Obama's Infrastructure and Jobs Plan
Economics / Infrastructure Sep 10, 2011 - 07:09 AM GMTBy: Richard_Mills
According to the Organization for Economic Co-operation and Development (ODEC) the combined economies of Germany, France and Italy will grow by under one percent this year. OECD forecast the US economy will grow at a 0.4 per cent annualized rate in the fourth quarter, while in Europe, the three largest economies (Germany, France and Italy) will contract by 0.4 percent over the same period.
The latest employment report compiled for the US Conference of Mayors by IHS Global Insight outlined economic growth and employment prospects for 363 major metropolitan areas - one in eight American cities will have no growth in jobs between 2001 and 2021.
According to the report:
- 48 major metropolitan areas will not return to their pre-recession peak employment levels until after 2021
- Forty six of those cities have had net job losses between 2001 and 2011, that's two lost decades of job growth
- 166 metropolitan areas lost jobs between 2001 and 2011
- Seventy eight metropolitan areas have had more than ten percent of their jobs wiped out
In the last two years federal, state and local governments have laid off close to 500,000 workers and there will be hundreds of thousands more. These layoffs are a self-perpetuating cycle - this is because, at the state and local levels, the layoffs are concentrated in the areas hardest hit by the economic crisis - the falling employment level cuts tax revenue from these areas so services are reduced, a reduction in services means more layoffs, less tax revenue, more layoffs.
The US Conference of Mayors employment report is based on extremely optimistic assumptions - the authors expect a growth rate of 3.5 percent in the second half of 2011, unfortunately the US economy is losing momentum and expanded at an annual rate of only .7 percent in the first half of 2011.
According to figures recently released by the National Association of Realtors the housing slump is getting worse - existing home sales fell 3.8 percent in May and were down 15.3 percent year over year - home values have fallen for nine consecutive months, dropping 7.8 percent over the past two quarters.
The Thomson Reuters/University of Michigan's measure of consumer sentiment fell, in July, to its lowest level since November 2008.
The Bloomberg Consumer Comfort Index has been stuck below minus 40 - the level associated with recessions or their aftermath - since the end of February.
Manufacturing is losing momentum, the Institute for Supply Management's factory index fell in August to 50.6 - less than 50 signals a contraction.
The Bureau of Labor Statistics reported, on Friday September 2nd, that the US economy did not generate any net new jobs during the month of August.
There are 14 million Americans out of work, there are 8.8 million Americans working part time who want full time work and there are six million Americans who have been out of work for at least six months. The unemployment figure the BLS reported on September 2nd was 9.1 percent of Americans out of work compared to 8.8 percent in March.
There cannot be, there won't be, an economic recovery until people are back to work. Any economic recovery without a corresponding increase in jobs is a false recovery and is not sustainable.
We have a global crisis in existing infrastructure
In a 2007 report, Booz Allen Hamilton estimated that investment needed to "modernize obsolescent systems and meet expanding demand" for infrastructure worldwide between 2005 and 2030 was about US$ 41 trillion.
Infrastructure spending geographically:
- Middle East $0.9 trillion
- Africa $1.1 trillion
- US/Canada $6.5 trillion
- South America/Latin America $7.4 trillion
- Europe $9.1 trillion
- Asia/Oceania $15.8 trillion
Infrastructure spending by sector:
- Water and wastewater $22.6 trillion
- Power $9.0 trillion
- Road and rail $7.8 trillion
- Airports/seaports $1.6 trillion
In January of 2009 CIBC World Markets issued a study that said a sharp deterioration in existing infrastructure could lead to as much as $35 trillion in public works spending over the next 20 years.
- North America $180 billion/year
- Europe $205 billion/year
- Asia $400 billion/year
- Africa $10 billion/year
The World Economic Forum's report, Positive Infrastructure, released in May 2010 finds that the world faces a global physical, hard asset, infrastructure deficit of US$ 2 trillion per year over the next 20 years.
US infrastructure
In 2009 the American Society of Civil Engineers (ASCE) updated their 2005 report on US infrastructure - no area rates higher than a C+. Roads, aviation, and transit declined in score while dams, schools, drinking water, and wastewater held at D or lower. One category, energy, improved, from a D to a D+. Below are the 2009 grades and new spending requirement:
- Aviation D
- Bridges C
- Dams D
- Drinking Water D-
- Energy D+
- Hazardous Waste D
- Inland Waterways D-
- Levees D-
- Public Parks and Recreation C-
- Rail C-
- Roads D-
- Schools D
- Solid Waste C+
- Transit D
- Wastewater D-
- America's Infrastructure GPA: D
- Estimated 5 Year Investment: $2.2 Trillion
The 2009 fiscal stimulus package - the American Recovery and Reinvestment Act (ARRA) - included $72 billion for infrastructure upgrades - enough to cover just six percent of the 5 year infrastructure deficit estimated by the ASCE.
