Postrel, highways and jobs

One of the great things about blogs written by professional journalists is

that they often contain a lot more information than gets printed. Newspaper

columns, by their very nature, have to be a certain length and accessible to

a wide audience. Blog entries, on the other hand, can provide lots of extra

information which didn’t make it into the paper. Daniel Radosh

regularly regales us with things which got cut from articles of his in print;

when Dan Drezner wrote his Foreign

Affairs piece on outsourcing, he blogged

all his sources.

Virginia Postrel is completely different. She has a column in the New York

Times, and generally gives us much more information there than she does into

her blog entries, which she uses basically for expressing opinions.

Recently, Postrel has devoted both her NYT column and many blog posts to the

subject of federal highway funding. We first heard about it in this

post, entitled "Gullible Reporter Alert", in which she excoriated

the AP’s Jim Abrams for printing nothing more than "propaganda" on

the subject of road-building. The article

was certainly one-sided, and seemed to accept as an article of faith that spending

more money on US motorways is a Very Good Thing. But Postrel didn’t really fisk

it: she just complained that Abrams didn’t provide any sourcing for the claim

that 47,500 jobs are created for every $1 billion invested in federal highway

and transit programs. Then, she told us to wait for her own article on the subject,

forthcoming in the New York Times.

Right on schedule, the

article arrived. It was headlined "Does Highway Spending Really Pay

Off?" and it asked how much economic benefit the US actually receives from

this expenditure. Based on an article in The Journal of Urban Economics, Postrel

claimed that the rate of return on infrastructure investment has fallen from

15% in the 1970s to less than 5% today.

It’s a good argument, and a good column: it provides ammunition for fiscal

hawks on both sides of the political spectrum who hate to see government spending

spiralling out of control even as the Bush administration continues to push

further tax cuts.

It doesn’t, however, say anything at all about jobs.

But Postrel was on a roll at this point, and soon published an email she received

from a reader, bringing up that jobs number once again. The anonymous correspondent

cited an even more anonymous "expert" at the Congressional Research

Office, saying that "the figure was basically a garbage number that was

cooked up for a DOT study in the mid-90s".

Then, yesterday, Postrel got an email from Arthur Jacoby, the alleged number-cooker.

She blogged it,

she said, "in the interests of fairness": not, one notes, in the interests

of actually getting to the bottom of the jobs question. Jacoby attached a Word

document which is precisely the source for the 47,500 jobs figure Postrel

was complaining that Abrams didn’t provide. It makes for interesting reading,

and breaks the jobs down quite explicitly: in the first round, 12,453 jobs are

created in the highway construction sector, along with 7,132 jobs in equipment

and materials supplying industries. Then, in the second round, 6,939 jobs are

created "because of the additional demand for inputs needed to expand output

in industries that supply highway construction materials". Finally, in

the third round, 21,052 jobs are created, reflecting "producer’s

response to an increase in consumer demand for all types of goods and services".

Of the 47,576 total jobs created, then, a good 44% are connected to highway

construction only in the most peripheral way. And, of course, all of these figure

come from a computer program – something called the JOBMOD income and

employment estimation model – which, like all economic models, will have

internal weaknesses and may or may not reflect what actually happens in the

real world particularly well.

But Postrel’s response to Jacoby’s email is fascinating: she doesn’t really

respond to anything he says at all. Rather, she snarks that "taxpayers

paid experts to come up with the calculation" – er, yes, Virginia,

would you rather that they hadn’t? and continues with this gem:

But it still doesn’t pass the smell test. Federal construction jobs pay more

than $20,000 each, and this isn’t the Great Depression; most people hired

would be doing something else if they weren’t building government roads.

$20,000, for those of you who are a bit weak on mathematics, is $1 billion

divided by 50,000 jobs, and it’s an utterly disingenuous figure. The fact that

Postrel printed it at all makes me doubt everything else she writes: it’s pure

rhetoric, with a "la la la I can’t hear you" relationship to the facts

that Jacoby provided.

