Why Buy American provision is a bad idea

The House recently passed a $819 billion stimulus bill that would invest significant amount of money in public infrastructure. The bill also includes a provision that a stimulus project should utilize only US manufactured iron and steel. The European Union and the Canadians are pretty much ticked off with this provision and are considering complaining to the World Trade Organization.

This protectionist measure wont help us recover from a recession. Because, if we adopt this measure...the European Union and the Canadians will adopt similar provisions and as a result the whole globalization principle falls through and we revert back to medieval times!

Imagine this...before the financial crisis, the US regulators introduced a clause requiring that the subprime loans from the US should be invested only within US territories. This would have certainly guaranteed a deeper recession than the current one. Thanks to the Europeans and the Canadians, our subprime risk was transferred to their nation and their banks were bankrupt along with ours. Further, the clause would have stymied innovation in the financial industry.

America, as a symbol of Capitalism should continue to promote free market mechanisms it has adopted so far.

Detroit Mayor wants to lease the tunnel

The new mayor of Detroit wants to follow the footsteps of his predecessor and lease the Detroit-Windsor tunnel. Mayor Cockrel hopes to raise $250 million by leasing the Detroit-Windsor Tunnel, Municipal Parking, and Public Lighting.

Detroit is facing a deficit of $300 million. The mayor also wants to introduce 10% pay cut to workers.

Leasing Detroit-Windsor tunnel to raise upfront cash simply wont work. Ask Mayor Bloomberg who tried congestion pricing and Gov. Corzine who tried leasing the turnpike. They had to withdraw the plan because of lack of public support.

In good economic times, the plan would have worked and Detroit would have probably got a good deal from the private institutions. But now considering frozen capital in our banking system, private investors are reluctant to lend money. Its a buyers market.

"This practice, which has succeeded in other cities, sells the right to the income generated by city operations over a contracted period of time in exchange for a lump sum payment. This is no different than a citizen winning the mega millions jackpot and taking a single lump sum payment immediately instead of a series of payments over many years. This transaction allows a person to get money when it is needed most."

Personally I think it is unfair to compare the money generated from leasing state assets to proceeds from a mega million jackpot.

Photo Courtesy of Debbie Schlussel

Image of I-35W Bridge in Minneapolis

Image of the recently constructed I-35W bridge in Minneapolis. Image courtesy of MnDOT.

Challenges facing Transportation Secretary Ray Lahood

The American Society of Civil Engineers recently gave the nation’s infrastructure a mere passing grade of D. The society claims that the US infrastructure will need an investment of $2.2 trillion to fix the repairs.

The House recently passed a stimulus bill with nearly $43 billion investment in transportation. The Senate is contemplating on a similar bill with nearly $40 billion for transportation infrastructure. This stimulus is a significant investment in our nation’s transportation infrastructure since the Great Depression.

Transportation Secretary Lahood (R) is tasked with the execution of such a massive investment. His primary objective will be to make sure that the investment is implemented as soon as possible to provide quick stimulus to the economy. However transportation improvement projects involve bureaucracies such as Federal Highway Authority, State Departments of Transportation, Department of Environmental Protection, etc. Immediate execution of the transportation stimulus will require quick response from such institutions and Secretary Lahood will have to actively involve to foster inter agency communication.

Next, the federal surface transportation act – SAFETEA-LU that provides funding for numerous surface transportation projects will lapse in September 2009. Secretary Lahood will have to plead his case for reauthorization of the federal funding in front of the congress. The Federal Highway Trust Fund, based on the unpopular gas tax, is already bankrupt and the congress recently bailed it out with an emergency cash infusion of $8 billion. Future federal funding for transportation projects will depend on how the Trust Fund will be replenished without increasing the gas tax.

During Bush administration, Secretary Peters promoted market based mechanisms such as Public Private Partnerships, Congestions Pricing and Asset monetization. These mechanisms have failed because of their unpopularity with the public. Secretary Lahood will have to pick up the mantle and promote the importance of such innovations to the general public or come up with alternative financing schemes that are appealing to the public.