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Any way you count, the latest infrastructure bill is mostly not about infrastructure.
Oh, well. I'm scheduled for a helicopter drop of money later next week. One of the many provisions buried in the legislation. I'm feeling good, though - my support could have been had for way less. Yay me!
I fully support it. Now more than ever Americans need more bridges to live under and to jump off of.
Investing in infrastructure puts millions of dollars out into communities. I've got oil paintings completed by WPA artists during the Depression. Again, the goal was to get money out to communities.
Hunter
Quote:
Originally Posted by CactusCurt
Yes we do !!
https://www.youtube.com/watch?v=Y82ZqYdAwEs
And now a word from the Peripatetic Economist:
Give a guy $100. He is going to spend some and save some. The part he spends is called the marginal propensity to consume - the extra amount of consumption from an additional dollar. It is a fraction of income. Call it "c". The part he spends becomes income to someone else, who spends some and saves some, and on and on. So $100 has a multiplicative effect in the economy, stimulating growth far beyond the original $100. The total amount of extra growth coming from $100 can be approximated by the formula 1/(1-c). So a marginal rate of consumption of 80% (saving 20%) is 1/(1-.8) or 1/.2 or 5. $100 in stimulus grows to $500 in extra stimulus. This is the effect of government spending.
But government spending is financed by debt. The government soaks up private capital to finance the deficit spending so there is an opportunity cost involved - that capital going to finance the government debt could have been going to a more productive function, so the multiplier is smaller than it would initially seem.
Now, consider what happens when you cut taxes. Either way, the consumer has more money in his pocket so the multiplier should be the same for government spending vs. tax reductions, right? Nope!
Putting money into the economy via government spending means that the government is buying something (leaving aside stimulus payments like we've just seen. I'm talking about the infrastructure bill being proposed). Aggregate demand goes up immediately. Someone gets a government contract and gets paid $100, so 100% of that $100 goes directly into stimulating the economy. The government's marginal propensity to consume is 1 - it does not save in any conventional sense. But with a tax cut of the same amount, $100, only 80% of it becomes income to the next person, so the multiplier for a tax cut is smaller than the multiplier for government spending.
The takeaway is that you get more bang for your buck by government spending than you do with tax cuts. Generally speaking, natch.
But in either case, no economy can run on debt for very long. That's what worries me about all this spending. At some point, the butcher's bill is due.