The Real
Issues: Economics
On the Efficiency of Direct Government Spending
By Charles Kirchofer, Jan. 9th, 2009
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In response to Mr. Mohr's article Tax Cut or Government Direct Spending - Is There a Right Answer? I would like to defer to an article
(Roads to Nowhere: America Is in Danger of Getting the Wrong Kind of
Infrastructure) from The Economist, which discusses Obama's direct
spending plans and their likely (serious) pitfalls.
That said,
and hopefully read, I must still concede that tax cuts also seem
unlikely to help very much for precisely the reasons Mr. Mohr points
out. What is needed? The government wants to, and probably should,
spend a lot of money over the next two years. If it all can't be spent
on particular infrastructure projects for reaons brought to light by
The Economist, Mr. Obama needs to look for other ways to invest it wisely, and yes, with an eye on return on the investment and, perhaps most important, common sense.
One final note: There should be a plan on how to begin a government contraction
once the private economy starts expanding again. A rescue plan like
this is the lesser of two evils in hard economic times, but it becomes
an evil all on its own during times that would otherwise be good. What
I mean to say is: huge government spending will eventually lead to huge
tax increases to pay for it all down the road. This will slow later
economic growth considerably. Although it seems unavoidable at the
current moment, if spending continues at a rapid rate for many years
after the recovery has set in, we may end up looking at a United States
that looks a lot more like Italy: large debts and a bloated bureaucracy
sitting atop a foundation of underemployment and high unit labor costs.
In other words: not much of a recovery at all, but rather a slow slide
into irrelevancy. Just food for thought, and uh, no offense Italy,
sorry.
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