I go to school just outside Boston, and my family lives near Philadelphia, so I do a fair amount of travel between the two cities. Lately, I’ve noticed one bothersome change – the amount of traffic created by construction projects has greatly increased the length of the drive. Given the poor shape most state budgets are in, and the emphasis on infrastructure spending in spending stimulus funds, my intuition says that the stimulus funds are financing this construction, which is in turn causing traffic.

Now, my trips are done later at night – I usually work during the day, have dinner, and pack before getting on the road. I’m usually traveling between 8 p.m. and midnight, since it fits my schedule and will theoretically minimize rush hour traffic issues. The favored time to do this roadwork, however, is overnight, when it impacts fewer people than during the day. As much as I don’t like that, at least there’s some forethought there.

One of the dangers of the government allocating funds as it will is that the need for economic value to be created might not be considered. We will spend in the name of taking action, even though taking action is more costly than not doing so, in terms of opportunity costs – the money must come from somewhere, after all.

It’s a fact of life that roadways need to be maintained, and I’m not arguing that. But if less-than-necessary work is being done in the name of “creating jobs” or “investing in America,” all the costs need to be included. There’s little good that can be said about traffic jams, but they do offer plenty of time to think, and this thought experiment occupied me during a recent construction-induced backup on I-84 in eastern Connecticut one evening.

The total time I sat in traffic, which I’m defining as a speed below 10 m.p.h., was 40 minutes – this excludes, for example, when the road was closed down to one lane, but traffic flow was moving along around 40-45 mph. During that time, I traveled about 2.5 miles of road that was bumper-to-bumper across three lanes of traffic, and a half mile that was two lanes of traffic of similar density.

According to this from Edmunds.com, the average mid-size sedan in 190 inches (15.83 ft.) long, and the average length of a trailer truck is 80 feet (various sources). I’d say about 15% of the traffic on the road with me at that point was trailers, giving an average length of 25.45 feet for vehicles on the road. Assuming 10 feet between vehicle in either direction, and each vehicle takes up 35.45 feet – meaning 149 vehicles would fit in one lane one mile long. Approximating that for the number of “lane-miles” (8.5) yields 1266.5 vehicles in the traffic jam with me at that point in time (about 10 p.m., for the record). If there are 1.2 adults per car, then 1520 adults had their time wasted by sitting in traffic caused by road renovations; with Connecticut’s minimum wage of $8.00/hr. (being conservative), I calculate that it costs $12,150 in lost time per hour wasted, or $8,000 for the 40 minutes I sat in traffic.

These assumptions were meant to be conservative (i.e. not counting wasted gas), and it makes me wonder whether or not we’d actually be better off just dropping money from helicopters as stimulus, rather than making busy work that creates negative externalities. Since we’ve clearly committed to trying to carry trade the economy back to profitability, we might as well take the next step in forming the Hedge Fund of the United States and find the best relative value opportunities.

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One phrase I keep coming back to is “playing for time” – I see it as a good description of the strategy (or lackthereof) underlying most of the economic policy decisions that emanate from Washington.

What areas are being targeted, and how is it being accomplished?

Real Estate

Autos

Banks and Other “Financials”

The entire point of playing for time is to increase optionality. More information becomes available, and perhaps the economic situation will change for the better. But keeping businesses alive comes with indirect costs – more competition reduces the ability of healthier firms to pick up profitable customers – and with an implicit backstop from the government, borderline financial companies are incentivized to take more risks than usual.

The immediate result of those actions is to accelerate consumption, defer pain (losses), or interfere in allowing the market to set the prices it would otherwise set. To loosely quote a recent note from David Rosenberg, only in America are policies that encourage excessive consumption celebrated as a success. Yet that’s exactly what’s being done through a program like Cash for Clunkers, and the public reception has been very enthusiastic – a dangerous turning point in the series of bailouts.

I’m wary of data (and interpretations) suggesting that recovery is at hand, because uneconomic activity can only be encouraged for so long. That’s a lesson the Fed should have learned from previous heroic rescues during downturns, but chooses not to, because the expedient solution is to shovel money into any area of the economy that will take it.

Home prices, which undoubtedly went through an enormous bubble, are now the subject of a great experiment in controlled deflation. “Affordability” products sprung up earlier in the decade, when buyers had no savings for a down payment. Those turned out to have disastrous consequences, and yet policy now is directed toward offering what amounts to down payment assistance via a tax credit, and artificially low mortgage rates through the Fed’s market operations. We’ve been down this road before…

Boosting GDP for one or two quarters with the $3 billion (at present) Cash for Clunkers will quickly be revealed as wasted money; there are only so many new cars that people need. Most shrewd observers have realized by now that the program will skew statistics favorably for a time, without doing any real good. Of course, if the point is to save the “American” automakers, the program has been a failure on that front too.

The silent bailout of the financial system through zero interest rates and guaranteed debt is more pernicious – the TLGP, for instance, is estimated to be a $24 billion gift to those using it. And yet, little will be said about that as long as the impact on the Treasury’s borrowing costs remain marginal. Can we carry-trade weak financial institutions to profitability by leveraging the U.S. government’s borrowing ability? Likewise, can we store the health of balance sheets by stealing from savers through interest rates effectively at zero? We’re certainly trying.

Across sectors, there are many companies awaiting a turn in the cycle – and the only reason they’re still around is due to the good graces of the government. But cycles don’t truly turn until fewer people are around to looking at them, and it’s doubtful policymakers are willing to adopt this position and let liquidations occur. Playing for time comes at a cost – on a personal level, it means delaying decisive action that stands a chance of accomplishing something. I can only imagine what it will mean for the country as a whole.

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