passed last spring, has expanded to 9.6%, and the economy isn’t growing nearly as quickly as is necessary to increase employment too full-employment levels. Many economists have suggested from the beginning of discussions at the end of 2008 that the scale of the spending — at less than one trillion dollars — was simply not enough to offset the decline experience in the private sector thanks to the recession. With the original stimulus spending basically entirely accounted for, the government’s intervention has prevented an economic catastrophe, but that fact doesn’t provide much encouragement for the millions of people who want to work but can’t.

Since March 2009, there have been active discussions about the possibility of a second stimulus to address the limitations of the first. President Obama hinted at that possibility in his speech on the pull-out of U.S. troops from Iraq earlier this week, and Paul Krugman now suggests that the Administration may be planning to make a move next week. Its former pledge to “freeze” spending may have to be put off in response to a difficult economic environment. The scale of the proposal, which has absolutely no guarantee of passage, is likely to be far smaller than the first — but transport could play an important role.

The first stimulus prioritized mobility: Spending on highways, transit, and, most notably, high-speed rail represented $45. 2 billion in total expenditures, roughly doubling the typical annual federal commitment to transportation. Much of that money went to projects that were more about long-term goals than current job growth, however. For instance, as far as I know, none of the money to be spent on fast trains has yet been put into actual construction.

A second stimulus — more like a jobs bill — would have to focus on employment as its primary goal. In transportation, some have suggested that spending on transit produces more jobs than spending on highways, but a new study by the Transportation Equity Network (TEN) is even more specific: The best way to create new opportunities for jobless people is to invest in public transportation operations, like the running of buses and trains. That makes sense, since in essence paying for people to drive is the quickest and most reliable government jobs program. Construction projects take years to set up and much of the money goes to capital inputs, not labor.

If Washington committed to spending several billion dollars on transit operations, that money could be spent almost immediately on hiring people to drive and maintain systems all around the country. The result would be a fantastic increase in service levels, including in many cities that have had to cut the frequency of buses and trains in response to declining tax revenues. The benefits, thus, will be multi-faceted from the beginning, increasing transit offerings for the average rider and adding thousands of well-paying jobs.

The government currently has almost a blanket prohibition on the use of federal funds for the purposes of operations.

The TEN study suggests that a $5 billion investment in transit operations could result in the creation of 200,000 direct and indirect jobs over the course of five years. There would be nothing to complain about that result. And it would be hard for conservatives to claim that the public sector was stepping on the toes of private businesses, since they’re not involved in transit operations anyway.

I have suggested in the past that there are some negative long-term consequences of using federal money to pay for transit operations, especially since that commitment is not open-ended. We don’t want to give local and state authorities the impression that they can back off from their current spending on transit. On the other hand, from a socio-economic perspective, it may make more sense for Washington to entirely take over this aspect of transit funding, leaving the costs of construction for lower levels of government to tackle.

On the other hand, the government could choose to invest massively in construction projects like new high-speed rail lines or urban metro programs. Due to a decline in private sector activity, there is large unemployment in this industry that could be partially re-mediated with such spending. Yet with the exception of some bus rapid transit and light rail proposals, few proposed corridors are ready for immediate construction. If the goal of a second stimulus is to promote job creation, the simplest way to do so would be to spend on transit operations.

Whether the President’s call for more federal spending will receive any reception from a skeptical Congress is another issue. In this very much anti-government election year, it may be too much to ask for positive news from Washington.