Sunday, January 29, 2017
Once Again Democrats Propose Jobs Bill That Won't Work
Their $1 trillion construction spending plan is supposed
to create 15 million jobs. Don’t count on it.
Senate Democrats on Tuesday unveiled a $1 trillion infrastructure plan, an 11-page blueprint that shovels money into roads, bridges, waterways, airports—basically anything that needs building or fixing, intended to boost jobs. In total, top Democrats said it would create 15 million jobs over the next decade—a number designed to appeal to President Donald Trump, who has made infrastructure investment and job creation a top priority.
Only one problem: That job estimate is wildly unrealistic.
To come up with that 15 million figure, according to Senate Minority Leader Chuck Schumer’s office, the Democrats used a 2011 report from the Council of Economic Advisers that estimated that every $1 billion in infrastructure investment creates about 13,000 jobs. (It’s unclear where the extra 2 million jobs per year come from—likely generous rounding.)
Unfortunately for the Democrats, and for any Republicans hoping to leverage spending into construction jobs, the economy has changed since 2011. Those numbers may have made sense back then, but they certainly aren’t applicable today—for a couple of reasons.
In 2011, the unemployment rate for construction workers hovered around 15 percent, while the overall unemployment rate was around 9 percent. So there were plenty of unemployed workers who would jump at a chance for a job rebuilding a road or fixing up a school. That’s not the case today: The unemployment rate for construction workers has plummeted to around 5 percent, while the overall unemployment rate is 4.7 percent. Those numbers are near what economists consider “full employment”—any lower, and inflation could start to rise. In fact, in the construction industry itself, experts are more worried about a shortage of workers than a surplus. Any massive investment in construction will start driving up wages, which will be good for the Americans in that industry, but will make everything else—those roads, as well as homes, schools, office buildings—more expensive for taxpayers.
Second, if the Democrats’ infrastructure proposal does provide a huge stimulus to the economy, its effects would likely be offset—deliberately—by the Federal Reserve. In 2011, the Fed had set interest rates at essentially 0 percent. If the government had launched a major infrastructure plan, the Federal Reserve would surely have welcomed it—in fact, Ben Bernanke, then the chair of the Fed, had been imploring Congress to do more to stimulate the economy. Today, however, the economy is in a much different position—unemployment is low enough that the Fed is worried about inflation.Facing a massive new government spending program, it would almost certainly raise its benchmark rate to prevent the stimulus from leading to a burst of inflation, cooling the economy down and negating much of the job creation in the Democrats’ plan.
That doesn’t mean a trillion-dollar infrastructure plan is a bad idea. There are good structural reasons to rebuild America’s roads, bridges and airports. And it’s possible that a future economic crisis will cause millions of construction workers to lose their jobs, forcing the Fed to drop its interest rate back to zero. In that case, an ongoing infrastructure investment could act as a safety net, ensuring that the construction sector continues chugging along even as the broader economy falters.
But right now, there are no signs of such an economic downturn on the horizon, although, to be fair, economists’ track record of predicting recessions is not good. Until that changes, the Democrats’ promise—or anyone’s promise—to create 15 million jobs through a $1 trillion infrastructure plan should be treated as highly unlikely to bear out in reality.