In our present world of religiously held economic beliefs, agnosticism might be prudent. On one side, the advocates just want to cut taxes and reduce spending; on the other we have seen a stimulus package of dole-outs and "shovel-ready" projects that has done little to move the unemployment rate. It remains stubbornly around 9 percent. Of course the biggest "shovel-ready" project supported by both sides has been a bail out of bankers directly responsible for the mess in the first place.
In the meantime, the Fed has been busy pumping money at a rate that has the dollar hitting new lows in the currency markets and gold reaching new highs — the latter aided by near-zero T-Bill rates thereby negating the opportunity cost of owning it.
It all works to some extent — we are not in a tail-spin — but like Japan for a quarter-century, we can also imagine decades of life in the doldrums. The Keynesian answer to lack of aggregate demand has always been a stimulus package of monetary and fiscal measures. On the monetary front, the
near-zero interest rates are about as far as the Fed can go. And since the $787 billion stimulus package wound down (late 2010), the economy is not growing fast enough (quarterly growth rate last quarter was 1 percent) for necessary job growth.
Keynes, however, was particularly keen on investment in infrastructure. In difficult times with stubborn unemployment, the government becomes an employer of last resort. Government hiring injects income which starts a chain of events where the total effect is multiples of the original investment. The process is akin to seeding. Spending by the newly hired injects life into businesses, small and large, and over time propagates hiring in the private sector; all this activity in turn generates additional government revenue. GDP is over two-thirds consumer expenditures, and we need extensive seeding to create enough jobs and spending to move a stagnant economy.
It so happens, we have before us the possibility of a marriage between vast numbers of unemployed and a disintegrating infrastructure. The American Society of Civil Engineers (ASCE) issued a report card on infrastructure in 2009. Almost everything (aviation, dams, roads, schools, transit, waterways, waste water) received a grade of D-, D or D+. Slightly better were bridges (C) and rail (C-). Nothing received a grade of A or even B.
ASCE calls for "bold leadership and a compelling national vision", reminding us that our greatest infrastructure projects stem from Federal programs like the New Deal, the Interstate Highway System and the Clean Water Act. It calls for the Federal government to take the lead in developing a strategic vision that can be supported by other levels of government and the private sector.
Looking to the future, modernizing our obsolete passenger railroad system is a unique development opportunity. High speed rail makes journey times, city center to city center, competitive with airplanes up to a 1000 mile trip. The railroads are quicker for journeys less than 500 miles. This is a project that can transform the economic landscape creating a giant suburb of the Eastern Seaboard with expanded job, education and business opportunities. For the rust belt, connecting to Chicago and New York would take the
pressure off urban centers and spur regional development.
Rail travel also has a smaller carbon footprint. According to the International Energy Agency, transport pumps 6.4 billion metric tons of carbon dioxide into the atmosphere. Road traffic is among the highest contributors, electric rail substantially less. Reputable sources like Greengauge 21 seeking to advance high speed rail, claim its carbon emissions are roughly one-third of automobile and one-quarter of air travel.
High speed rail has also been an unqualified commercial success. Japan's Shinkansen is one example, the French TGV another. According to Michel Leboef, the head of major projects at SNCF the French national railroad, TGV is a victim of its own success with capacity problems on nearly all its routes. He advises setting aside spare space alongside the tracks for future expansion because, in his experience, usage has always overwhelmed forecasts.
China's current high speed rail network is already the world's largest. But it plans to invest a further $500 billion in present valuation. The goal is to have four north-south and four east-west lines comprising a 1200 km network by 2015. There is little reason for the U.S. to continue to lag far behind Europe, China and Japan, and suffer the consequences, other than a lack of will and leadership.
A joint study by Siemens and the U.S. Conference of Mayors highlighted some of the benefits. The small links planned in California, Illinois, New York and Florida are expected to generate another 150,000 jobs, take 5000 commuters off California roads, and pluck 12.3 million passengers out of the
skies by 2035.
Chinese trains have already topped 300 mph though regular running speeds are closer to 200 mph. But the next generation technology being planned and installed now are maglev trains. These float on cushions of air, are quieter, quicker, accelerate and decelerate much faster — so can reach optimum speed even on frequent-stop routes — and require much less maintenance. It would take visionary leadership from the public and private sectors to plan a 400 mph network of the latest maglev trains but it would transform and galvanize the United States much like the age of steam did in the 19th century.