[Op/Ed] "Shovel ready" = bullshit

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Surlethe
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[Op/Ed] "Shovel ready" = bullshit

Post by Surlethe »

Popular Mechanics
The term arrived with all the muscle and blue-collar authority of a bulldozer: “shovel-ready.” As in, infrastructure projects that are ready or almost ready to begin, the antithesis of some dimly imagined earmark or budget-sucking bridge to nowhere. Then-president-elect Obama used the term on a December 7th visit to NBC’s Meet the Press, describing the kinds of projects that would be supported by the upcoming economic stimulus bill. Soon the phrase was being repeated by policy-makers only an almost daily basis. Now the bill is here, with one version passed by the House, and another being debated by the Senate. “Shovel-ready” isn’t language used in the bill, but the House’s version, at least, does have an enforceable short-term focus: Only projects that are able to start construction within 90 days of selection are eligible for funding from the $90 billion set aside for infrastructure.

From Buzzword to Multibillion-Dollar Policy

So what exactly is a shovel-ready project? As the Washington Post recently pointed out, the term “shovel-ready” may have been introduced in the 1990s by New York-based electric utility Niagara-Mohawk Power, which later became National Grid (it is the current owner of the URL shovelready.com). There are no specific parameters or requirements that define shovel readiness. But according to civil engineers, the idea behind this new buzzword could help scuttle the stimulus bill’s highly publicized, though secondary, goal of infrastructure reform. At issue is that 90-day restriction stipulated by Congress, an even narrower window than the bill’s original 180-day limit. “They’re well intentioned, and they know their infrastructure sucks, so they’re trying to do immediate reactive management to what is a very deep, endemic problem,” says Robert Bea, a professor of civil and environmental engineering at the University of California, Berkeley. “If you want to patch some potholes in the road, this is a good program. But if you’re hoping for anything long-term with this approach, throw away all hope. It can’t happen.”

The programs that would meet the bill’s 90-day restriction are, for the most part, an unappealing mix of projects that were either shelved after being fully designed and engineered, and have since become outmoded or irrelevant, or projects with limited scope and ambition. No one’s building a smart electric grid or revamping a water system on 90 days notice. The best example of a shovel-ready project, and what engineers believe could become the biggest recipient of the transportation-related portion of the bill’s funding, is road resurfacing—important maintenance work, but not a meaningful way to rein in a national infrastructure crisis. “In developing countries, there are roads that are so bad, they create congestion, because drivers are constantly forced to slow down,” says David Levinson, an associate professor in the University of Minnesota’s civil engineering department. “That’s not the case here. If the road’s a little bit rougher, drivers will feel it, but that’s not going to cause you to go any slower. So the economic benefit of those projects is pretty low.”

That might be acceptable to people focused purely on fostering rapid job growth‹but, ironically, such stimulus spending could fall short on that measure, as well. “In the 1930s, when you were literally building with shovels, that might have made sense. That was largely unskilled labor. Today, it’s blue collar, but it’s not unskilled,” Levinson says. “The guy brushing the asphalt back and forth is unskilled, but the guy operating the steamroller isn’t. And there’s an assumption out there that construction workers are interchangeable between residential and highway projects. But a carpenter isn’t a whole lot of help in building a road.”

Up a Creek Without a Shovel

Even if the engineers are wrong, and a new wave of smoothly paved roads and bridges does somehow bolster the economy, politicians will eventually have to come to terms with the dangerous legacy of shovel-ready thinking, which has helped shape the current infrastructure crisis. The 90-day stipulation rules out projects already under construction. And in order to begin replacing or overhauling one of the country’s thousands of structurally deficient bridges, transportation officials might be forced to resort to hastily planned projects. “Unfortunately the approach is a quick fix, and it’s what we’ve been doing for decades. It’s a patch-and-play approach to solving our infrastructure needs,” says Pat Natale, executive director of the American Society of Civil Engineers, who supports a mix of shovel-ready and longer-term projects. “We need to come up with an overall plan to handle all of it. If there’s congestion somewhere, look at the transportation needs. Maybe that means putting in more transit lines or light rail. What is the overall plan for transportation in that region, not just in that municipality?”

