Will The Stimulus Fail?

Priorities is when you can afford to send soldiers to war in Iraq and can’t find the financing to send people to school. Priorities is when you bailout the rich bankers with their bonuses intact and leave the rest jobless and homeless. Priorities is when you are spending millions on election and inauguration party to talk about the economic crisis we are current facing.

“Priorities” has been a popular word in the past. For the days ahead, it will be the most important word in our vocabulary and in our history.

stimulus-obama


Infrastructure in a Stimulus Package-Becker
Written by Gary Becker (An American economist and a Nobel laureate).
January 18, 2009

Some of this infrastructure spending may be very worthwhile-I return to this issue a bit later- but however merited, it is difficult to believe that they would provide much of a stimulus to the economy. Expansion of the health sector, for example, will add jobs to this sector, but it will do this mainly by drawing people into the health care sector who are presently employed in jobs outside this sector. This is because unemployment rates among health care workers are quite low, and most of the unemployed who had worked in construction, finance, or manufacturing are unlikely to qualify as health care workers without considerable additional training. This same conclusion applies to spending on expanding broadband, to make the energy used greener, to encourage new technologies and more research, and to improve teaching. An analysis by Forbes publications of where most jobs will be created singles out engineering, accounting, nursing, and information technology, along with construction managers, computer-aided drafting specialists, and project managers. Unemployment rates among most of these specialists are not high. The rebuilding of "crumbling roads, bridges, and schools" highlighted by in various speeches by President Obama is likely to make greater use of unemployed workers in the construction sector. However, such spending will be a small fraction of the total stimulus package, and it is not easy for workers who helped build residential housing to shift to building highways. A second crucial issue relates not to the amount of new output and employment created by the stimulus, but to the efficiency of the government spending. Efficiency is not likely to be high partly because of the fundamental conflict between the goal of stimulating employment and output in order to reduce the severity of the recession, and the goal of concentrating infrastructure spending on projects that add a lot of value to the economy. Stimulating the economy when employment is falling requires rapid spending of this huge stimulus package, but it is impossible for either the private or public sectors to spend effectively a large amount in a short time period since good spending takes a lot of planning time. Putting new infrastructure spending in depressed areas like Detroit might have a big stimulating effect since infrastructure building projects in these areas can utilize some of the considerable unemployed resources there. However, many of these areas are also declining because they have been producing goods and services that are not in great demand, and will not be in demand in the future. Therefore, the overall value added by improving their roads and other infrastructure is likely to be a lot less than if the new infrastructure were located in growing areas that might have relatively little unemployment, but do have great demand for more roads, schools, and other types of long-term infrastructure.

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January 19, 2009 · Filed Under Economics

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2 Responses to “Will The Stimulus Fail?”

  1. Stock MarketNo Gravatar on January 20th, 2009 5:19 am

    I honestly can’t see how much of the stiumlus plans will help much. Anything that isn’t infastructure will just create excess supply or increase federal debt without a return, and tax cuts without spending cuts will only create a greater national debt which will force the tax rates higher later.

    - Improved government efficiency (i.e. reduction in spending with the same output) is the only solution I see.

    -Bill

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  2. RendellNo Gravatar on January 20th, 2009 5:26 am

    @Stock Market - “Improved government efficiency” Exactly!

    The stock market will jump based on any optimistic news. Hopefully, these investors are able to understand these scheme takes time to make the rusty economy work properly again.

    Rendell

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