The Recession Won’t Last Forever

The article about New York State’s decision to discontinue studying high-speed rail between New York and Buffalo is by itself not terribly surprising. Although Andrew Cuomo likes flashy public works projects, of which HSR is one, he is consistently pro-road and anti-rail.

The study released by the state sandbagged actual HSR on cost grounds – it did not provide any further analysis, and in two ways (lower average speed than most HSR lines, and a requirement for tilting) stacked the deck against it – but instead looked into medium-speed rail, with top speed of 110-125 mph, which is frequently misnamed HSR in the US. This, too, is not surprising. State DOTs have no idea how HSR works, and tend to make mistakes, not know how to do cost control, and so on.

What’s most surprising is the explanation for why not to do anything substantial: as one of the HSR proponents quoted in the article complains, “The State of New York is worried about making ends meet; the economy is not doing so great. That’s the reason in the short term.” Taking his argument at face value, the state is refusing to advance study of an HSR line because economic conditions are bad now, a decade or more before such line could even open.

The recession won’t last forever; if it does, there are bigger things to worry about than transportation. Other than immediate reconstruction projects, for which the environmental reviews are fast-tracked, major projects take years to do all the design and environmental studies. California has been planning HSR since the late 1990s. It intended to go to ballot in 2004, and after delays did so in 2008. HSR is scheduled to break ground later this year, assuming the state does not cancel the project. An HSR project for which planning starts now will start construction after the economy recovers not from this recession, but from the next one.

The recurrent theme in the article is the state’s preference for mundane over flashy projects, but rejecting HSR shows the exact opposite.Starting planning now costs very little. In fact, the best thing any state agency can do is keep planning multiple big-ticket project contingencies pending an infusion of money; this way, it can dust off plans and execute them faster if there’s a stimulus bill in the next recession. That’s long-term planning. Refusing to advance construction because it won’t start until long after Cuomo’s Presidential run in 2006 2016 isn’t.

Of course, the same goes in the other direction. Too many people, building on Keynesian stimulus ideas, want massive infrastructure spending now as a public works program. For example, Robert Cruickshank (and in comments, Bruce McF) argues for long-term benefits coming from the stimulus effect. Although construction in 2012-3 would have an impact, a multi-decade project spanning periods of both growth and recession should not rely on estimates of job creation solely from periods of recession. On the contrary, economic costs and benefits should be based on a long-term multi-business cycle trend.

I propose the following principles for interaction between business cycles and very long-term investment:

1. Assume your project will be undertaken in a period of close to (but not quite) full employment, in terms of both funding sources and economic effects, unless you specifically intend to advance construction in a recession.

2. If you want to use a recession to lock in lower interest rates, higher job impacts, or lower construction costs, make sure you have a shovel-ready project, or else try to advocate for better staffing at the requisite regulatory agencies well ahead of time so that they can fast-track it.

3. Treat fiscal surpluses coming from an economy at full employment as one-time shots rather than an ongoing situation that can be used for regular spending or tax cuts. Growth doesn’t last forever, either.

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36 Responses to The Recession Won’t Last Forever

  1. jim says:

    On this sort of thing, always look first at the Purpose and Need statement: “ways of introducing higher passenger train speeds”, “improve reliability, travel times, service frequency”, “Improve system‐wide on‐time performance”, “Reduce travel time”, “Increase the frequency of service”. I really don’t need to look at their analysis to predict their conclusion.

    • Alon Levy says:

      What phrases would appear in a Purpose and Need statement that leads to a conclusion that full-fat HSR is needed? “New travel options,” “transform statewide transportation,” “allow same-day trips along the corridor”?