Transportation arguably isn’t even the most pressing infrastructure issue—during last year’s spring floods, dozens were killed and millions of acres of crops were lost throughout the Midwest. Bea, who visited breached levees in the region immediately after the floods, noted a pervasive pattern: levees weakened by pipelines or roads. Each project must have seemed perfectly worthwhile and manageable when it was constructed. But there was no oversight, no analysis of how one infrastructure system could leave another vulnerable. “Each of these 90-day wonders might fix one thing really well. But what if, in the process, you mess up the two that are connected to it?” Bea says. At a time when engineers are calling for careful study of the relationship among different infrastructure systems, and long-term planning and construction to prevent areas like California’s Sacramento delta from suffering catastrophic levee failures, shovel-ready thinking might be worse than a distraction. Because whatever a 90-day project does or doesn’t do, it’s not going to solve complex, and sometimes life-threatening, problems.
Assuming its assumptions correct, I find the article's argument persuasive. The idea that we can launch into complex infrastructure overhaul with a mere ninety days' notice sounds absurd.

I think what we should be doing is spending a hundred billion dollars or so on redesigning the nation's infrastructure from the ground on up. Give the money out in grants to regional universities with recognized urban planning, civil engineering, and economics departments, and have them develop a comprehensive plan for their region. Then integrate the plans nationally and execute them. (Ideally, they'll include redone bridges & levees, hydroelectric power, localized power grids, and high-speed rail.) But we can't do that in ninety days, unfortunately.
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Re: [Op/Ed] "Shovel ready" = bullshit

Post by Illuminatus Primus »

The conservotard "90 day" requirement is just another gimmick, along with "spending not stimulus" (as if these are somehow logically distinct, as opposed to conveniently rhetorically distinct) and "pork". They are bound and determined to avoid any major role of the State in reorganizing society and the economy. Its just another fake requirement designed to torpedo the plan. I sympathize with the need for systemic, dramatic reform as AV, j, aerius, and other have endorsed. But the far-right in this country is the major opposition. They will oppose any principle by default which involves a large State role. Reaganism for them is a religion, and increasingly resembles a suicide pact.
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Re: [Op/Ed] "Shovel ready" = bullshit

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Fuck.

I've said for the last couple of years that this country needs a national infrastructure bill, as in a no fucking around total overhaul of the transportation and electrical systems including nuclear power and greatly expanded and modernized railroads. I see infrastructure spending as possibly the only good thing to come out of this whole fucking mess, and now they're pulling this bullshit with it? God damn.
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Re: [Op/Ed] "Shovel ready" = bullshit

Post by J »

See the "shovel ready" projects, state by state

You might want to keep a punching bag handy for some of them...
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Re: [Op/Ed] "Shovel ready" = bullshit

Post by Gerald Tarrant »

Illuminatus Primus wrote:The conservotard "90 day" requirement is just another gimmick, along with "spending not stimulus" (as if these are somehow logically distinct, as opposed to conveniently rhetorically distinct) and "pork".
They are logically distinct. Keynes himself expressed some doubts about the viability of infrastructure to stimulate quickly. Which is one of the key concerns about stimulus, it should be prompt if possible.
“Organized public works, at home and abroad, may be the right cure for a chronic tendency to a deficiency of effective demand. But they are not capable of sufficiently rapid organisation (and above all cannot be reversed or undone at a later date), to be the most serviceable instrument for the prevention of the trade cycle.”
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They are bound and determined to avoid any major role of the State in reorganizing society and the economy. Its just another fake requirement designed to torpedo the plan. I sympathize with the need for systemic, dramatic reform as AV, j, aerius, and other have endorsed. But the far-right in this country is the major opposition. They will oppose any principle by default which involves a large State role. Reaganism for them is a religion, and increasingly resembles a suicide pact.
The CBO Blog here estimates that only $317.7B of the package will be out by 2010. (I'm looking at appropriations and outlays). Including the tax cuts it's $525.5B that will have an impact by 2010. Stuff beyond this isn't really countercyclical anymore, as the unemployment will have peaked and be trending down anyway. Really, criticisms of the timeliness of spending are legitimate (even if they're only made to score political points). It's much better to mostly front load this thing, than to have ~3/8ths be spent while the economy's already on the mend. There are some very good parts of the stimulus that ought to be emphasized; food stamps and unemployment funding will have high multiplier effects, and they're almost instantaneous. The money will begin flowing immediately after appropriation.

