The Obama stimulus package should be spent on transformative investments, not bridges and roads.

Making government work better.
Jan. 5 2009 4:09 PM

Robots, Not Roads

The Obama stimulus package should be spent on transformative investments, not bridges and buildings.

The incoming Obama administration and Congress are planning a huge fiscal stimulus package. They hope that such a stimulus will catalyze an economic turnaround and be a cornerstone of a "New New Deal." If the early reports are reliable, the stimulus will include a huge tax cut and will fund projects like road-building and bridge repair, laying the infrastructure foundation for the economy of the future.

Yet two huge problems with this approach must be confronted. First, the capacity of even the U.S. government to affect the overall global economy is limited. Suppose the package is $800 billion over two years: $400 billion is less than 1 percent of the global economy and a mere 3 percent of the U.S. economy. In relative terms, $400 billion isn't all that much more than the $152 billion spent on the 2008 stimulus, which had nary an impact on the economy.

Here is where the New Deal analogies are instructive. The New Deal probably didn't pull us out of the Depression; World War II did that. What the New Deal did was redefine the social contract—perhaps just as important an outcome. The ultimate significance of the Obama package may be not its short-term demand-side impact but rather its capacity to transform our economy and, in turn, some of the fundamental underpinnings of our society. This introduces the second major problem: The "off the shelf" infrastructure projects that can be funded immediately and provide immediate demand-side stimulus are almost by definition not the transformative investments we really need. Paving roads, repairing bridges that need refurbishing, and accelerating existing projects are all good and necessary, but not transformative. These projects by and large are building or patching the same economy with the same flaws that got us where we are. Our concern should be that as we look for the next great infrastructure project to transform our economy, we might rebuild the Erie Canal and find ourselves a century behind technologically.

This moment presents the administration with what is likely to be its best—and perhaps only—opportunity to have essentially unlimited capital (both fiscal and political) to spend on a transformative economic agenda. It is a unique moment to build a new foundation. It would be wise to ensure that a significant portion of the stimulus package is spent on new investments that may not be quite as ready to go but are surely more important to our long-term economic viability. There are many such critical investments, but here are a few for consideration. These are not, of course, the only ideas, and they may not be the best ideas. But they should spur discussion of how to use the fiscal stimulus not just to put people to work but also to build the over-the-horizon projects that will set the stage for the next great American economic miracle.

In the energy arena, two investments are critical. The first is smart meters. These would permit, with a smart grid, time-of-day pricing for all consumers, with potentially double-digit reductions in peak demand, significant cost savings, and consequential remarkable energy and environmental impacts. These declines in peak demand would translate into dramatic reduction in the number of new power plants. The problem with installation of smart meters has been both the cost and, often, state-by-state regulatory hurdles. Now is the moment to sweep both aside and transform our entire electricity market into a smart market.

Second, the most significant hurdle to beginning the shift to nongasoline-based cars is the lack of an infrastructure to distribute the alternative energy, whether it is electricity—plug-in hybrids—or natural gas or even hydrogen. Once that infrastructure is there, it is said, consumers will be able to opt for the new technology. If that is so, let us build that infrastructure now: Transform existing gas stations so they can serve as distribution points for natural gas or hydrogen, build plug-in charging centers at parking lots, and design units for at-home garages. These would, indeed, be transformative investments.

In health care, everybody agrees that electronic record-keeping is a universal win: errors reduced, public health gains from the ability to know what is actually being delivered, a dramatic improvement in primary care. But again, the cost has been prohibitive, because the upfront expenditure is enormous and the benefits are long term and hard to measure. We should condition state receipt of Medicaid bailout funds on a new infrastructure of electronic medical records. No single health care step would be more transformative.

America lags the world in Internet service and access. Our Internet backbone is worse than that of competing nations. We should spend to upgrade it.

In education—just as much a part of our infrastructure as bridges and roads—here is a small investment that is one of my favorites: Provide funding for robotics teams at every school. If you ever want to see intellectual competition in the arena that matters today—technological wizardry—visit the robotics competitions that now exist in some schools. Make these competitions as universal as football. Make it cool to design the next cutting-edge video game or iPod.

These are just a few possible infrastructure investments. The list is long, and the right infrastructure could provide the basis for a redirected economy. Long term, the most important investments are not on the easy list of "off the shelf" projects. Yes, good roads and bridges are important. But investing in the necessary public goods to support a post-hydrocarbon, information-based economy is a much better choice than using the stimulus to patch up the old economy.



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