http://www.indystar.com/apps/pbcs.dll/article?AID=/20060110/OPINION/601100355&SearchID=73232226516895
peter
grossman
I-69
project can't live up to promise of 94,000 jobs
January 10, 2006
In the ongoing debate over the
extension of
highway I-69 from Indianapolis to Evansville, one number advanced by
the road's proponents is especially intriguing. According to Gov. Mitch
Daniels' office, an important reason to build the highway is that
"every $1 billion in transportation spending creates about 47,000 new
jobs." Given that the I-69 extension will cost roughly $2 billion, we
should then expect 94,000 new jobs for southwest Indiana.
Most
people who see this number probably assume a scenario like this: After
the road is built, new factories, warehouses and office complexes will
follow. Sure there also will be fast-food restaurants and gas stations,
but most of the 94,000 jobs will be good jobs. And because we'll have
these new wage earners, they'll want to shop and so we'll have to build
new malls at every major exit.
It sounds
good. Unfortunately, it's too good and it's all very misleading. Though
Gov. Daniels is not the only politician to throw around the 47,000 per
$1 billion number to support highway spending, the Department of
Transportation study on which the number is apparently based never
claims such employment gains and other studies suggest that actual
gains in employment might be small or nonexistent.
But
what is most irksome about these kinds of "data" is that we are asked
to make false choices. Who is against 94,000 new jobs? Of course, the
answer is no one. But that's not the issue because the 94,000 number is
hogwash. This reminds me of the stadium debate. We were told we needed
to make a huge public investment because we'd get huge benefits --
benefits unlikely to be realized. Now we are told we must spend three
times that amount on a highway for benefits that are even less likely
to be achieved.
It should be obvious that
the 47,000 number is wildly out of line. If the 47,000 number were
real, we should never have an unemployment problem. Need to "create"
jobs? Spend $100 billion, or so (as we did in Iraq this past year), and
we'd have the jobs.
Think of the issue
another way: Will the new $286 billion highway bill with its billions
in pork -- like the Alaskan "bridge to nowhere" -- actually "create"
13.5 million "new" jobs? That would be more jobs than there are
unemployed workers to fill them. Of course some jobs come with a new
highway. There are, first, temporary jobs building the road and then,
later, maintenance jobs and jobs at gas stations and fast-food
restaurants, and, yes, maybe a few companies will be induced to build
factories or warehouses along it.
But
typically highway spending leads not to job creation but just to job
shifting, as some people go from one type of work to another -- office
building maintenance to road maintenance, for example. Arguably
government spending of this kind never "creates" any jobs.
Then
again, the DOT study that the politicians seem to refer to (Daniels'
office doesn't explicitly cite any study) never actually says that
47,000 new jobs will result from a $1 billion in transportation
funding. It says instead that as the $1 billion is spent, it will
filter through the economy and generate over time, probably several
years, the output and wages that would be equal in value to that
generated by 47,576 jobs over one year. If that sounds confusing, one
thing should be evident: The study does not promise that 47,000 new
jobs actually will be created for each billion dollars spent. It does
not promise gleaming new factories and office buildings or shopping
malls at every exit.
Further, this is just a
projection in one study, not a report of how many jobs road projects
actually have created, which I suspect varies significantly across
projects. Meanwhile, other government projections are more circumspect
about the value of transportation projects. According to a Heritage
Foundation analysis, other studies support the conclusion that the "net
impact on the economy of highway construction in terms of both output
and employment" could be zero or "even negative."
I don't have an opinion about whether
or not the I-69 extension should be built. There may be compelling
arguments for it.
But
I am concerned when misleading data are used to sway public opinion. We
need an honest discussion about just what real benefits we can expect
and why our $2 billion will be well spent.
If we can't do that without touting
94,000 nonexistent jobs, then clearly we shouldn't build I-69.
Grossman is the
Clarence Efroymson Professor of Economics at Butler
University. His column appears the second Tuesday of the month. Contact
him at pgrossma@butler.edu.
Peter Z. Grossman
Misleading
hype creates Major Moves skepticism
February 18,
2006
Gov. Mitch Daniels plans to lease the
Indiana
Toll Road for 75 years, and then embark on a large-scale 10-year
highway construction program called Major Moves. But if Major Moves is
such a good idea, why do Daniels and other supporters continually
misrepresent its costs and benefits?
Now,
let me say at the outset, I have no problem with road privatization. In
fact, I think more government functions and facilities should be
operated by the private sector. Nor do I care that the road will be
leased to non-American companies. I can accept the governor's claim
that Indiana is getting full value to lease the road.
Still,
there has been a continual recycling of misleading information about
Major Moves and its consequences. Here are a few of those
misrepresentations:
• It will create 130,000
jobs. This number comes from the claim that $1 billion in highway
spending creates 47,000 jobs. Indeed, the numbers are restated so often
and so mindlessly I have to wonder if anyone in our state government
has actually read the U.S. Department of Transportation study on which
the number is based. I wrote about this last month, but since the
number keeps getting repeated as though it were true, I guess I need to
go over it again.
That DOT study is only a
projection of how highway construction money might filter through an
economy and does not claim that 47,000 jobs (per $1 billion) are
created by highway construction. In fact, it doesn't claim that any
jobs are created. Rather it says that $1 billion will generate 47,576
employee or "person-years" of work. Translated, that means over the
life of the project the amount that is produced and earned will be the
equivalent of what 47,576 workers earn in one year. Put another way, if
the state hires 4,758 people for 10 years, that's your 47,576 "jobs"
right there.
What's more the projection says
that almost half of these "jobs" will be so-called "third-round" jobs
generated by what construction workers buy. This jobs list would
include many people employed outside of Indiana (such as in mail-order
houses) selling everything from T-shirts to televisions.
The
bottom line? No one knows how many actual Indiana jobs will be
generated by spending almost $3 billion on highway construction, but it
is certainly going to be a lot less than 130,000.
•
The $3.85 billion is like winning Powerball. So Daniels claimed. That
suggests we get something for nothing. But in fact we give up
something: the future income stream from the Toll Road.
A
better analogy than Powerball for our situation would be this: Say a
25-year-old worker is offered $1 million but told he will never get
another cent the rest of his life. He can put his money in a bank and
live off the interest or he can try to create a business with the
million that might make him a lot more money. But he also might go
broke with nothing to fall back on.
Similarly,
we can put the money away and earn interest, or better still we can
invest it in something productive. If we make the right investments,
we'll be more prosperous in the long run. And maybe highway
construction will be that kind of investment. I'd like to see
independent analyses of the kind of return we can actually expect from
Major Moves. Maybe it will make us rich. But since we're sacrificing a
source of revenue, shouldn't we have a clear idea of the risks we're
taking?
• We didn't get $3.85 billion; we
really got $100 billion. That's according to Charles Schalliol, the
state's budget director. What Schalliol is doing is projecting $3.85
billion out 75 years at a compound interest rate of about 4.5 percent.
He is right; if we put the money today in government bonds, in 75 years
we'll have $100 billion.
But that's not what
anyone intends. If we bury the money instead under tons of concrete, we
may end up with more than $100 billion, or next to nothing.
We're
being asked, with a minimum of discussion, to make a big investment and
take a risk that will impact Indiana taxpayers long after the governor
and our current legislators have left office. As I said at the outset,
this may be a good thing for Indiana. I have no objection in principle.
But the exaggerations, the false analogies and misleading hype make me
wonder whether Major Moves is all that it's cracked up to be.
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