Public works programs - an acceptable solution for (much of) the US's current economic woes?

Great Debates
1

I suppose this is an issue that could almost be placed in GQ given that there is accumulated empirical evidence to inform the discussion as well as a good deal of economic theory underlying it (or so I am led to believe - I, myself, am ignorant of virtually the whole field of economics).

Still, the nature of the question (including as it does aspects of economics, poliitcs, social philosophy, etc.,) guarantees that a definitive answer may be, to put it mildly, elusive. So, Great Debates seems the more appropriate forum (but I hope not the Pit!).

In any case, I am curious to learn more about the (predicted) effects in the US of a government-funded public works program, or set of programs. I am thinking about programs that are substantial in nature, and introduced throughout the country. By and large, I am going to assume that these works would focus predominantly on the country’s infrastructure (focused, in turn, on transportation, communications/information, housing, and energy systems).

So, let’s imagine that the Federal Government (perhaps in partnership where possible with state governments) introduces trillion-dollar range programs which would employ people to fix, replace, and/or upgrade the things alluded to above (e.g. bridge work, highways, pipelines, communication links, cables, etc.). Basically, like a ‘21st-century New Deal’. What would be the effects of such an undertaking.

Admitting my ignorance in matters economic once more, I would still speculate that there would be some fairly obvious benefits and some predictable risks and liabilities.

Potential Benefits:

  • substantially decreased unemployment
  • decreased government spending in some areas (e.g. unemployment benefits)
  • enhancement of commerce in general (as a result of both improved infrastructure and more workers with money to spend) which would ‘obviously’ benefit the economy
  • improved ‘morale’ and optimism (a good thing by itself, but also of benefit to the economy)

Potential Risks and Liabilities:

  • as a matter of principle, government intervention may be undesirable (e.g. it might foster the population’s dependence on the government; it sets a precedent for further government intervention in other areas)
  • hiring and paying millions of workers by the government would increase government debt
  • hiring and paying millions of workers by the government would be inflationary (and would further increase government debt because of the high interest rates which would result)

No doubt there are many more items that could be included under both headings. In fact, that’s what I’m hoping - that you can point out other risks and benefits, and, ideally, which weigh the scales are likely to tip overall.

I should make explicit that I don’t have a dog in this fight; I’m here to learn. Having said that, I must admit that my sympathies tend to lean to the interventionalist side. But I’m definitely not wed to the idea.

What say ye?

2

According to this study, spending on education creates far more jobs than spending in other categories (military spending, tax cuts for consumption, health care, energy).

Military creates about 11k jobs per billion spent. Health care, energy and tax cuts each would create about 15-17k jobs per billion. Education creates 27k jobs per billion spent.

3

Lets be clear on something: govt spending never creates wealth. The govt has no money of its own. For the govt to spend a dollar, it first has to take that dollar. So no wealth is created when the govt takes money from one group of people and gives it to others. You cannot raise the level of water in a bathtub by scooping from the front of the tub and pouring it into the back.

4

Further, consider the historical record of public works programs. Recall the Great Depression when FDR launched a gazillion such programs and all that happened was a recession INSIDE a depression. In 1937, the economy crashed again even though the depression was still ongoing. So…we have to consider history.

George Will writes that since LBJ, we have spent over $6.6 trillion on poverty-related programs.
http://www.washingtonpost.com/wp-dyn/content/article/2006/03/03/AR2006030301756.html

Do we still have poverty?

5

This is nonsense- when the government spends money on scientific research, for example, new ideas (like a myriad of spin-off technologies from the space program) can be created, which is a creation of wealth.

6

Indeed we do- and it was perhaps the greatest public works project in US history that finally got us out of the Great Depression for good.

7

As to the OP, I think it would certainly go a long way to helping the US economy. Throwing money out of helicopters would help the economy- building/fixing stuff is better, because then we actually have something to show for it (including more experienced workers).

8

Wage driven inflation is the best kind there is.

9

In a way, though, couldn’t you look at it as a loan from the government to the workers et al, where it gets paid back (hopefully and eventually) downstream in taxes, sales overseas, etc.?

Your argument, above, becomes almost irrelevant if things are viewed in this context (ETA: assuming I’m not FOS ;)).

10

I think I understand why you say that. Still, is there evidence of any sort for the statement?

11

Dollar’s aren’t wealth. The Federal gov’t can create infinite dollars by fiat, but its obvious the Federal gov’t is not infinitely wealthy.

Wealth is the production of the economy. Normally our economy runs at near full capacity, and so the gov’t can’t create more wealth then the economy does on its own. But when there’s idle capacity, like say, when the unemployment rate is at 7%, then the gov’t can create wealth by putting that capacity to work.

12

The 1937 crash occurred due to austerity policies: http://economix.blogs.nytimes.com/2011/07/12/are-we-about-to-repeat-the-mistakes-of-1937/

13

That’s because military get lifetime benefits and teachers don’t get paid shit.

14

Why do you think the public and private sectors are in the same bath tub?

Put two bath tubs side by side with infinite capacities and a drain in each. Every time you put water into the tub marked “Private Sector” you put 20% of the volume into the tub marked “Government Sector”. Now, stop filling the Private Sector. Should we not dump Government Sector water back in to help keep all the bath toys afloat? Or should we go “That’s not the Government Sector’s role.” and let everything that the Private Sector has kept afloat (including your family and earning power) crash against the stone cold ceramic bottom?

15

Japan tried this idea of spending huge amounts on infrastructure to jumpstart their economy. It didn’t work out very well.

Regards,
Shodan

16

And Somalia spends very little on infrastructure. Somehow I doubt these two are particularly good and representative examples to demonstrate the utility of high or low spending on infrastructure.

17

In contrast, Nazi Germany pulled themselves out of a recession by using public works programs. Don’t be so aghast - public work programs won’t make the U.S like the Nazis, anymore than voting makes you gay.

  • Honesty
18

That’s true. I’m sure I (and the rest of the economy) get absolutely no value out of highways and schools and cheap mail delivery and patent protection on inventions and relatively corruption-free bureaucracy and safe food and clean water. None of that spending in any way allows businesses to thrive. And I know that government employees hoard all their money and never spend it in their communities, and all government projects buy their supplies from, I don’t know, Mars, so there’s no effect on the economy there either.

Or I guess I’d think that if I were totally ignorant of economics and had never heard of multipliers.

19

So, better than saying that the government spends money on public works and the like, it seems to make more sense to say that the government invests in such projects. Like I said earlier, ‘it’s like a loan . . . the government gets paid back (hopefully and eventually)’.

By the way, are there any major potential benefits or risks that I didn’t include the OP?

Thanks.

20

But who actually created the wealth? Our government is not a profit center. It’s set up that way. One might argue that it can facilitate the creation of wealth, or that a government is necessary for the creation (and retention) of wealth, but unless someone productizes the thing in a government lab or program or uses the bridge or highway that the government built, then no wealth is actually created.

Similarly, PARC invented all sorts of things but Steve Jobs was the one (or one of the ones) who created wealth from those inventions. They did none of us any good sitting in some lab on Page Mill Road in Palo Alto. Thomas Edison, OTH, was an inventor and a creator of wealth.