An additional point; there's no reason that all the domestic goals for the administration have to be met in one omnibus stimulus bill. One of President Obama's promises was that he would match spending increases 1-for-1 with either tax-increases or spending-cuts. I'm pretty sure that the voters will forgive him for breaking that pledge when it comes to the Stimulus bill (since that's what Keynes recommended) . But trying to get as many neat programs in there and calling it stimulus isn't honest and probably won't be as appreciated. Infrastructure realignment and other major policy goals will pass on their own merits, and should be paid for immediately as President Obama promised during the campaign.

edit: I ought to include this. The President's team had their estimate of how things will look with and without the stimulus.
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Re: [Op/Ed] "Shovel ready" = bullshit

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Surlethe wrote:Give the money out in grants to regional universities with recognized urban planning, civil engineering, and economics departments, and have them develop a comprehensive plan for their region.
Unfortunately, that's not what Obama's advisor, Robert Reich, or Charles Rangel, head of the Ways & Means Committee, want to do with the money. Pay attention to what Reich says at 32 seconds, and what Rangel says at 2:35.

Here's the video, for some reason I can't post Flash

For those of you who didn't click the link, here's what Robert Reich said starting at second 32: "I am concerned, as I'm sure many of you are, that these jobs don't go to high-skill people who are already professionals, or to white male construction workers." Yeah, he said that at a hearing for the record with CSPAN cameras rolling.

Rangel rambled on, in orotund phrasing that you have to pay attention to parse, that he wants the money to go to predominantly "poor people, women, and neighborhoods like Harlem." Oh yeah, he and Reich also want only the Fed (read Ways and Means Committee) to dole out the funds. The corker is at time marker 2:35: Rangel, after musing on about cock-blocking the state legislatures and going on about how "poor neighborhoods" should get the money, he says (this is the clearest thing he says!) "You don't have to be too worried about what the middle class is going to do" [about where the bailout money's spent]!

So, unfortunately, colleges are out if Reich and Rangel have their way. By that same criteria, so are engineering firms: you know, those places that actually design and build highways and bridges!

With only 90 days to determine how the money should be spent, hell even with the original 180 days, there's fuck-all opportunity to do anything substantitive with the money. Christ, what are the feds going to do: have "poor people and women" dig holes, then fill them in, till they've paid out $90 billion?

Ironically, I guess it's good that the "infrastructure" part of the plan, the whole fucking cornerstone of the rhetoric to get the bill passed, is less than 10% of the total.
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Re: [Op/Ed] "Shovel ready" = bullshit

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Gerald Tarrant wrote:The CBO Blog here estimates that only $317.7B of the package will be out by 2010. (I'm looking at appropriations and outlays). Including the tax cuts it's $525.5B that will have an impact by 2010. Stuff beyond this isn't really countercyclical anymore, as the unemployment will have peaked and be trending down anyway.
Unemployment always lags economic recovery by around 6 months. This would mean we're seeing real, sustainable GDP and economic growth by the summer of 2010 at the latest. This chart says otherwise.

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There will be no recovery until the resets and defaults stop, and that's at the end of 2012. Since the economy lags the defaults and unemployment lags the economy, an actual recovery isn't possible until the middle of 2013. The only way to speed things along is by cramming down every bad loan along with the holders of those loans and forcing them to default right here & now, if that's done and the financial system is properly regulated with the rules being strictly enforced, then we could see a recovery by the end of next year. Otherwise, forget it.
edit: I ought to include this. The President's team had their estimate of how things will look with and without the stimulus.
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And I have a unicorn which poops out 20 carat diamonds. 600,000 jobs lost every month, and accelerating, that's at least another 7.2 million by the end of this year. Add those to the 11.5 million who are currently unemployed and the rate is well into the double digits, not the 9% or so claimed in the graph. At the current growth rate of ~600,000 per month, unemployment will break the claimed 9% peak in around 4 months.

Since unemployment lags the economy by around 6 months the following must be true for that chart to be accurate: the economy has bottomed as of right now and is in the process of recovery. If this is true, then why all the fuss? Why do we need a massive stimulus package if things are clearly on the mend? It doesn't add up. Which leads me back to my first point, there will not be a recovery until sometime after 2012 unless a mass cramdown & restructuring of the financial system is carried out.
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Re: [Op/Ed] "Shovel ready" = bullshit

Post by Illuminatus Primus »

Where'd you get that chart, by the way?
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Re: [Op/Ed] "Shovel ready" = bullshit

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It's from a Credit Suisse fixed income research paper which was released in early 2007. I first saw the chart in late 2007 on the Mr. Mortgage site and asked one of my friends who works for CS to verify its authenticity, which she did. It's real.
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Re: [Op/Ed] "Shovel ready" = bullshit

Post by Count Chocula »

^ I hit right click on the image, the "properties," and got this url: http://farm3.static.flickr.com/2249/204 ... 83d649.jpg

Source citation at the bottom says Credit Suisse.

