Government Infrastructure Spending Throughout The Economic Cycle


In my previous post, Fixing The Problem We Have At This Time, I mentioned that government stimulus spending is the right thing to do at this phase of the economic cycle.  I hope I also made it clear that in a different phase of the cycle, where the economy is booming so much that it may be overheating,  we would need a little (or a lot) of restraint in government spending.

Investing in our infrastructure, which includes the education of our citizens, is something that we always ought to do.  In the last three or more decades, we have been under investing.  We need to boost that investing so that the long term trend line meets the needs of an economy and society that wants to remain relevant in a global context.

So how do we reconcile the need for a long term growth trend in infrastructure spending and the cyclical nature of the economy?

Some infrastructure investing, like the interstate highway system of the Eisenhower administration, is a long term project that lasts through many economic cycles.  The legislation that authorizes the investment ought to allow for a structure that sets the end goals and spending limits, but not the micro details of timing.  The general plan for the entire project will be written at the beginning, but each phase of the project can either be sped up or delayed based on what is right for the economy at any given time.

Even successful business people who eventually migrate to congress had flexible spending plans for their businesses.  There was a time to spend vigorously and a time to pull back.  Since business and government have very different roles in our economy and society, the time to spend and the times to pull back for business and government should be out of phase compared to each other.  The reasons should be so obvious, I won’t state them here.

The net effect of adding together two cycles that are out of phase with each other is to have economic cycles that are smoother than would otherwise be the case.

The concepts described here are so obvious, that I wonder why it took me so long to think of them all together.  Do you suppose the “business oriented” people in Congress will ever figure this out?

Should we ever elect a business person to Congress who has not figured this out yet?  I think electing such immature business people is a very real danger to our economy, especially when they think of themselves as economic experts.  They have no humility and no clue as to what it is that they do not know about economics.

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