For one thing, Jacoby makes it clear that the $1 billion is not really $1 billion

at all: by the time that state matching funds are added in, total government

expenditures are $1.25 billion. Then, the number of jobs created directly when

that $1.25 billion is spent on building roads is not 50,000, it’s 19,585. So

if you’re going to do any division here, try dividing $1.25 billion by 19,585:

the result is about $64,000. Which is much closer to how much jobs cost these

days, and which does "pass the smell test".

Moreover, Jacoby is surely right to include more than just the first-tier jobs

in his calculations. After all, if I’m spending billions of dollars on equipment

and materials, it stands to reason that demand – and jobs – will

be created in the industries which supply those materials. The third-tier jobs,

which are far more trickle-down, we might argue about, but (a) Postrel doesn’t;

and (b) they’re surely non-zero, in any case.

Postrel, however, doesn’t buy any of this. Rather, her "most people hired

would otherwise be doing something else" argument seems to imply that there

can never be any job creation in an economy with a relatively low unemployment

rate. If I’m hired by a construction company because they got a government contract

to build a road, has my job been created? Not if you’re Virginia Postrel, it

hasn’t: if I’d otherwise be flipping burgers or designing software, then my

job laying tarmac somehow doesn’t count.

What’s more, there seems to be an implication in Postrel’s argument that every

job created building roads means one less burger flipper or software developer

elsewhere in the economy. Let’s say that I stop flipping burgers and start laying

tarmac when the government contract hits town. OK, if you’re just looking at

me, I had one job before and I have one job now, so employment hasn’t gone up.

But when McBurgers hires my kid sister to replace me – and it surely will,

given the $1 billion boost my local economy has just received – total

employment has, in fact, gone up.

Postrel doesn’t stop there, however. Check out her very next sentence:

Keep in mind that these job projections are not based on the assumption

that highway spending is investment that increases productivity. (Her emphasis.)

This is just hilarious. The implication, to those people who haven’t been following

the story on her blog over the past couple of weeks, is that the "highway

spending increases productivity" argument is better than the "highway

spending creates jobs" argument. She neglects to mention, of course, that

she’s just written an article in the New York Times comprehensively destroying

the "highway spending increases productivity" argument, while she

hasn’t, up until this point, addressed the quite obvious "highway spending

creates jobs" argument at all.

So how does she do it? Any ten-year-old can see that if the government comes

into town and gives thousands of people jobs building roads, then, well, jobs

are being created. Only an economist could possibly disagree:

They assume that the spending is jacking up employment directly through the

hiring of construction workers and indirectly through their spending. That

Keynesian story only works if you assume lots of slack in the system.

It certainly looks here that Postrel is characterising "jacking up employment

directly through the hiring of construction workers" as a "Keynesian

story". Of course, it isn’t at all. If I open one of Postrel’s beloved

nail salons, and hire half a dozen manicurists, then I have a feeling she would

agree I’ve just created six jobs. She wouldn’t tell me that those jobs are a

Keynesian story which only exist if there’s some mysteriously-defined "slack

in the system" (I think she means unemployment, but it’s far from clear).

When the government hires people, on the other hand, or gives money to construction

companies who hire people, then suddenly the spending is "Keynsian"

and therefore suspect. Yes, it’s possible to argue about how much of a stimulus

general government expenditure really gives to an economy and to the employment

numbers. But you can’t simply say that government spending never creates jobs

in both the public and private sectors: just look at the economy of the Washington

DC conurbation, where Postrel lives.

At this point, I feel I ought to say that, as an opponent of government pork

in general, I think that Postrel is right about the highways bill. What’s more,

I particularly dislike federal roads spending, because it hides the real cost

of America’s car culture and does enormous damage to the environment. I daresay

that spending $1 billion on the arts, say, would create even more jobs, with

much less collateral damage.

Do I think that the government should increase employment? Yes. Do I think

the government should do that directly, by spending money on programmes which

are labour-intensive? No. But does spending money on labour-intensive projects

create jobs? Of course. To think otherwise is to be blinded by idealism.

PS Virginia, if you’re reading this, can you please date your individual blog

entries? They’re timestamped on the main blog page, but not on the permalinks.

UPDATE: Postrel has responded

to this, and I’ve responded right back.

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