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Monday, October 11, 2010

Good deficits and bad deficits

We spent a couple of days recently in the company of some card-carrying members of the progressive majority in academe, from different parts of the country. One professor, who's writing a book about what we owe future generations, kept reminding all of us that not all deficit spending by government is bad. Lost in the rhetoric about bankrupting future generations, he said, are projects that will benefit those generations, and for which they should be willing to pay.

We can disagree about which projects meet that criteria, but in general, he has a point. One of the local tourist attractions we showed the group was the Bonneville Dam -- a great place to kill an hour or so on a rainy afternoon. I'm sure that when Roosevelt was talking about building that thing, he ran into some opposition, including fiscal conservatives. "But look how well it turned out," said our friend.

Don't worry -- we're not going to go all soft on junk like the Portland streetcar. And given that the city is $3 billion in the hole on pensions and retiree health care, a project would have to rank high on the durability scale to justify itself at this stage in Portland history. But we'll concede his point: that sometimes, deficit spending isn't a bad thing.

Comments (21)

Great Post

Many folks, radical conservatives in particular say government should be run more like a business. Agreed.

A business will borrow money when the future benefits of the project return more than the cost (including the cost of the capital expended). Government should operate the same way. Investment projects, like infrstructure, education etc can be debt financed when their benefits to the future are greater than their costs. This is not bankrupting future generations, it is enhancing their quality of life.

If governments borrows to finance current operations, or to provide tax cuts,or for semi-useless projects this is not prudent and it does burden future generations.

Debt is not the biggest way in which the current "Greediest Generation" in pushing burdens onto future generations. By polluting the environment and by reckless use of natural resources we are placing a far greater burden on generations to come then we are doing with the national debt. If those who express concern about leaving our children and grandchildren indebted were really sincere, they would be the most ardent environmentalists of all.

There is a difference between issuing bonds and running deficits. Even if I have enough money to pay cash for my house, I may have some very good reasons to get a mortgage loan.

And it's OK to issue bonds for "permanent" infrastructure projects (e.g. Bonneville). Sorry, Sam, a bioswale is not a permanent infrastructure project. Even worse is bankrupting the children with bonds to pay for current retirement obligations. Talk about getting nothing for something.

Oh well, we're spending our children's inheritance. Après moi, le déluge! Wipe hands on pants.

Even a fiscal conservative might want to see a new bridge built before the old one falls into the river. Objections are raised when the price doubles for silliness.

As a "fiscal conservative" I don't necessarily disagree with the premise that there is good and bad debt. The real trick is in evaluating which is which.

Over the past 30 years, the federal government has gone into debt for everything imaginable, most of which is annual operating expenses. Virtually none of the debt accrued has been for infrastructure. In the coming years, we can look forward to borrowing to pay retirement benefits, just as we are already borrowing to pay medical benefits.

The current Administration has dramatically increased the amount of "bad" debt while very slightly increasing the amount of "good" debt. It's unacceptable and unsustainable.

Good point. For what it's worth, things like the Streetcar aren't forward thinking or designed to be here for generations. I don't know a single person who thinks it's a good idea, and only a few knew it was even happening. Gone are the days when epic, forward thinking projects are planned years in advance. This city in particular applies bandaid to bandaid with no real remedy to problems real or imagined.

What goes? Bonneville was "good" infrastructure but the proposed NJ to NYC tunnel is "bad" according to Jack. The criteria seem to have been similar: financial mechanism (bonds and direct federal aid), anticipated long-term need. What have I missed in the argument that praised Gov. Christie?

"are projects that will benefit those generations, and for which they should be willing to pay."

I agree mostly with BPA, but sometimes these get to be more revenue-generation than public service (a la PWB.)

No, the Timbers and their ballpark won't benefit generations to come.

The BPA was modeled after the TVA. The issue was the privatization of electricity vs government control. Wendell Willkie ran against FDR in the 1940 election. He changed from democrat to republican not long before that and his background was with the holding companies(private). The running mate was Charles McNary of Oregon.

