Tuesday, October 1, 2013

Infrastructure spending is NOT A GOOD WAY of curing recessions.

Every time there’s a recession, hoards of economic illiterates come out the woodwork claiming that increased spending on infrastructure would help solve the problem. Aziz trotted out this myth or something very close to it in the last 24 hours or so.  For the billionth time, the flaw in that idea is as follows.

Infrastructure spending JUST CAN’T by increased and decreased at the drop of a hat: relevant skilled labour may not be available and relevant capital equipment may not be available. Or in more general terms, CONCENTRATING stimulus spending on a few sectors of the economy is totally daft. It’s far better to spread stimulus spending relatively widely: throughout the public AND PRIVATE sectors.

And before some twit accuses me of saying we don’t need more infrastructure spending, I’m not saying that. I.e. it may well be that we need more infrastructure. But if we do, the best policy is to increase infrastructure spending relatively GRADUALLY over the next 5 years or so.

The New Economics Foundation makes much the same mistake: they advocate spending stimulus money on SPECIFIC AREAS or sectors of the economy. Completely daft.

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