Can Obama's Infrastructure Program Work?

Anyone looking for an indication of how dramatically the American political landscape has changed since September 2008, when the global economy slid into its meltdown, should consider this: The proposal floated recently by President-elect Barack Obama to spend at least $675 billion over just two years to stimulate the moribund economy ­-- with the largest share of the money slated for infrastructure projects aimed at repairing crumbling roads, bridges, sewers and the like -- is drawing no serious political opposition, even from conservatives who not long ago would have railed against such a massive spending increase.

To win even broader support for the proposal, Obama advisors announced a plan this week to include about $300 billion in tax cuts for workers and businesses.

To be sure, Obama's infrastructure plan has drawn considerable debate, but mostly over the details -- the size of the stimulus program, how to structure the plan to create the most jobs in the shortest time, and how to administer such a large program to limit corruption and pork-barrel projects.

Indeed, two Wharton professors have prepared congressional testimony or launched new academic research on how to best provide meaningful oversight for government spending on an economic stimulus plan -- an issue that has assumed greater importance amid news accounts that there has been virtually no transparency in the recent doling out of $350 billion in federal bailout dollars to banks and other financial institutions.

"It's not at all obvious how this thing is going to work -- they're talking about projects that are shovel-ready. But if [they are] shovel-ready, that means the state has already put aside money to do them," notes Wharton finance professor Robert Inman. He has just begun a research project with the Federal Reserve Bank of Philadelphia that seeks to better quantify the true job-creation value of an economic stimulus package like the one Obama is proposing.

Don't miss these related stories and videos:

"Cramer: Worried About Infra Stocks" (Video)

"Obama's Jobs Plan Had Better Work"

"Obama's Short on Details, Long on Optimism"

"Opinion: Justifiable Pessimism Over Obama Hype"

"We Need Spending on Infrastructure, Not a Political Punt"

"Building a Position in Jacobs"

"China's Infra Plan Is the Real Driver"

"Cramer: An Infra Opportunity for Obama"

Spending Productively

In interviews with a half-dozen Wharton faculty about the Obama stimulus plan -- which has been outlined only in broad strokes, with more details to come as the Jan. 20 inauguration draws closer -- no one was opposed to the concept of a large economic stimulus package to jolt the economy. Kent Smetters, a professor of insurance and risk management, had voiced concern that during and after the election that an Obama administration would impose new tax burdens on corporations. But he agrees that a massive infrastructure program could help bring a speedier end to the recession here in America, assuming the money is spent productively.

"I think the most persuasive evidence is that very basic infrastructure projects like roads and bridges actually do have a big impact on productivity, so it's good," says Smetters, citing economic research conducted in the 1990s. His biggest concern about the Obama proposal is that too much money will be devoted to less productive types of job creation -- as Smetters argues happened with some of the public works projects championed during Franklin Roosevelt's New Deal in the 1930s. If so, that could actually slow the recovery.