Ron Amundson’s Political Blog

The NYT interviewed some people, andtwo issues showed up in their article Practically Speaking – Small Businesses Critical of Stimulus Bills – NYTimes.com. Tax cuts, and a payroll tax holiday. In some ways, they make sense, but neither does much as concerns increasing demand in the short term, and cash flow wise, if one has enough revenue to benefit from a tax cut, cash flow may not be that big an issue. (Granted, its always an issue, and with reductions in operating lines of credit, a critical one for many, but a tax cut would have minimal effect).

The tax cut issue is related to supply side economics, which has proven not to work very well, especially as of late when demand is crashing. Now, it might stimulate investment… but will it be beneficial investment to help getting out of this mess? Thats the big issue. In most cases, I dont really think it will, as its on the supply side, and its pretty easy to invest in any number of non-beneficial areas. Ie, in most cases,  it would not be prudent to buy new capital equipment with a declining demand, even treasuries would have a better short term return, even with negative interest rates.

An alternate ideas is a FICA tax holiday on the employers side of the equation. That would reduce payroll overhead substantially, help with the cash flow aspect, would keep some people employed, as an investment in the future. Ie, rather than doing a RIF of 10%, make  it 3%, and invest the other 7% of employees into long term projects. It obviously doesn’t help with demand, but it would work wonders for keeping employees, and their institutional knowledge, plus upgrading and maintaining business infrastructure.

Granted, FICA is a sacred cow… but this is an investment which will have tangible and immediate returns… and if need be, rather than changing the marginal rates or capital gain rates, instead, leave them along, and cover the costs of the FICA tax holidy with them as is. Political suicide, probably, but its likely to have a huge return both short and long term.

I’ve seen reference to the 2009 Report Card for America’s Infrastructure in numerous news sources, but had to do some digging to find the actual source. Well,its there in the previous link. Obviously, the ASCE wants things fully funded, as their membership base would do very well financiall. However, beyond that, it is very clear infrastructure is in terrible shape. How many more I-35 collapses, or dam collapses, or even power grid failures (I should write a blog on that, its probably a good thing J6P doesnt know how bad things really are) will occur before action is taken.

Clearly, a $2.2 trillion dollar package for infrastructure alone is not going to fly, in part that the govt would rather throw such levels of money at Wall Street for the benefit of the few cronies, but also, there is not enough construction capacity to burn through that amount of activity in a reasonable time frame. That being said, the current funding levels proposed for infrastructure do not max out capacity, and in many ways, end up continuing with the bandaid process which has been used for years. Sooner or later something very bad is going to happen… unlike mark to finger in the wind accounting as was used by Wall Street, the damages from an infrastructure collapse will make the financial collapse seem miniscule.

Some years back, we were within minutes of loosing half the midwest power grid, fortunately good judgement calls, and some systems that worked kept disaster at bay…. but having multiple states without power for weeks if it were to happen in winter would no doubt result in substantial loss of life. Emergency backup is designed for short terms, and it assumes key infrastructure within a reasonable transport distance is available… 7 minutes, and the midwest would have been toast.

Next, look at Mississippi river transport, and even the St Louis seaway. A lot of that infrastructure is operating beyond its expected life span… and all it takes is one link in the chain, and now we have a huge problem with multiple cascading and far reaching effects.

Then brownfields… yes, they can be a real boondoggle for a wide range of reasons, imho mostly too much govt involvement and oversight on the technical and operational aspect causing huge costs, all the while running with minimal financial oversight. Go figure, but its not attractive to a finance type, but they attrack bureaucrats in huge numbers, with restrictions at every path. Hopefully the ASCE guys can apply pressure… the clean up needs to occur, and it needs to be safe, but one should never have to get a flat bed and crane for a day to take a piece of gear off the brownfield for a 15 minute repair, as it takes 2 weeks of paperwork to effect the repair on site.

And there-in leads the inefficiency of govt contracts and programs. The focus is often driven not on what is beneficial to the public whether it be optmization value via low cost, or short duration, but on what is beneficial to the politically driven govt bureaucracy… In the case of catostrophic failures, the govt can step in and work wonders as evidenced by the repair of the Oakland bay bridge after the earthquake nearly 20 years ago, or the I-35 bridge more recently. Contrast this with the current Eastern span replacement of the Oakland bay bridge… yikes.

No doubt infrastructure needs help, and a ton of it… but just how much can be done, how much it will help the economy, and if it can be soon enough before disaster ensues. All very difficult and challenging questions, the only thing for sure, is the status quo (ie bandaids) will result in failure for all of the above.