That's generally true, but when infrastructure funding is increased by 250% for two years, those economics change dramatically.
Federal government infrastructure spending was $70 Billion in 2008. I don't know what percentage of the market that is.
If I can defend Wes for a moment I don't think he has a dislike of democracy at all and I think his suspicion of big government is because he likes the idea of democracy in terms of a reliance upon the people rather than the government to accomplish things. Why he distrust governments is that too often governments even with the best intentions operate very inefficiently and incompentently. When blown up to the size of the US government the inherent complexity of it makes it almost impossible to manage effectively. Add on top that all of this has to be done with borrowed money we are leaving a huge burder to future generations for what might only be a short term solution and with much of the money lost to waste. I don't totally agree with Wes' position but I think his concerns are very valid.
Another perspective: The entire cost of the New Deal in 2008 dollars was $500 Billion over 18 Years. Before the New Deal, we had virtually no debt. We're going to attempt to spend more than that in 2 years, and we're up to the bottom of our eyelids in debt.
I should say that, with relatively few exceptions, no one does roads, bridges, water, waste management, and a few other parts of infrastructure better than government, and the Federal Government has been figuring out ways to call infrastructure Interstate Commerce and been involved in it for 150 years or more with some notable successes. On the other hand, the value of infrastructure work for stimulus is vastly overrated. You only have to look at our country in the 1930s or Japan in the 1990s to see that. The allure of using Public Works for stimulus is an old one, because it is one of the things that government does right. The Federal Government also does a good job with the Post Office. It would be flat out silly to recommend expanding the Post Office for economic stimulus, but I don't really see the difference in that and building a train station that there's no demand for.
On the flipside, the US GDP in the mid-1930's, in 2008 dollars, was somewhere around $600-$700 billion. So that represented a much larger spending spree (albeit over a longer period of time) than $800B in spending on a $12 trillion economy.
You’re not supporting your claim here, and that makes it essentially an empty claim. Clearly there is an upper limit, but what makes you think the limit is less than 250%? It is true that there are only so many qualified contractors, for example, but at the moment a whole lot of them are sitting at home twiddling their thumbs. Much of the private sector work has dried up, as you know firsthand. We’ve discussed this very issue with respect to some big oil sands projects. To get the most bang for the buck the government does need to target their projects at the resources that are available at the moment, but at the moment there are a whole lot of resources available. That is in fact a key reason for doing the work now. What kinds of design work do companies like yours do, for example? Can you do work on geothermal power plants? How about cellulosic ethanol plants? (see: http://www.iogen.ca/) Do desalination plants use enough pressure vessels and thermodynamic cycles to fall within your areas of expertise? Some contractors will be highly specialized, but others will be able to do various kinds of projects that currently need to be done. Here’s another thing to consider. I think there is very little doubt that we are moving into an age of changing technology, much of it centered around “green” energy and sustainability issues. What better time is there to train the scientists and engineers who will lead this next wave than now? Now would be a great time for the government to offer incentives of various sorts to engineers and scientists who want to go back to school to take grad degrees in some of these key areas. In two years time, when the economy is picking up again, North American schools would be pumping out people with cutting edge knowledge to lead us into this age of new technology. A down time can be a real opportunity, an opportunity to get needed work done, and to retrain to address shifting needs and trends, and all of this needs to happen through a partnership between the public and private sectors. The government isn’t inherently bad, nor is the private sector. They are both required to make a healthy democracy work. The question is, then, how can they best work together to best serve the needs of the country?
http://cato.org/special/stimulus09/cato_stimulus.pdf Full page ad in today's New York Times, among others. HUIZHONG ZHOU,Western Michigan University
This is entertaining. They give two examples of it not working and then conclude that "thus, it doesn't work". That's some high-end analysis there. And the better part is that at least one of the two examples isn't even fully accurate. Government spending dramatically reduced unemployment in the mid-1930s (from something like 25% to 15% or so) - and then the government abruptly stopped the spending and unemployment spiked again. Then WW2 started and the government (a) took a bunch of people out of the labor force and (b) started spending a whole bunch and the recession ended. It seems like a pretty strong correlation between government spending and unemployment, at the very least.
Which makes it even worse. It's simply attempted propaganda to push their own economic viewpoint (which has a fairly sound theoretical basis). All they had to do was get 6 or 7 sentences right, but they couldn't even do that. One sentence was only partially accurate. Another made an "as such" claim that doesn't work. And then they just tried to post a massive list of people who no one has heard of it in order to "wow" people into thinking it should automatically have credibility. We don't even know if most of the people listed are economists. They might just be a list of members of the Young Republicans Club at some random universities.
OK Major, I'll respond to you more directly. The New Deal did create jobs, but it destroyed private sector jobs. Part of the 10% reduction in unemployment was getting workers out of the market with Social Security, the rest were government work programs. In 1938, 3.2 Million People, >5% of the workforce, worked for the WPA alone. Another 500,000 worked for the CCC. You are technically right about World War II getting the US out of the Depression, but it wasn't because of US government expenditure. Factories starting up to fill European war orders got the US out of Depression. I checked the first few names on the list. Of the first 7, 6 are professors of economics at the college or university listed. 1 is a lecturer in economics. Which should surprise no one, because Cato has always been held in high regard for a lobby for their integrity, even among people that disagree with them. The Nobel Laureates in the list are identified as such.
When I read things like this I just shake my head. This is just empty rhetoric. Once again I think this is the kind of thing you hear from people who have an irrational fear of governments. I know they're not yours, but can you provide any sound logic behind any of these points weslinder?
The difference between what you’re saying here, however, and what I’ve heard being proposed now is that the current projects are not ones that would have been done though private sector funding. If a government agency builds a bridge, for example, it will in one way or another hire private companies to do the job, and they will hire their own employees. I don’t see any private sector jobs being lost in this scenario, only private sector jobs being created.
Are these long-term spending increases / tax cuts, or one-year effects? In other words, is the increase in GDP (which presumably is permanent) assuming the government spends $1 more this year only, or $1 more every year in perpetuity? And same with tax cuts - is it a one-year tax cut or a perpetual one? Regardless, for some empirical evidence, we had a $2 trillion tax cut in 2001 - and it certainly didn't increase our GDP by $6 trillion. I would think the impact of tax cuts would depend on the level of taxation. Tax cuts will have a much bigger impact if you're at 90% taxation than 25%. So tax cuts during the Reagan years would have a larger impact than today, for example.
Here's the paper. The "$2 Trillion" tax cut in 2001 was estimated at $1.35 Trillion over 10 years then. The GDP growth from 2002 to 2003 was $400 Billion. That's just over 3X the tax cut. (Yes, I understand that not all of that was due to tax cuts, but the same math is used for both directions.) Growth because of tax cuts should be similar until bond buyers begin to worry about government's ability to pay those bonds. The difference is that when taxes are less that 1/3 of GDP, cutting tax rates to increase tax revenue stops working. Please understand, I'm not advocating increasing the deficit for stimulus, whether through tax cuts without spending cuts or spending without taxes. It's incredibly short-sighted.