Referring to my previous commment, if there is really an established need (not just two sides ginning up arguments) AND this doesn't get to be a political favor / cost plus deal (like the Tram starting at

I mean you can always find a pro argument for any project and I think Christie wasn't convinced of either being valid.

Of course, it will cost 1000+ times its initial development to remove it in 10-30 years when the fishies win.

What have I missed in the argument that praised Gov. Christie?

The fact that the NJ-NY tunnel really isn't needed. There is already fine mass transit between New Jersey and New York City. More rail cars and ferry boats arguably may be needed (even that's subject to debate), but a new tunnel? That's just somebody's toy.

By polluting the environment and by reckless use of natural resources we are placing a far greater burden on generations to come then we are doing with the national debt. If those who express concern about leaving our children and grandchildren indebted were really sincere, they would be the most ardent environmentalists of all.

Sure. Hydropower isn't a "renewable" resource, and the Boardman coal plant must be shut down - so that the coal that provides most of the power required to run our "emissionless" streetcars and light rail "trains" can be shipped to China, where they'll burn it in a much more "environmentally friendly" manner than we. They get cheap power; we get their emissions: it's an environmentalist's dream!

"projects that will benefit those generations"

Sounds like Vera about the Tram.

A nostalgic look at Bonneville Dam or Timberline Lodge is a look at what is no longer possible with today's planners and enviros.

Heck we can no longer even build a Freemont or Glenn Jackson Bridge.
Neither of those would be possible today.

The CRC and Sellwood bridge plans are both needed.
The cost is made so high and design so defective that we have spent over $100 million in planning the Columbia River Crossing only to get a conceptual drawing of a bridge never before engineered or built with no idea how much it will cost.

The preferred Sellwood replacement bridge design has the same two current 12 ft driving lanes but add 18 1/2 feet in each directions for ped/bike crossing . Granted there is only 4 ft or so right now for ped/bike crossing. But do we need to increase that to 37 feet and no added driving lanes?
Currently 34,000 vehicle cross that bridge daily and the new one will have 37 ft for pedestrian and bike traffic and 24 ft for vehicles?

And down river that marvelous no vehicle bridge for the coming Milwaukie Light Rail.

What's a few billion in debt for future generations.

The BPA is a government enterprise which year and year out breaks even, repaying its treasury interest rate and principle obligations in full. In fact, its charter requires it to pursue financial self sufficiency. Many years it faces being privatized if it doesn't meet this requirement. So, this is kind of the exception to the rule most government tends towards waste. Compare this against TriMet's farebox revenue which covers only 20% of its operating costs while its employees get healthcare plans more than 50% higher than even other state government employees on average. So, you've picked out one of the rare exceptions for giving some positive feedback to deficit spending.

I would grant you this, though. When there is a run on the banks, the federal government's deficit spending on the financial sector is very useful in staunching an economic collapse. So, we do have to concede merit to some of the Keynsian arguments. No doubt about it.

a new tunnel? That's just somebody's toy.

I think that is the position of a minority that doesn't even include the NJ governor. There is currently a single rail tunnel (PATH aside) that is some 100 years old, has just two tracks and operates at capacity.

Agree with Mr. Clark except for characterization of the steps taken to prevent runs on banks as Keynesian. Saving the economy from an uncontrolled meltdown caused by spiralling out-of-control asset sales is more about protecting the currency (a monetary issue) than it is about spurring economic growth in the Keynesian sense.

As financially successful as the the Bonneville Power Administration has been over the years (at least those with wet winters) you don't have to look too far to find counter examples. There is always WHOOPS.

(PATH aside)

Why on earth would you put PATH "aside"? It's a major rail service, and it could expand its frequency of service.

Portland has no mass transit (Tri-Met aside).

Deficit spending only lasts until the bagholders quit buying your bonds. When the music stops, ALL the chairs get taken away at once.

It may not happen to the State of Oregon, it should not happen to the United States. It's already too late for the City of Portland.

"has just two tracks and operates at capacity."

Fine, raise the rates until it is jsut below capacity and use the exces to fund for a new rail line. I mean what the heck, PWB does it that way.

I would put PATH aside because that's where it is.

Après moi, le déluge!

Regina Spektor fan, GW?


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