Obama’s Public-Works Plan

Posted by Katherine | December 9, 2008 – 4:42 pm
Toy roads or railways
[woodleywonderworks / Flickr]

Over the weekend, Obama outlined his vision for a large, job-boosting investment in public infrastructure.

Andrew Samwick is a Dartmouth economics prof who studies retirement and was chief economist of the President’s Council of Economic Advisors in 2003-2004. He likes Obama’s plan even though he doesn’t see job creation as its main strength:

First, the purpose of government spending is to purchase goods and services that the government needs to meet its responsibilities, not to hand out resources to those who pandhandle most loudly for them. The reason to spend more in a recession is not to employ idle resources — it is to be able to stretch the taxpayers’ money further by getting a better price for its purchases because workers without jobs will work for less and owners of empty factories will charge less.

Second, there is no free lunch: the money we spend today is a loss to the Treasury […] That loss to the Treasury must be made up at some future date, by later cohorts of taxpayers.

Fortunately, both of these problems can be overcome by focusing all new spending on investment rather than consumption and on public investment rather than private investment. By their nature, capital investments last for years or decades, so that there is a better chance that those who are paying for the spending are reaping its benefits. Public investment also meets the criterion that the spending goes for projects that are within the government’s responsibilities. […] If I had a target of $500 billion to spend, every dime would go for public infrastructure investments, and we’d still have quite a bit of work to do.

The “panhandling” remark seems rather pointedly directed at Wall Street and Detroit.

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