The government spent a lot of money trying to get us out of the recession. I remember reading a number of accounts of how many jobs the incentive created. I also did the simple math problem <dollars spent/jobs created> and was a bit shocked to discover that the answer (depending on whose figures I used) was between $50 and $200 thousand per job. Most of those jobs went away as soon as the subsidy ran out. I also saw several of the projects that the money created. They are easy to spot as they have a big billboard proclaiming that it was built with the stimulation funds. The ones I saw were things like improving the road to a small national park, or building a government building that really wasn’t needed, and will be a drain on the public’s pocket for years. None of them had a long term positive economic impact. Since it was paid for with borrowed money it has a long term interest charge associated with it too. This is NOT the way to stimulate the economy.
Economics in my experience is not a matter of the amount of money in the system (that never changes significantly), it is a measure of how often it changes hands, or as I call it “churn”. When times are hard people hang on to their money and the churn drops off. This makes things worse in a vicious circle. When times are good people spend because they know there is money coming in, and the churn goes up. The economy just becomes better and better. So the economy is driven, to a large extent, by emotion rather than reality. Therefore there is a psychological component to economic recovery. So having a national purpose is an important component of any recovery plan. One that has been noticeably missing in the current economic recovery efforts.
Imagine the economy like a staircase. Stimulus money is like a slinky on that staircase. Every time it flips down a step it generates economic churn. Since more churn generates more economic benefits, where on the staircase would you put the slinky to generate the maximum economic effect? The top step of course. Unfortunately, most of the “economic stimulus” projects, I am aware of, are on the bottom 2 steps.
So how do we know what step a particular program is on? It is a very complex calculation and requires a lot of data that I don’t have access to, but in general something that has lots of spinoffs and/or generates a long term economic product sits high on the staircase. A good example of that was the space program in the 60s and 70s. It funded much research into electronics, computers, lasers, communications, even was part of the reason the internet was born. Directly it brought us international satellite communications, advances in computers, imaging, medicine, and a lot of understanding of fundamental science. Furthermore it inspired several generations of students to study science and engineering. That was a good investment for the government to make.
A mid-level example is infrastructure improvements, road and bridge improvements, broadband communications etc. While those have more of an impact on maintaining the status quo they enable a lot of long term benefits. The interstate highway system was created in the 50s but it eventually changed the way Americans live and work as well as stimulating a huge housing boom as people moved to the suburbs.
So, what is the answer? Some of everything, with the emphasis on the higher level projects. Of course we have to do some lower level stuff too while the economy catches up such as unemployment benefits and mortgage assistance. But spend where it’ll do the most good and insist that all the work and production takes place in the US. No sense stimulating China’s economy. We need lots of infrastructure work just to keep up and a fair portion of the money should be spent there (but in projects that help or at least maintain the economy in the long run).
We do need a flagship project that will not only have high churn but will have a positive effect on the psychology of the country. A goal worth reaching for, that everyone can understand. I propose achieving energy independence. See my blog on that for details. Not only will that generate a high churn it’ll have a very long term economic impact, and keep dollars at home and out of the hands of people who do not have our best interests at heart.
It doesn’t take a rocket scientist, or even an economist, to understand simple economics. I just wish the president and congress did.
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