      • jim says:

        This is the Purpose and Need for NEC Future:

        The Northeast region is served by an
        extensive intermodal passenger and
        freight transportation system of
        highways, airports, ports, intercity,
        commuter and freight rail, and public
        transit systems. However, that
        transportation system lacks sufficient
        capacity or redundancy to support local
        and inter-regional mobility needs,
        resulting in major congestion and
        delays. Many components of the system
        are in a state of disrepair or, worse, have
        reached the point of obsolescence.
        The need for the project is founded in
        the importance of mobility to the
        continued economic vitality of the
        Northeast region, coupled with
        projected population, economic and
        travel demand growth. Without
        investment, the limitations of the
        region’s transportation network will
        constrain the growth, competitiveness
        and economic development of the
        region.

        Rail is put on the same footing as the other components of the transportation network. It is competitive with air, for example.

      • jim says:

        So it isn’t the phrases. It’s the context. If the P&N talks about improvements to passenger rail service, the recommendation will be for minor cheap improvements to passenger rail service. If the P&N talks about how passenger rail can contribute to the total transportation system, then it’s possible that the recommendation will be for full fat HSR, or as close as constraints permit.

        Look at the slides at the link. They talk solely about passenger rail: how fast, how frequent, how many passengers. There’s no attempt to look at the impact on air or the Thruway. Nor is there any discussion of synergy with commuter rail. The blinkers were set with the P&N.

  2. Adirondacker12800 says:

    Refusing to advance construction because it won’t start until long after Cuomo’s Presidential run in 2006 isn’t.

    2006 wasn’t a Presidential Election year. 2016 perhaps? He’s been working all sorts of reverse Dale Carnegie magic in Albany, influencing people badly and making enemies. He’s gonna spend more time with his family and become an elder statesman like his father.

    • Alon Levy says:

      Yes, 2016. Sigh.

      Cuomo’s current approval rate is very high, so presumably he doesn’t need the state power brokers so much once 2015 rolls in and he decides America needs his leadership.

      • Nathanael says:

        Cuomo has been absolutely *awful*. He’s not just making enemies in Albany, he’s making enemies among the grassroots Democrats upstate by getting in bed with the poisonous hydrofracking companies, by selling out to the Republican gang in the State Senate over gerrymandering, etc. Seriously, there is nothing to like about him.

        Unfortunately, he’s rather clever and has managed to retain a positive approval rating among the “ignorant majority”, so I don’t know how the hell we’re going to get out from under him. We’re going to be fighting him until 2014; I just hope he decides not to run for re-election then. Otherwise, we’ll be faced with him running for President while being an absentee Governor for two further years.

        • Nathanael says:

          Frankly, Andrew Cuomo is proof that children aren’t influenced much by their parents. Mario would have been very unhappy with his son’s policies.

          • Adirondacker12800 says:

            Mario is still kicking. And I’m sure Mario is more than willing to speak his mind if he has something to say.

          • Nathanael says:

            Whenever asked about his son in the 1980s (when Andrew Cuomo was developing a bad record at HUD), Mario would say something like “Andrew’s his own person, I’m not going to comment on that.”

            Which is wise in terms of family harmony, but it does show that he is NOT willing to speak his mind when it comes to his son.

          • Adirondacker12800 says:

            Omerta. Who knows what they say in private to each other.

  3. BruceMcF says:

    What is this full employment that you speak of? The comparison with Japan in the 1960′s involves several decades of stronger average growth and employment than the past three decades of policies pursuing higher unemployment.

    • BruceMcF says:

      In the concrete setting of the California State Legislature funding vote, the funding is for 2013 to 2017. The odds of the economy hitting full employment by 2017 may not be nil, but they certainly involve the kind of very low odds extreme departure from the status quo of the past thirty years that we set to one side as specific scenarios when engaged in long term planning, and collect together as benefits of flexibility and prudential contingency reserves.

      • Alon Levy says:

        Most construction is not going to be the ICS. Further construction money is likely to be spent in the 20s, i.e. next business cycle.

        • BruceMcF says:

          Most construction to be funded by the votes made yesterday and today is in the Central Valley, and all by 2017. That was the context of the argument that you are addressing.

          And there is no basis for concluding that the present or the following business cycle is going to get any closer to full employment than the previous one did, unless the country changes its policy stance back toward on that aims to achieve something close to full employment.

