In Defense of "Pork"

Highlights include Jacobs Engineering (JEC - Snapshot Report), Fluor (FLR - Snapshot Report), Emerson Electric (EMR - Analyst Report) and General Electric (GE - Analyst Report).

The economic stimulus package has come under attack by the opposition as being filled with "pork." Never mind that the specific projects mentioned as pork, in aggregate, amount to less than one percent of the whole package. Most of those have been stripped out of the bill already. However, the claim that they are not stimulative is simply nonsense.

Take for example the proposal to restore the National Mall. The National Mall is the center of Washington D.C., which is highly dependent on tourism. Do we want our national capital to look run down? That provision also included funds to shore up the retaining wall for the Jefferson Memorial. Do we want to see that crumble? Even leaving aside the fact that it would leave a better city for all its citizens and visitors, it would be stimulative. Or do the opponents think that the landscapes laying down the new sod would not spend their pay checks, or that their jobs don't count as employment?

Most of the spending in the bill does one of two things, if not both. It either directly causes employment to rise (for example, installing weather stripping and better insulation in homes and schools, directly employs those that are doing the work). Or it acts as an air bag, something that will allow the passengers in this vehicle to survive the crash we are going through.

Examples of this spending include the increases in unemployment benefits and the increases in food stamps. The people getting this assistance are by and large at the bottom of the economic ladder. They are most likely to spend it immediately and thus stimulate demand. This will help keep retail sales clerks employed as well as those that make the goods that they buy.

Most econometric studies have show that this sort of spending has the highest bang for the buck, or what economists call the "multiplier effect." Other "air bag" spending includes help to states and school districts that will help them avoid having to lay off people. Or do these opponents of the bill really want to see lots more unemployed teachers and prison guards?

Most states constitutionally cannot run deficits, and the economic downturn has devastated their tax base (mostly sales and property taxes). The only option, then, in the absence of federal assistance is to make deep cuts. In California, for example, even if the state work force was cut to zero, it would have a hard time balancing its budget. Those formerly employed state workers would join the ranks of the unemployed, would stop shopping, and thus state sales tax revenues would decline further.

Also, is the way to improve our long-term economic productivity as a nation to watch as hundreds of thousands of school teachers are laid off?  Isn't having an educated workforce a good thing?

Then there is the traditional infrastructure, the spending on roads, water and sewage systems, and mass transit. Infrastructure, almost by definition, is geographically specific. Thus from the point of view of someone in, say, Iowa, even the George Washington Bridge looks like pork. But stop for a second and think about the return on investment of that bridge, which was built during the Great Depression.

The tolls that are collected on it are but a fraction of its economic impact. To figure out what the real economic impact is, one would have to figure out what the toll rate was that would make people indifferent to either using the bridge or driving around the Hudson River (or I suppose use a private ferry). Yes there are other Hudson River crossings, but the same argument would apply to them. After all the Holland and Lincoln Tunnels were also public works projects.

Of course, to a New Yorker, the Golden Gate Bridge would also appear to be "pork." Of course, this does not mean that there are not wasteful projects out there, but building $300 million bridges to almost uninhabited islands in Alaska is not the same thing as facilitating the movement of people and goods between major population centers. Another way of thinking about it, is what would be the economic impact if it were suddenly gone, say due to an al-Qaeda attack, or simple lack of maintenance leading to structural failure like the bridge in Minnesota?

This sort of spending would directly help companies like Jacobs Engineering (JEC - Snapshot Report) and Fluor (FLR - Snapshot Report). Spending on public works not only employs people in the here and now, but leaves things of value that improve the nation's productivity.

Or let's look at the spending for a better electrical grid. Right now there are still hundreds of thousands of people who do not have electrical power, due to that great "black swan" event, a snowstorm in January. You think that might depress economic output a bit? Besides providing business to firms like Emerson Electric (EMR - Analyst Report) and General Electric (GE - Analyst Report), spending on this will help prevent future blackouts, as well as facilitate more renewable energy, thus cutting down on our need for imported oil.

Honestly, the problem with the bill is that is does not have enough of this sort of spending.

So what is offered by the opposition instead?  More tax cuts, and those mostly aimed at the wealthiest parts of the country. This coming on the heels of the news that in 2006, when the opposition was at the height of its power, the 400 Americans with the highest incomes paid an effective tax rate of just 17%.

These sort of tax cuts are what got us into the problem, they are not a cure. However, they are red meat for their supporters. Perhaps they should learn to love the other white meat instead.