EDIT: J beat me to it!
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Re: [Op/Ed] "Shovel ready" = bullshit

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With that chart, doesn't it assume that the mortgage defaults are set in stone? If the economy starts to recover in 3Q2009, for instance, then we'd expect mortgage defaults to drop substantially. Why should we assume that mortgage defaults are going to follow that projected path?
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Re: [Op/Ed] "Shovel ready" = bullshit

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Surlethe wrote:With that chart, doesn't it assume that the mortgage defaults are set in stone? If the economy starts to recover in 3Q2009, for instance, then we'd expect mortgage defaults to drop substantially. Why should we assume that mortgage defaults are going to follow that projected path?
That would have to be one hell of a recovery. The economy was doing fine in 2007 when those resets started coming and it still resulted in a crapload of defaults, unless you can say the economy will be substantially better in a given time period than it was in 2007, the reset chart holds.

The chart gives the dates & amount of when various toxic mortgages reset from the teaser rate to the full amortization rate which doubles or triples the monthly payment. Those mortgages are only viable in a bubble environment where housing prices continue to rise significantly every year so the home can be refi'd or sold for a profit before the reset. If housing values can't be pushed back up to 2005-2007 levels, neither of the above is possible and when the reset happens the borrower is skullfucked. Even with the frontend teaser rates most of the people who took out those mortgages are sitting at around 35-40% DTI or more, and that's gross income, meaning the monthly mortgage payment is eating up around half of their take home pay. When it resets the payments will often exceed their total take home pay, kaboom, instant default. That's why there's no way out of it other than re-inflating the housing market to 2005-2007 levels or a mortgage cramdown where the amount outstanding is reduced to ~3X annual income.
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Re: [Op/Ed] "Shovel ready" = bullshit

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How many defaults will the banks be able to renegotiate? If they can get a better payment plan instead of foreclosing, they're not going to kick people out of their houses with the market like it is. Also, there seems to be an implicit assumption that the credit markets are going to stay frozen until all the defaults are over and the mess sorts itself out; if we (society) can get these toxic securities properly valued and untangled, people will have a good idea of who's worth what, good banks can buy up bad banks, and the financial system will thaw. It's choked up now because of uncertainty, not because people are defaulting on mortgages.
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Re: [Op/Ed] "Shovel ready" = bullshit

Post by aerius »

Surlethe wrote:How many defaults will the banks be able to renegotiate? If they can get a better payment plan instead of foreclosing, they're not going to kick people out of their houses with the market like it is.
Not many, at least, not at realistic prices. If most of the mortgages were marked down to 3X the annual income of the borrowers (the benchmark for a payable mortgage), the banks would be insolvent, whereas if the home defaults & gets foreclosed the bank can still hold it on their books at a significantly higher value than the writedown price.
Also, there seems to be an implicit assumption that the credit markets are going to stay frozen until all the defaults are over and the mess sorts itself out; if we (society) can get these toxic securities properly valued and untangled, people will have a good idea of who's worth what, good banks can buy up bad banks, and the financial system will thaw. It's choked up now because of uncertainty, not because people are defaulting on mortgages.
The thing is "properly valued" is pennies on the dollar, which means pretty much every bank with significant holdings of these securities is insolvent overnight. Kaboom. Bank of America, Citigroup, JPM, Goldman-Sachs, Morgan Stanley and Wells Fargo among others are toast. When they go boom the credit default swaps & other structured finance products written on them get triggered and a whole bunch more financials get roasted by counterparty failure, and that kills off yet more of them. The killing process will take time to get through the system, and until it does, credit won't flow much as everyone's living in fear.

The other big issue is that the government, through Treasury and the Fed keeps dicking around with the credit markets (commercial paper lending facility, money market facility, TSLF, TALF, agencies & T-bills, etc.) and the market does not like it. When the rules change by the week and the market is being openly manipulated, the market says "fuck you, I'm taking my money and going home", and there goes the liquidity.

So the problem has several layers. Mortgage & other loan losses are being hidden by the banks so they can pretend to be solvent, which leads to a lack of trust in the markets and the loss of liquidity which comes with it. The final part is made worse by all the poorly thought out "rescue" packages and incompetant actions of the Fed and Treasury.
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