How the federal government backstops our economy

My son Owen and I just drove across half the country. He has a summer job in St. Paul, Minn., and we are giving him our 10-year-old car. Hence, a road trip!

Driving along I-90 and I-94 for 1,800 miles gives you time to reflect on our nation’s transportation system. Did it just spring up, thanks to the invisible hand of a free market economy? Obviously not. Economics doesn’t work that way. The ability to realize a profit is too far removed, and the inefficiencies and inequities of limiting access and building duplicative parallel highways are much too great. That is why much of our economy is based on “public goods.” These are things, like roads and schools, which benefit a vast multitude of Americans. Think of K-12 public education, or our highways.

The interstate highway system was initiated by a Republican president, Dwight Eisenhower. It resulted in a tremendous network of highways to move freight and people across states, regions and the entire country. It wasn’t cheap. Federal costs were about $119 billion, with the states contributing about $11 billion. It would have been impossible to finance and construct in the private sector. The benefits accrue to travelers, like my son and me, and especially to private freight companies, as one would suspect by just counting the number of tractor trailers we passed on Lookout Pass.

This is the beginning of the summer highway construction period, so we spent some time on two-lane interstates while the westbound lanes were getting repaved. At the end of each repaving project, a sign identified who paid for the repaving. The typical stretch might have $7 million of federal money, $200,000 of state money, and no local money. That means that the federal government is injecting a lot of money into local economies, money that creates local jobs and local purchases, buoying the private economy.

We stopped at an abandoned open pit mine in Butte, Mont. Looking down into the water that is slowly filling the pit, my son commented that it seemed a strange brew. Then we read that the water contains high levels of arsenic, copper, iron, and other more exotic and toxic chemicals. It is so toxic that waterfowl staying over six hours are likely to end up dead.

Who is monitoring the toxicity of this water? The federal government, through the Environmental Protection Agency. Who will clean up the water before it overflows? The federal government, through the EPA. There are a lot of jobs in that work, in a city being abandoned by BP, the corporate purchaser of most of Butte’s mines.

Arriving in St. Paul, Owen started work. But two of his housemates are jobless, putting in volunteer hours and hoping that the retail sector picks up so they can make some money. How do we create jobs? Giving tax breaks to businesses or the wealthy doesn’t help. What does? My son’s summer job is through the National Science Foundation — that is, courtesy of the federal government. With his wages, he can go to the local food store, buy some running shoes, and get his bicycle fixed at the local bike shop. Translation: federal grant = wages = local purchases = local jobs, not to mention the value of his research.

That little equation confounds the (mis)perception that all we need to do to increase employment is to lower federal spending. The truth is the opposite: In a stagnating, high unemployment economy, we need to increase federal spending to enable local purchases that support local economies. One of the reasons for the recent uptick in unemployment is the cutbacks in state and local public jobs. Reduced public budgets = reduced public services = reduced public sector jobs = reduced income for those unemployed workers = reduced local purchases = fewer jobs in the private sector.

The current fad among politicians is to demonize government, especially the federal government. In truth, the federal government is the backstop to the entire economy. Whether through National Science Foundation grants, highway repaving funds, EPA clean-up work, or simply the delivery of Social Security checks month after month, and the payment of Medicare bills, that federal government is there for us. Let’s not starve public spending for an ideology. That will only cripple our market economy, as we know it.

Originally published at HeraldNet.