Saturday, January 08, 2005

I'm no economist but....

You don't have to be an economist to know that not all government spending is equally beneficial from a macroeconomic perspective.


Bruce Bartlett of the National Center for Policy Analysis notes in this article that most Keynesian economists don't distinguish between government spending. In other words, $1,000,000 spent on road improvements have the same total effect to the economy as $1,000,000 spent on a museum; for example. The end effect being that politicians that depend on this view and authorize the spending will have a built-in bias to pork barrel spending. They hold the reasoning that the money will eventually make its way through the economy eventually.

This seems counter-intuitive to me. It doesn't take into account current needs and priorities; the very reason why we have flesh-and-blood, rationalizing representatives as politicians and decision makers.

Taking this reasoning to its extreme suggests that domestic natural disasters need not be addressed. If a major earthquake were to hit the Western U.S. again, the same macroeconomic benefit can be realized by doing beach erosion control on the East coast. It also assumes all the monies stay within the economy. If a beach errosion control expert gets a hefty consulting fee, what's to say she won't spend a good portion of it on a European vacation?

Sometimes, macroeconomist could benefit from seeing the trees in the forest.


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