Tuesday, May 31, 2011

The National Economic Context for HIgh-Speed Rail. It's not a pretty picture.

News from Southern California.  They don't want it either.

Press-Enterprise Editorials
Rail delusions

Washington's refusal to let California rework high-speed rail plans is a clear signal: The Legislature should derail a poorly conceived project that threatens to become a hugely expensive boondoggle. California does not need to pour billions of public dollars into a train system built on fiscal fantasy.

Contrary to what the HSR promoters want you to believe, HSR is not the solution; it's a huge problem, economically.

When it comes to High-Speed Rail, context is everything.  The state of California is in deep financial doo-doo, among the worst states in the country.  The $10 HSR bond issue will add to California's debt burden at least one billion dollars annually, forever.

But, the bigger problem is the US economy which is expected to pay all the rest of the costs for California's HSR, costs exceeding $100 billion by the time it's said and done. 

Even the Democratic "paper of record," the NYT, is chastizing the Administration.  I happen not to agree with their prescriptions, but never mind.  The problem is dire, and pouring borrowed dollars into California, rather than repairing the fiscal crisis, will only exacerbate it.  And, that's true at both state and national levels.

It's one thing to invest in infrastructure that's essential, like water, and which pays for itself over time.  It's a totally other thing to build something that can only be used by the well-to-do and requires large subsidies forever.  It will not serve the largest number with the "greatest good."

If you think that this article has nothing to do with high-speed rail, think again.  It has everything to do with high-speed rail and whether we should be going ahead, or stop right now, before things get worse.

May 30, 2011

The Numbers Are Grim

A month ago, when an initial gauge of first-quarter economic growth came in surprisingly weak, many policy makers and economists expected the bad news to prove fleeting. But when revised data were released last week, the growth estimate remained stuck at an annual rate of 1.8 percent, compared with 3.1 percent at the end of last year.

More troubling in the latest figures, consumer spending — the largest component of the economy — was especially slow. Stagnant wages and higher prices for gas and food are squeezing family budgets, while falling home equity hurts consumer confidence. That suggests more bad news to come.

When consumers are constrained, so is hiring, because without customers, employers are hard pressed to retain workers or make new hires. A recent Labor Department report showed a greater-than-expected rise in the number of people claiming jobless benefits even as private-sector economic forecasts are being revised downward — both very bad omens for continued job growth.

Republican lawmakers have responded to renewed signs of weakness with a jobs plan that prescribes more of the same “fixes” that Republicans always recommend no matter the problem: mainly high-end tax cuts, deregulation, more domestic oil drilling and federal spending cuts.

The White House has offered sounder ideas, including job retraining, plans to boost educational achievement and tax increases to help cover needed spending. But its economic team is mainly focused on negotiations to raise the debt limit, presumably parrying Republican demands for deep spending cuts that could weaken the economy further while still reaching an agreement on the necessary increase.

The grim numbers tell an unavoidable truth: The economy is not growing nearly fast enough to dent unemployment. Unfortunately, no one in Washington is pushing policies to promote stronger growth now.

The sinkholes in the economy should be obvious. Most prominently, the housing market is still awful, and state and local government budgets are still a mess. Conditions apparently have to get worse before deficit-obsessed policy makers will be ready to address them, including with bolstered foreclosure relief and more fiscal aid to states. More delay would only imperil the recovery, such as it is. And without a strong recovery, it will be even harder to repair the budget. Continued hard times means low tax revenues and high safety-net spending.

If Washington won’t do what is needed to make things better, there are still things that can be done to try to keep the economy from getting worse.

The administration could work to ease the rules for refinancing mortgages owned by Fannie Mae and Freddie Mac, the government-run mortgage giants. Easier refinancings would lower monthly payments for potentially hundreds of thousands of borrowers in good standing, and in that way, free up spending money to boost the economy.

The Federal Reserve, for its part, must be prepared to continue measures to bolster the economy as needed, even if that means looser policy for longer than it originally planned. Democrats in Congress must lay the groundwork for an inevitable fight over extending federal unemployment benefits, which expire at the end of this year.
There’s a long way to go before the economy will thrive without government help.