Sunday, September 4, 2011

Is infrastructure code for stimulus?

This article appeared in the September 4, 2011 Knoxville News-Sentinel

The president has threatened to deliver a speech after Labor Day outlining his program for jobs. If he is true to his muse, it will advocate a bigger stimulus package — the other ones being too small.

But of course it will because there is no way such a package would be approved in the House and it is doubtful that it could find 60 votes in the Senate. So he will call it a jobs package.

Of course, he could advocate more temporary measures such as a cut in the payroll tax. But temporary measures have little effect on either consumer or business spending patterns and as a consequence have little impact on the overall economy.

Instead of advocating measures that would have a real impact on jobs, productivity and economic growth, such as a rollback in personal and corporate tax rates, a moratorium on the implementation of health care "reform," and decreasing regulatory burdens, we likely will see the president's continued infatuation with big government spending.

Look for a renewed push to create "green" jobs and for a massive increase in infrastructure spending. These types of spending appeal to the president and his supporters. It has been well documented that green job spending is mostly wasteful and makes little sense economically. It also is true that the allure of infrastructure spending is a siren's song — one that is difficult to resist but which will inevitably end up with a bad result.

The first stimulus program created few permanent jobs and is generally considered as a failure. So look for the president to try to call a new stimulus program a different name — infrastructure. This too will be a failure.

Consider the case of Japan, which in the 1990s initiated an expansive infrastructure program. Some observers have credited the decline in the Japanese economy directly to its squandering billions of yen on wasteful projects. The Japanese also forgot that such projects also would need billions to be spent on upkeep lest they fall into disrepair.

The Japanese economy declined as government spending increased. Indeed, there is a parallel in this country. When the president was elected, he had sizable majorities in both houses of Congress. Together they initiated an unprecedented expansion of government spending.

If increases in government spending were supposed to foster economic growth and job creation, Japan would be booming and we would be better off today than in 2008. That we are significantly worse off is a repudiation of those who would advocate more government spending as a solution.

Again, such policies do not stimulate growth but rather serve to deter it. We have learned our lesson. The question is has the president?

© 2011, Knoxville News Sentinel Co.

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