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Bailing Out the States’ Bailout



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In his jobs speech today, President Obama proposed infrastructure investment “beyond what was included in the Recovery Act.”

Achieving this goal won’t be difficult, as only half a percent of the $787 billion stimulus bill went toward crumbling roads, bridges, dams, and subway systems.

But infrastructure spending will be effective only if the new funds address an old problem: states and cities are spending too much money on their workforces and not enough on physical assets. The spring stimulus made this problem worse instead of better, since it threw more money where the old money already goes.

The president should send new infrastructure money only to the states and cities that spend the next three months enacting plans to cut their labor costs. Otherwise, municipalities won’t have the money to maintain anything they build or expand.

The bailouts of Chrysler and GM were disasters whose costs to the economy are just beginning.

But at least the auto companies and unions had to acknowledge that their labor costs were outdated and unaffordable, and not just in the context of the recession.

States such as California and New York still haven’t acknowledged that fact.

— Nicole Gelinas, contributing editor to the Manhattan Institute’s City Journal, is author of After the Fall: Saving Capitalism from Wall Street — and Washington.



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