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Sept 3, 2011


Arshad M Khan

In our present world of religiously held economic beliefs, agnosticism might  
be prudent.  On one side, they just want to cut taxes and reduce spending;
on the other we have seen a stimulus package of dole-outs and
"shovel-ready" projects that has done nothing for unemployment.  It remains
stubbornly around 9 percent.  Of course the biggest "shovel-ready" project
supported by both sides has been a bail out of bankers directly responsible
for the mess in the first place.

In the meantime, the Fed has been busy pumping money at a rate that has
the dollar hitting new lows in the currency markets and gold reaching new
highs -- the latter aided by near-zero T-Bill rates thereby negating the
opportunity cost of owning it.

It all works to some extent -- we are not in a tail-spin -- but like Japan for a
quarter-century, we can also imagine decades of life in the doldrums.  The
Keynesian answer to lack of aggregate demand has always been a stimulus
package of monetary and fiscal measures.  On the monetary front, the
near-zero interest rates are about as far as the Fed can go.  And since the
$787 billion stimulus package wound down (late 2010), the economy is not
growing fast enough (quarterly growth rate last quarter was 1 percent) for
necessary job growth.

Keynes, however, was particularly keen on investment in infrastructure.  In
difficult times with stubborn unemployment, the government becomes an
employer of last resort.  Government hiring injects income which starts a
chain of events where the total effect is multiples of the original investment.  
The process is akin to seeding.  Spending by the newly hired injects life into
businesses, small and large, and over time propagates hiring in the private
sector; all this activity in turn generates additional government revenue.  
GDP is over two-thirds consumer expenditures, and we need extensive
seeding to create enough jobs and spending to move a stagnant economy.

It so happens, we have before us the possibility of a marriage between vast
numbers of unemployed and a disintegrating infrastructure.  The American
Society of Civil Engineers (ASCE) issued a report card on infrastructure in
2009.  Almost everything (aviation, dams, roads, schools, transit, waterways,
waste water) received a grade of D-, D or D+.  Slightly better were bridges (C)
and rail (C-).  Nothing received a grade of A or even B.

ASCE calls for "bold leadership and a compelling national vision", reminding
us that our greatest infrastructure projects stem from Federal programs like
the New Deal, the Interstate Highway System and the Clean Water Act.  It calls
for the Federal government to take the lead in developing a strategic vision
that can be supported by other levels of government and the private sector.

Looking to the future, modernizing our obsolete passenger railroad system
is a unique development opportunity.  High speed rail makes journey times,
city center to city center, competitive with airplanes up to a 1000 mile trip.  
The railroads are quicker for journeys less than 500 miles.  This is a project
that can transform the economic landscape creating a giant suburb of the
Eastern Seaboard with expanded job, education and business opportunities.  
For the rust belt, connecting to Chicago and New York would take the
pressure off urban centers and spur regional development.  Rail travel also
has a smaller carbon footprint.  According to the International Energy
Agency, transport pumps 6.4 billion metric tons of carbon dioxide into the
atmosphere.  Road traffic is among the highest contributors, electric rail
substantially less.  Reputable sources like Greengauge 21 seeking to
advance high speed rail, claim its carbon emissions are roughly one-third of
automobile and one-quarter of air travel.

High speed rail has also been an unqualified commercial success.  Japan's
Shinkansen is one example, the French TGV another.  According to Michel
Leboef, the head of major projects at SNCF the French national railroad,  TGV
is a victim of its own success with capacity problems on nearly all its routes.  
He advises setting aside spare space alongside the tracks for future
expansion because, in his experience, usage has always overwhelmed

China current high speed rail network is already the world's largest. But it
plans to invest a further $500 billion in present valuation.  The goal is to
have four north-south and four east-west lines comprising a 1200 km
network by 2015.  There is little reason for the U.S. to continue to lag far
behind Europe, China and Japan, and suffer the consequences, other than a
lack of will and leadership.

A joint study by Siemens and the U.S. Conference of Mayors highlighted
some of the benefits.  The small links planned in California, Illinois, New York
and Florida are expected to generate another 150,000 jobs, take 5000
commuters off California roads, and pluck 12.3 million passengers out of the
skies by 2035.

Chinese trains have already topped 300 mph though regular running speeds
are closer to 200 mph.  But the next generation technology being planned
and installed now are maglev trains.  These float on cushions of air, are
quieter, quicker, accelerate and decelerate much faster -- so can reach
optimum speed even on frequent-stop routes -- and require much less
maintenance.  It would take visionary leadership from the public and private
sectors to plan a 400 mph network of the latest maglev trains but it would
transform and galvanize the United States much like the age of steam did in
the 19th century.