          • Alon Levy says:

            That was not my intention, to be honest. It was about the jobs impact of the full project, not the ICS. (Both CAHSR and CAHSR Blog have touted the jobs impact of the entire project, both in relation to and independently of the Central Valley’s current unemployment rate.)

          • BruceMcF says:

            Pragmatically, planning a modest amount of basic infrastructure investment as if the economy was likely to be at or near full employment for more than a year or two over the next fifteen years does not seem justified. If the infrastructure spending is justifiable on a benefit/cost basis, then the anti-inflationary benefits of the project during the very limited amount of time spent anywhere near full employment more than offsets any inflationary impact of the demand stimulus during that time. And for 90% or more of the period of the project, we are in regular economic conditions in which regular employment multipliers apply.

            If the project was of sufficient scope to make it substantially more likely that the economy would spend a substantial amount of time at or near full employment, that would be one thing. But less than $5b spending per year in a $1,900b California State Economy is not going to have that kind of impact. That’s less than 0.3% of State GDP, and its not as if adding 0.3% to state GDP is going to substantially increase the expectation of being at or close to full employment in any given year over the coming fifteen years.

            It is as if you are saying we are in any economy LIKE the Japanese Go Go economy of the 1960′s, with unemployment rates of 3% considered to be sub-par economic performance. Compared to Japanese 1960′s rates of unemployment and capacity utilization, we haven’t had 3 years of full employment for the past 30 years. That is the historical ignorance that lies behind the UCLA study. If you use a model that assumes that full employment is the natural equilibrium state of the economy, when you parametrize it against a period of rarely getting close to full employment, it will “detect” that “actual” full employment occurs at a high measured rate of unemployment ~ but the result is just built into the original construction of the model, like the imperfections in telescope lenses that led to the observations of canals on Mars.

          • Nathanael says:

            Bruce McF makes a key economic point. There is no reason to expect that we will ever *actually* hit full employment — with the limiting factor on employment *actually* being lack of specialized skills or lack of raw materials or something. In order to get there, we would either have to have a deliberate effort by the government or get very lucky.

            Instead, unemployment has been due, for *decades*, to two things: lack of consumer demand, and businessman hostility to actually hiring people. The latter is actually more important than most analysts realize; there was a recent New Yorker article about this, in the last week’s issue.

            The result is that we can basically assume, barring a *political* change, that any money spent will be spent in an environment where there is wasted unused labor to deploy.

          • Alon Levy says:

            There’s an intermediate situation between deep recession and full employment, which is the middle of the business cycle. In such a situation – say, like 2005, or 1997 – unemployment is higher than the NAIRU, but the economy is not in a liquidity trap, and so government deficits are offset by higher interest rates.

          • BruceMcF says:

            There’s an intermediate situation between deep recession and full employment, which is the middle of the business cycle.

            Indeed there is, and it is under these conditions that both normal export-base employment multipliers and government deficit expenditure GDP multipliers are determined.

            In such a situation – say, like 2005, or 1997 – unemployment is higher than the NAIRU, …
            My argument was not regarding a NAIRU model economy, but regarding a real world economy. Is that an ISLM NAIRU model, a composite demand for capital NAIRU model or a General Equilibrium NAIRU model ~ its unclear how long before you were born the foundation of the particular NAIRU model that you are using was first knocked away, whether it was in the 1950′s, the 1960′s, or the 1970′s.

            but the economy is not in a liquidity trap, and so government deficits are offset by higher interest rates.
            Only if you assume exogenous money, and the empirical research over the past decade on reaction to a variety of central bank policies backs up the claims of the endogenous money theorists and contradicts the claims of the exogenous money theorists. In a real world economy, the Fed establishes the cash rate (or, in general terms, the central reserve bank in a reserve banking monetary system establishes whichever short term cash rate they elect to target), and there is no reason to believe that the Fed would increase its interest rate target in response to the State of California spending 0.2% of its GDP,, or the Federal government spending well short of 0.1% of its GDP, on an infrastructure investment project.

