In recent days there’s been a bit of a debate in Beltway circles over whether Dems should refrain from talking about the recovery, because touting it too aggressively could backfire, given that widespread economic suffering continues.
This line of argument could take on particular urgency in the debate over the Highway Trust Fund. If it goes insolvent later this summer, the White House has warned, it could halt untold numbers of state infrastructure projects across the country and cause the loss of hundreds of thousands of jobs.
The argument that failure to act on the Highway Trust Fund could scuttle the recovery is now getting a boost from independent economists.
Daniel White, a senior economist with Moody’s Analytics, tells me that the current recovery is partly the result of the fact that we’ve had no debt ceiling or government shutdown brinksmanship this year, and that a Congressional showdown over the Highway Trust Fund could hurt the recovery. Indeed, White says the current uncertainty over the HTF may already be preventing the recovery from gaining the steam it otherwise might. White emails:
Despite the weak first quarter, 2014 has the potential to be a breakout year for the U.S. labor market. It could be the first in several years where the economy has been spared the fiscal brinksmanship from Washington that can weigh on confidence and investment. To get there though, we need a quick and painless solution to the shortfall in the Highway Trust Fund.Anecdotally we’ve seen states already be more cautious than usual in their fiscal 2015 capital budgets because of the uncertainty surrounding federal reimbursement. This comes at a time when state and local government infrastructure spending as a share of the economy is already at its lowest point since WWII.
Indeed, according to Bureau of Economic Analysis data compiled by Moody’s Analytics for its investors and shared with me by White, current state and local infrastructure investment, in 2009 real dollars, now totals 1.4 percent of GDP. In 1947, the first year for which BEA data is available, the total was 1.7 percent. It steadily rose and peaked in the late 1950s and 1960s, topping out at 4.6 percent, before steadily declining throughout the 1970s and 1980s, before dropping below 2 percent during the Great Recession and its aftermath — amazingly — and settling at 1.4 percent today.
As I noted this morning, both parties share some of the blame on the Highway Trust Fund. As both Josh Barro and Paul Krugman have explained, we could fix this problem by raising the gas tax or engaging in deficit spending, which lawmakers in both parties are loath to do. But beyond this, it is very likely that Democrats will be more flexible in agreeing to ways to pay to shore up the HTF than Republicans will — both in the short and long term. This is particularly true, given that fiscally conservative groups such as Heritage Action are pressuring House Republicans not to “bail out” the HTF.
Now, however, you may see business groups who want Republicans to address the HTF’s shortfall seize on Moody’s prediction that punting could hurt the recovery. Mike O’Brien, a spokesman for the Association of Equipment Manufacturers, a group that has pressed for an HTF fix, emails: “This analysis confirms what and many of our allies have been saying for months: a long-term, sustainably-funded highway bill is critical in establishing the kind of economic certainty on which the manufacturing, agriculture and construction industries depend.”
The other day, Obama put this message in starker and more partisan terms:
“The best thing you can say about this Congress — the Republicans in Congress, and particularly the House of Representatives — the best you can say for them this year is that so far they have not shut down the government or threatened to have America welch on our obligations and ruin our credit rating. That’s the best you can say. But of course, it’s only July, so who knows what they may cook up in the next few months.”
You’ll probably hear more along these lines from Dems, particularly if more independent economists endorse the idea that the current recovery is partly due to a respite from reckless fiscal brinksmanship and that more destructive behavior from Congress right about now could scuttle it just when it’s poised to really pick up.