Public Works and The Economy

Will Ramped Up Public Works Stimulate the Economy?

Yes, of course it will, that’s obvious.  If you hire more people to build and repair roads and other infrastructure, more people will be earning money.  Less people will be out of work.  People will have more money to spend.  It is blatantly obvious that it will stimulate the economy.  Is that a good thing?  Not always.

When an economy is on the brink of depression it is an excellent thing.  So what is the problem?  Is there a down side?  Yes like eating too much ice cream, there is always a down side.  Sure is good going down but then there is that bulge and if you don’t’ change your ways or partake in moderation, it may end up with a coma.  I just love ice cream!  Same holds true with government spending.

Public works jobs tend to be temporary in nature.  As project is finished, the companies lay workers off and when government spends there is always the risk of higher taxes or huge debt making our money worth less and causes rampant inflation.  So then interest rates have to rise to keep inflation in check.  Also, if interest rates are not keeping up with inflation, no one will loan money.  Then we are right back where we started, a credit contraction.

There is a time for laissez-faire and at other times, Keynesian economics are the best way to go.  I see so many people argue one or the other.   Its an old theory, there is a time for all things.    The invisible hands usually work pretty well but from time to time we need to nudge those hands along a little bit or they get stuck like a broken record.  That’s what many people think happened in great depression that started in the late 1920′s.

At first, people believed that laissez-faire would cause the economy to  correct but it never did.  Then large scale modernization projects were started.  These included bringing electricity to rural America.  Now the plan is to repair bridges before any more fall down and to transform doctors offices into computerized records rather than the manual ones used today.  There are even plans as simple as changing light bulbs to compact fluorescent bulbs in our government buildings.  A place for the government to spend is in new, unprofitable projects like many of the so called “green projects.”

They are temporary, once the research is done, private industry will move in to take up the products and services to deliver to the masses.

We don’t have to have this war between the two economic ideas.  There is a time for each and too much of either one is a bad thing.

I sure wish I could have some ice-cream.  Okay, Okay, pass the fish then.

Tagged with: Economics and Finance • Finance • Government • great depression • invisible hands • keynesian economics • Money

Filed under: Economics and Finance

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