Yes the government puts money back in to the economy but almost all taxation has deadweight losses. Therefore in order to get back the money put in the multiplier will have to be that much greater to break even. If the deadweight loss is 20% the multiplier will have to be 1.2 to be value neutral to the economy.
Tax cuts on the other hand have no dead weight loss at all.
Your last sentence is an assertion. The article I linked to made an assertion before the stimulus was spent that the economy would not be fixed. Those who supported the stimulus said it would fix the economy. The economy has not been fixed so it would seem to me that the anti-stimulus argument has been vindicated by actual events.
I’m still not clear why the Republicans balk so much at spending on infrastructure right now. As I see it we have the following situation
- Our infrastructure is crumbling so at some point we will need to repair it.
- Interest rates are low so money is cheap
- Unemployment is high so labor is cheap
- There is under-utilized production so material is cheap
- Utilizing labor and under-used production will help to revive the economy at a time when it really needs it.
With all this in mind why not work on the infrastructure now. It needs to be done, could help us now, and will be more expensive later on. This is one of the main advantages of government over industry, since it doesn’t operate according to the motive of instant profit, it can afford to take a long view and act in counter cyclical ways.
If there are any flaws in my logic I would really appreciate hearing them.
The key is that when times are good, you pay off the debt, not do like Bush did when he came into office and see a surplus as an excuse to lower taxes.
And borrowing for infrastructure makes sense, since the benefits extend over many many years, so should the payments for it.
…likely because that would be counterproductive to the Republicans’ #1 goal of limiting Barack Obama’s presidency to one term. The 2nd reason is that the GOP refuses to increase spending without offsets in the budget, and the Dems are reluctant to cut other areas of the budget. Pres. Obama introduced an infrastructure bill to The House of Representatives in September 2011 and also gave a speech to the full Congress. Obama repeated ‘Pass this bill’ over a dozen times in that speech. I don’t think that Speaker Boehner even brought the bill up for a vote. Some Republicans expressed interest in passing the bill if an equal or greater amount of spending could be cut from other areas of the budget. Of course, the struggle of the Congressional supercommittee, which emerged after after the summer 2011 debt ceiling fight, revealed the extent of the gridlock on spending and revenue issues.
There was some infrastructure spending included in the 2009 stimulus bill passed by Congress when the Democrats had majority in both houses.
No, there are no flaws in your logic.
Oh that’s really easy to point out. The projects aren’t shovel ready and the President has admitted that problem.
In my area he gave a speech in Cincinnat with the Brent Spence Bridge as his backdrop and he talked about the jobs associated with it’s expansion. The only problem with it is that it will be many years in the future before anything happens.
- How much of our infrastructure is crumbling? The only accident due to crumbling infrastructure I can recall was that minnesota bridge which collapsed due to a design flaw. If you repair things before schedule you may just be upping the lifetime cost of the project for little real benefit.
- Interest rates are low but debt is really high, cheap money is still money that needs to be paid back and it is not a certain thing that the government can pay back the money it currently owes. This is not a good time to be casually borrowing money.
- By law government has to pay prevailing wage rates, this is set by formulas to make sure unions are not being undercut. This ensures the government pays top dollar for labor regardless of unemployment. Also just because someone is unemployed does not mean they know how to build infrastructure. The opportunity costs may be smaller but not the monetary costs.
- Much of the underutilized resources comes from the housing construction sector which is different than what would be used to build roads or bridges. If new equipment needs to be bought what happens to it after the frenzy of building is over. Spacing projects out allows governments to better allocate capital.
- This is speculation, the Japan scenario is a very real possibility. They have built infrastructure for 30 years, and have a massive debt and the growth never came back. Most of the best estimates for multipliers of government spending are around 1. If the idea is to better the economy most estimates of multipliers are higher for tax cuts. Monetary policy is probably the best way to stimulate an economy, so shouldn’t we try the best policies first?
The key point is number 2. The optimal policy may be to spend during bad years and save during good years, but those are relative terms. Many people complained during the Bush years about the economy being weak, they thought those were the bad years. If we knew that the economy would be humming in three years it might be a good time to borrow alot more money we can pay back then. However, three years ago we thought the economy would be much better than it currently is. The prudent thing to do is to budget based on the current fiscal situation and not rosy hopes for a better future.
There have been a number of serious and semi-serious accidents involving privately owned oil and gas pipelines, thanks to slack enforcement of federal inspection requirements. There was a good (if a bit one-sided) article about it in the last Newsweek.