Massive National Infrastructure Projects Without Inflation


When I put my previous post Ideology of Money Scarcity on the the Sturbridge For Bernie Sanders Facebook page, I put some further explanation into an introduction.

One of the most important factors in my choice of which Presidential candidates to back is to see which candidates are more likely to free themselves from the false “Ideology of Money Scarcity”. Bernie Sanders is the only one that comes close.

I would imagine that most voters haven’t got a clue as to how false the “Ideology of Money Scarcity” is for a country like the USA. Once Bernie becomes President he needs to figure out how to explain this to the voters.

FDR understood this quite well when he needed to get our industrial base back to full speed to fight WW II. We all know that he miraculously managed to get a hugely idle economy roaring at full speed, and without causing inflation. The populace was so distracted by the need to fight the war that they never thought to even ask how FDR managed to do it. We need such an effort now, hopefully without a war. Trying to do it without starting a war is what makes it more difficult for Bernie Sanders to pull it off than it was for FDR to pull it off.

I didn’t explain how FDR managed to perform his miracle of re-energizing the economy without causing inflation.  The reason why inflation would ordinarily be a huge problem during the preparation for the war, is that people were being well paid to produce the armaments for our war machine, but the product of their efforts was not something they could buy with the wages they were getting.  In fact there was very little energy going into producing the things that people making these kinds of wages would normally want to buy.

Of course we know there was rationing, but that was not the total solution.  What people do not realize is that the primary reason for the sale of war bonds was not to get the money to finance the war.  The money to finance the war came before the sale of the war bonds.

What the war bonds did was to temporarily take the earned money out of the hands of consumers so that they wouldn’t bid up the prices of everything they would want to buy.  In other words, the war bonds would only be redeemed after the war was over at a time when manufacturing could be returned to meeting the demands of the consumers.  At that time, the workers could get their hands back on the money they had earned during the war, the returning soldiers could find jobs to make the consumer products that would be demanded, and we could have a thriving, full-employment, low-inflation economy.  Rationing the rate of soldiers returning to the work force by giving them the benefits of the GI bill to go back to college was another way of keeping the economy in balance.

In the current era, we have need for major infrastructure rebuilding, we have idle resources, we have idle workers.  If the FED creates the money to put the idle resources and workers to work meeting the demand for infrastructure (think replacing the lead pipes that supply drinking water to many homes in America), we have a similar problem that faced FDR during the war.  The workers will be well paid to fix the infrastructure but the product of their efforts is not something the individual consumer can or would want to buy at retail.

How do we prevent that money from going into demand for products that are in short supply; that demand that would create inflation?  I think one obvious solution is that we mimic what we did in WWII. That would be to sell infrastructure bonds to the citizenry.  This would prevent people from spending all the new money they were earning to demand consumer products that we did not have the capacity to produce.  This would be a temporary deferral until such time as the demand for infrastructure diminished, and the productive capacity of the economy increased to be able to  satisfy the demand.

We have some fortuitous situations right now that seem to be problems, but are in fact opportunities.  With automation and outsourcing, we have more workers in the USA than we can put to work at a living wage (given the current income inequality).  So the inflationary pressure of the infrastructure projects would be less now than the pressure we had during the war.  Remember that during the war, we took millions of workers out of the economy, and sent them off to be soldiers, but we still paid them for their war efforts.

I think the only problem we would have is the holding onto the false ideology of money scarcity.  Without a war, there would not be enough distraction to keep people from asking how this is all going to work.  Therefore, I think there is more need to educate people on how this is all going to work before we can get people to vote for the politicians that can make it happen.  This will be Bernie Sander’ job as President.

If we need to have a higher level of education to compete in the world economy, it is not so our workers will be smarter than the competition.  Eventually, we hope for a civilization in which all workers will reach the appropriate level of education.  The need is to give people enough education so that they can understand how the new economy could work if they would only vote for the people who know how to make it work in the way I just described.

Will enough people understand enough of this right now to elect Bernie Sanders President to get the ball rolling in the right direction?  This is the task for Bernie Sanders to accomplish.  If he can’t do it, at least he has started people asking some of the right questions.  Perhaps it won’t take another 50 years for a politician with the right ideas to come along to finish the job Bernie couldn’t.

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