Go even further down the price list, and I dare you to find a rationale for doing nothing.
Take the case of Moonachie, N.J. The town, about 10 miles northwest of Manhattan, was inundated when a section of levy on the Hackensack River failed (or was simply overtopped by the tidal surge) and 5 feet of water poured into the town of 2,700. Flooding from this "break" also spread to nearby Little Ferry and Carlstadt.
Read the Oct. 24, 2005, Hackensack Meadowlands Floodplain Management Plan to see how incredibly predictable that was. The plan surveys areas subject to flooding in any kind of hard rain. For example, Carol Place in Moonachie experiences severe flooding during any large (two-year to five-year) storm. Potential causes for minor flooding include the lack of a pumping system and clogged catch basins. The cause of severe flooding in harder rains is, the report acknowledges, "unknown."
At Broad and 20th streets in Carlstadt, restoration of the Peach Island Creek tide gates was recommended to prevent tidal surges from moving up that creek. A diving company with experience in inspecting tide-control systems should be hired to assess the extent of necessary repairs to the gates, it says. The condition of the gates was "unknown" as of the time of the study.
Let's see: "survey and repair tidal gates" versus "pump water out of flooded town." Yep, it seems the economics are pretty clear. I think you could compile a similar laundry list of disaster-related infrastructure investments in just about any part of the United States you'd like to name.
And, in case you haven't noticed, these examples make it clear how dumb the current abstract debate about budget deficits is.
When borrowing makes sense
Companies borrow money all the time to invest in their businesses. The issue isn't whether borrowing an additional $100 million is bad or good but what the return will be compared with the cost of the investment. Borrow $100 million to upgrade furnishings in the executive suite? Bad. Borrow $100 million to buy equipment that increases productivity? Good.
Same thing in government at all levels. (Although I would argue that the problem gets larger as you move further from local government and as the sums involved get bigger.)
Spend $823,000 for a General Services Administration "training" session in Las Vegas? Bad.
Spend $823,000 to upgrade flood protection along the Hackensack River? Good. Unless, of course, you think having the National Guard evacuate people from flooded homes in an economically devastated city is a good use of money if it is avoidable. (And note that borrowing at the federal level is currently incredibly cheap. That's not a reason to borrow more, but it sure does change how the profit/loss calculations on any investment come out.)
Of course, our national discussion of the "fiscal cliff" facing the U.S. government at end of 2012 isn't going to include anything as radical as looking at return on investment. How could it, when the country doesn't even do a capital budget that treats investments as a separate category?
Instead, we're going to slash this program and spare that one based on which interest groups yell loudest -- and which groups have contributed the most to the politicians who are best placed to influence the decisions.
Maybe someday -- after another devastating natural disaster of two in other parts of the country --the United States might invest in ways to prevent damage to its infrastructure -- or even in improvements to existing infrastructure. But listening to the closing days of this election, I'm not counting on that happening anytime soon.
Meanwhile, buy Lumber Liquidators and dream of a world where economic logic decides where our tax dollars are spent.
Updates to Jubak's Picks
These recent blog posts contain updates to the stocks in Jubak's market-beating portfolios:
- Why Yamana shares are soaring
- Signs of trouble for Apple?
- Why Costco shares could hit $110
- Freeport-McMoRan's solid quarter
- Abbott, Bristol-Myers race for hepatitis cure
- Banking investors cheer Citigroup results
- Stillwater shares recover as strike settles
- Why Xylem is looking better
- Price worries in the rare-earth markets
At the time of publication, Jim Jubak did not own or control shares of any company mentioned in this column in his personal portfolio. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this column. The fund did not own shares of Lumber Liquidators as of the end of June. Find a full list of the stocks in the fund as of the end of June here.
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Jim Jubak's column has run on MSN Money since 1997. He is the author of the book "The Jubak Picks," based on his market-beating Jubak's Picks portfolio; the writer of the Jubak's Picks blog; and the senior markets editor at MoneyShow.com. Get a free 60-day trial subscription to JAM, his premium investment letter, by using this code: MSN60 when you register at the Jubak Asset Management website.
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