Electrical Grid
ASCE's Report Card for America's Infrastructure gives the US Electric Grid a rating of D, its summary:
"The U.S. power transmission system is in urgent need of modernization. Growth in electricity demand and investment in new power plants has not been matched by investment in new transmission facilities. Maintenance expenditures have decreased 1% per year since 1992. Existing transmission facilities were not designed for the current level of demand, resulting in an increased number of "bottlenecks," which increase costs to consumers and elevate the risk of blackouts."
"Our grids today are more stressed than they have been in the past three decades. If we don't expand our capacity to keep up with an increase in demand of 40 percent over the next 25 years, we're going to see healthy grids become increasingly less reliable. Today, with the grid operating flat-out, any disruption--like the downed transmission line that sparked the 2003 blackout in the Northeast--can cripple the network." Kevin Kolevar, assistant secretary for electricity delivery and energy reliability at the Department of Energy
High Speed Rail (HSR)
"To attract new businesses to our shores, we need the fastest, most reliable ways to move people, goods, and information -- from high-speed rail to high-speed internet." ~ Excerpt from US President Obama's State of the Union address
Obama has called for eighty percent of Americans to have access to high speed rail by 2036 - currently no American has access to high speed rail.
A projection from rail proponents FourBillion.com indicates that building the 9,000 miles of high speed corridors identified by the U.S. Department of Transportation would:
- Create 4.5 million permanent jobs and 1.6 million construction jobs
- Save 125 million barrels of oil
- Eliminate 20 million pounds of CO2 per mile per year
- Reinvigorate U.S. manufacturing
- Generate $23 billion in economic benefits in the US Midwest alone
These new lines also require massive support infrastructure: stations, metro transport links in cities and modern signaling/safety systems.
"It is unacceptable when countries like China are building high-speed rail networks and gleaming new airports while more than a million construction workers who could be doing the same thing are unemployed right here in America." President Obama
Information technology (IT) infrastructure
IT infrastructure comprises the wireless spectrum and the high-tech machinery that allows us to link to each other electronically - especially broadband high speed internet.
The Phoenix Center for Advance Legal and Economic Public Policy Studies reported, in a study published October 2010, that ten Information technology (IT) sector jobs are created for $1 million in capital investment by the industry. The Phoenix center also said that median earnings in communications jobs are higher than average private sector jobs.
Deloitte has recently released a study that estimates that for every increase of $1 million in wireless broadband investment 15 new U.S. jobs are created.
Conclusion
On Thursday, September 8th, President Obama unveiled a US $447-billion jobs package that includes:
- Extension of payroll tax breaks
- Money to fix schools
- Aid for cash strapped state governments
- Road, rail and air infrastructure spending
In an effort to eliminate red tape and interparty wrangling President Obama has ordered several federal agencies - the departments of Agriculture, Commerce, Housing and Urban Development, Interior, and Transportation - to identify "high-impact, job-creating infrastructure projects" that can be expedited immediately and without congressional approval. Each department has been told to select up to three high-priority infrastructure projects that can be completed totally within the control and jurisdiction of the federal government.
"In keeping with a recommendation from my Jobs Council, today I'm directing certain federal agencies to identify high-priority infrastructure projects that can put people back to work. And these projects -- these are projects that are already funded, and with some focused attention, we could expedite the permitting decisions and reviews necessary to get construction underway more quickly while still protecting safety, public health, and the environment." ~President Obama
Infrastructure projects create jobs. But the number of jobs created or saved by the $25 billion in Recovery Act spending on roads was just 150,000 over two years.
Smart Growth America's analysis of federal spending from 2009′s American Recovery and Reinvestment Act (ARRA) show that funds spent on public transportation were a more effective job creator than stimulus funds spent on highways:
- Every billion dollars spent on public transportation produced 19,299 job-months
- Every billion dollars spent on projects funded under highway infrastructure programs produced 10,493 job-months
US infrastructure needs are real, improvements in this area are critical to long-term economic growth: good airports, roads, bridges and rails increase national competitiveness, lower costs of transporting goods and encourage investment.
But initiatives like payroll tax cuts, upgrading the electrical grid and the building of high speed rail and Information technology (IT) infrastructure will create more permanent high paying jobs than repaving roads and upgrading bridges.
Picking the right infrastructure projects will boost productivity throughout the US economy and massive stimulus packages that focus on creating jobs at home will, in this authors opinion, become very popular with all governments looking to generate massive employment and restart the global economy.
Is infrastructure, and how to profit from this soon to be dominant, global investment theme on your radar screen?
If not, maybe it should be.
By Richard (Rick) Mills
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