Depression 2.0--Infrastructure Investment?

Immediate action is necessary!

First of all, GDP dipped in the third quarter of 2008.

UPDATE--But Exxon earned record profits!

UPDATE 2--Heeeere's the recession! With charts!

UPDATE 3--Here comes the deflation...hey, does that make this a Depression?

Two articles today, one in the Washington Post and another in the Times of London, argue for a near-immediate, post-election but pre-Inaugural, economic legislation. The perspectives are slightly different, one arguing for a spending increase, the other for a tax cut to be funded by a future energy or carbon tax.

Hmm. From a purely stimulative standpoint, the temporary spending increase would likely be the better measure. Why? Because spending creates more bang for the buck than tax rebates or cuts do. Take a look at this chart.

Compare the "bang for the buck" between infrastructure spending and tax cuts or rebates. In particular, note how paltry the stimulative effect of dividend and capital gains tax cuts is compared to food stamps, the extension of unemployment benefits, and, you got it, infrastructure investment/spending.

Despite bleak economic prospects on the horizon, the next president has something of an opportunity (a barbed and pointed one, I suppose), since America's infrastructure is at or near a crisis point.

And herein lies a barbed and pointed opportunity to kill, or at least substantially wound, two birds with one stone by increasing spending on infrastructural improvements.

Obama is probably leaning that way. In naming energy the number one priority he has opened the door to the massive infrastructure spending that will be necessary:

As Obama told me in our interview, a government-propelled transition to an alternative-energy economy will be his most important initiative. Translated into Washington terms, this means a massive infrastructure and stimulus package — in the neighborhood of $300 billion, according to the current speculation. There is a back-to-the-future quality to this: it's what used to be derided as big-spending liberalism. The Beltway consensus is that the economic crisis makes it necessary now. But public cynicism about government requires that the next President builds accountability into his spending programs. That's why the Infrastructure Bank that Obama proposed during the campaign may be crucial: it would create a bipartisan board of five governors who would judge and approve all major projects.

For more on an Infrastructure Bank, read this excellent piece.

UPDATE: This NYT story on the "stark signs of a slowdown." Also note the last to paragraphs:

Another continued source of economic growth is government spending, which expanded at a 5.8 percent annual pace. Military spending surged at an 18.1 percent annual rate, and federal spending over all jumped at a 13.8 percent annual clip.

“There’s a message in that,” said Mr. Bernstein, the Economy Policy Institute economist, who has lobbied Congress to unleash another package of government spending measures to stimulate the economy. “The one part of the G.D.P. we can reliably count on in these times is government.”