Stimulus Options

Woodward and Hall have a great blog post examining options for stimulating the economy. They’re not particularly keen on the infrastructure spending approach (green or otherwise). Why?

Thus a program that funnels money to construction firms and their workers mainly raises their incomes and employment levels and has relatively little effect elsewhere. Rebuilding aging interstates and upgrading the energy efficiency of public buildings calls for highly specialized skills. A large-scale infrastructure program will drive up the profits of the limited number of firms capable of doing this type of work and drive up the wages of the skilled workers who know how to do the work.

Their preferred approach is to temporarily suspend the states’ sales taxes, with the federal government compensating the states for the revenue loss. Interesting.

But given a choice between actions which greatly benefit the few and actions which more broadly help all of us, politicians have a strong incentive to favor the few. The few, in this case construction companies and some unions, will organize their lobbying efforts. Political donations, past, present, and future, will play a big part in politicians’ thinking. It seems like a sure thing that the government will opt for the infrastructure option. Who will lobby against it? At least spending on infrastructure might offer some tangible benefit to beleaguered taxpayers.

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