          • Nathanael says:

            Another way of putting this is that there were multiple recessions *within* the Great Depression. So sure, we’ll start the project as we come out of the next recession, but even between recessions there will still be massive unemployment.

            We are now in the Second Great Depression. Only something the scale of the New Deal or WWII is going to pull us out of it. Maybe we’ll get a government which “gets” this eventually. Probably sometime after Spain does, and I expect Spain to get that government by means other than elections.

  4. jim brewer says:

    You know, it is possible to speed up the construction of these things. Interest rates are so low right now that we should at least make the effort to take advantage of them. Basically, federalize the projects. Electric transmission lines are sited at the state level. Pipelines are sited at the federal level. Pipeline infrastructure is in much better shape than electric transmission. Have plenty of roadshows to allow local input, but the primary decision is at DOT. The funding would have to be all or almost all federal, but that’s a small price to pay. No disrespect to governor Cuomo, but NY to Buffalo is probably not a very optimal line from NYC.

    Have one omnibus fight over siting and environmental issues. Far be it from me to suggest that we should allow the engineers their rhumb-line approach, but we can have the same fights, faster.
    the appeals are fast-tracked and all direct testimony in any proceeding are through pre-filed direct testimony. (direct testimony filed in advance) The Microsoft antitrust trial only took 76 trial days.

    • Adirondacker12800 says:

      NY to Buffalo is probably not a very optimal line from NYC.

      What would be an optimal line from NYC?

      • Adirondacker12800 says:

        Phoebe Snow in her gown so white, upon the Route of Anthracite, took the shortest route to Buf-fa-lo. 15 minutes faster than Amtrak’s schedule….. still I’d like to know what the optimal route is…

    • BruceMcF says:

      Is there a more optimal line to get to NYC from Buffalo, Rochester or Syracuse than NY to Buffalo?

    • Nathanael says:

      I think Jim is saying that if we had *federal* funding the first priority would be to connect NYC to (for example) Allentown/Bethlehem, PA rather than to upstate NY.

      Sadly we don’t have federal planning. *Within NYS* the Empire Corridor is the most valuable route from NYC.

      • Alon Levy says:

        With New Jersey’s state funding they’re planning to connect New York to Scranton. And it’s not even all that difficult to get to Allentown/Bethlehem using the old DLW main line, though that’s an active freight line.

        • Adirondacker12800 says:

          They are planning on using the active freight line from the Water Gap to Scranton, no reason why they couldn’t use the active freight line from Scranton to Allentown. Though the utility of passenger service from Allentown to Scranton is low. ( There are no passenger trains in the Lehigh Valley anymore )
          NYC to the Lehigh Valley, faster than driving, is going to be powerfully expense. Faster than a bus will be powerfully expensive. West of Bound Brook NJ it’s twisty, windy, missing here and there, though there is a through route, Why New York State is spending money getting Pennsylvanians to New Jersey would be a very interesting question in the NY Legislature.

          • Nathanael says:

            Note that if the Scranton-NYC line is extended to *Binghamton, NY*, why *THEN* the NY politicians would be interested in it (and have made noises to that effect).

            See how this works? It’s an argument for designing and funding most railroads at the national level so as to avoid this nonsense. But our federal government is broken, for various reasons, including the US Senate, gerrymandering, and the Republican Party turning psycho…. so we have trouble doing that.

          • Alon Levy says:

            The federal government may be broken, but Albany makes Washington look like the Platonic ideal of good government.

          • Nathanael says:

            You have a point; and the result is that major projects in NYS get done at the county and local level.

        • Nathanael says:

          Yeah, but New Jersey is only planning to pay for the portion up to the PA/NJ state border, and they’ve been kind of slow-moving even on that part. The PA counties which include Scranton are going to have to pay for the rest (and are actually very eager).

          What’s the analogue in NY? A line from NY to Allentown/Bethlehem would be paid for by New Jersey, mostly, PA, partly, and NY would only pay for the portion in NY….

          …the state boundaries are whacked and it creates weird politics.

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