Among economists on the other side of the political spectrum, Jason Furman Has always been one of my favorites. He has a new article in Foreign Affairs entitled The post-neoliberal delusionswho evaluates the economic policy of the BIDEN administration. In a number of specific cases, he supports Biden Administration’s policy. But Furman also evokes a number of concerns, including the following points:
The new economic philosophy that dominated during the Biden years emphasized the demand for supply. The concern about budget restrictions exaggerated and set his confidence in predistribution as a way to change the process of the macro economy. The promised policy that at the same time could transform industries, marginalized groups in tendering and recruitment methods could prioritize and serve broad social goals. Ultimately, these post-neoliberal ideology and supporters did not seriously enough considerations, working under an illusion that previous policy makers were too obliged to make economic orthodoxy to make real progress for people. . . .
However, new ideas about these old problems will never result in successful policy if they reject budget restrictions, cost-benefit analysis and considerations. It is great to question economic orthodoxy. But policymakers should never again ignore the basic principles in the pursuit of imaginative heterodox solutions.
Furman also has a very informative Twitter -thread This includes a few graphs that have been omitted outside the article. This caught my attention:
There are two ways to convert nominal variables into real variables. An approach is to leave a nominal variable empty by an index that measures the total costs of living, such as the CPI. Another approach is to end nominal expenses due to changes in the price of the specific variable that is being considered. Furman used the latest approach here, which seems to be appropriate in this case.
How do I know that Furman was not emptied by the CPI? Look at the divergence since 2020. The nominal spending on highways have risen around 50%, from around $ 100 billion to $ 150 billion. The real expenses fall by around 10%, from $ 100 billion to $ 90 billion. That around 60% divergence is much larger than the increase in the total price level since 2020, which is closer to 20% or 25%.
How can we explain this great divergence? One possibility is that delivery restrictions make it difficult for the US to dramatically increase the highway construction in a short time. If the government then implements a rapid increase in nominal highway expenditure, the immediate impact is usually higher construction cost inflation, no longer highway production. It is as if 100 people try to squeeze a narrow door at the same time. Note this is not just a matter of how much highway a construction company can produce; Limitations can also mean that getting environmental permission for new projects, meeting mandates to use trade union work, achieving various “diversity” benchmarks and/or other types of regulations.
In my opinion, the most effective way to get more infrastructure is not to issue huge funds on new federal programs. Money is most efficiently spent when it is collected at the local level. Instead, the best way is to promote more expenses for infrastructure, reducing legal barriers such as environmental impact statements, policies of “American American”, trade union mandates and other obstacles to cost efficiency. If we drastically reduce the costs of building infrastructure, local authorities would have an incentive, even without federal help.
New York City is often richer than Chengdu, China. Nevertheless, in the past 15 years, Chengdu has built the world’s third longest metro system, a time when New York spent a lot of money on a new metro line and achieved almost nothing. New York may want to bring Chengdu building companies and employees here to replace their substandard metro system with the type of modern, clean and efficient system they have in Chengdu. This does not have to include “immigration”-they can use temporary employees in Singapore style.
Ps. I don’t know how much the Chengdu system costs to build, but AI overview suggests that the metro construction in China costs around $ 140 million per kilometer. In that case, the 634 km system from Chengdu may have cost around $ 90 billion. In NYC, Metro extension costs almost $ 1.5 billion per kilometer.