Sunday, October 21, 2012

Bruce Bartlett's The New American Economy 3: Public Works Projects

In my latest reading of The New American Economy: The Failure of Reaganomics and a New Way Forward, Bruce Bartlett critiques public works projects.  This took me aback somewhat, for Bartlett (if I understand him correctly) believes that the government needs to spend money to stimulate the economy when people in the private sector are not spending.  What does he want the government to spend money on, if not public works projects?

I thought that Bartlett's critique of public works projects was cogent, however.  I didn't really understand his arguments about how public works projects impact the business cycle, but he made sense when he said that public works projects take a while to get off the ground, that they often get off the ground after the economy has recovered and thus increase inflation (by increasing demand) when it would be harmful, that states spend less on infrastructure when they realize that the U.S. government will give them money for it, that many states take the stimulus money and use it to create a budget surplus rather than to stimulate the economy, and that public works projects mostly employ people who already have jobs rather than the unemployed.  These arguments strike me as rather contradictory, since Bartlett says that public works projects increase spending and demand, while also saying that there is not necessarily a net increase in infrastructure spending because federal spending is taking the place of state spending, or states are creating budget surpluses.  But what he says is worth thinking about.

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