Building roads doesn't build jobs

Posted: Feb 24, 2004 12:00 AM

All parents know that when they let children get away with something they know is wrong, the chances are good that the children will do it again and push a little further next time. Eventually, a crisis point is reached where parents must put their foot down and punish the bad behavior.

This is often traumatic because the children had been led to believe that they could get away with what they were doing. It would have been better for everyone if the parents had exercised discipline earlier.

In many ways, the president is like a parent, and Congress is the children. Especially on spending, the latter will always push for more. It is the president's job to say, "No." This always creates tension, even when the same party controls Congress and the White House, because specific spending projects often aid the re-election of particular congressmen and senators. But excessive spending is bad for the country as a whole, and Congress' allocation may not correspond to where the greatest need is. It is the president's job to look at the big picture and set national priorities.

Unfortunately, up until now President Bush has been like an overindulgent parent who has let her child get away with too much for too long. By not vetoing any bills and signing many that were far over budget, often stuffed with blatant pork-barrel provisions, he has set up a confrontation with Congress over the pending transportation bill. Bush wants one that spends no more than $256 billion over 6 years. But the Senate wants $318 billion, and the House of Representatives is pushing a $375 billion bill. Bush has promised to veto a bill that is more than $256 billion.

Many observers believe that the chances of a veto are very small due to the employment situation. The Hill, a Capitol Hill newspaper, predicts flatly that Bush will cave on his veto threat and sign whatever Congress sends him because new construction spending for highways and bridges will create 1.6 million jobs, "something that the president needs to stem Democratic attacks on national unemployment figures."

I think there is the chance of a veto, purely for show, but the final legislation unquestionably will be well above $256 billion. The Hill is right. It will make good stump speech material. Bush will be able to promise some new public works project at every campaign stop. Plus, he will be under inexorable pressure from his own party to support projects that will help elect congressional Republicans. They, too, will want to bring home the bacon for Election Day.

The kicker is jobs. Job growth has been unusually slow during this economic recovery and, although the unemployment rate is relatively low, it is an issue on which Bush is vulnerable. He would very much like to say that he will be creating 1.6 million new jobs by expanding transportation spending, even if the statement is untrue. Practically all his predecessors did the same.

There are many problems with the idea of creating jobs with public works spending. For starters, there are relatively few people working in highway and bridge construction, and their numbers have been rising, not falling. According to the Bureau of Labor Statistics, employment in this job category actually rose during the recession. There were 340,000 people working in this area in 2000, rising to 346,000 in 2001 and 2002. Employment fell very slightly to 341,000 last year.

Another problem is that unemployment is seldom highest where construction projects are being built, and the skills of the unemployed are unlikely to match the needs of road- and bridge-builders. Anyway, even if the transportation bill passed tomorrow it wouldn't create any jobs this year. The legislation only authorizes spending; the spending itself would still have to be appropriated. And even after it is appropriated, it will take months at least before the first dollar is actually spent and the first additional person is hired.

In the meantime, there is a downside. Historically, state and local governments have put their own transportation projects on hold when the federal government was considering legislation. They are always hopeful that some of their projects can be shifted over to the federal government and relieve them of the expense.

Furthermore, transportation bills are often financed by higher gasoline taxes that take effect before construction spending begins to flow. Thus in the short run, transportation bills are sometimes contractionary rather than expansionary. The House is now pushing for a 5-cent per gallon gasoline tax increase that could have exactly this effect.

For these and other reasons, economists are dubious about the employment effects of public works spending. As a 1998 Congressional Budget Office study put it, "Additional federal investment spending is unlikely to have a perceptible effect on economic growth."