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The Devil in the Details

08/21/2010

I was enthusiastic about the $787 billion stimulus bill approved by Congress last year. Obviously, infrastructure development was necessary — with or without an anemic economy to stimulate. Infrastruture is a real investment in the future that increases demand in the short run and pays for itself in the long run.

Unfortunately, of that amount, $237 billion was for tax cuts, which did not create any new demand. Only $140 billion was spent on infrastructure! Most of the rest went to support state & local spending.

Our economy is still many times larger than the Chinese economy. Yet, they spent $586 billion on infrastructure last year & this year, to stimulate their anemic economy. Today, their economy is growing over 9% annually, compared to the U.S. which is growing less than 2% annually.

Our “stimulus” package had little to do with stimulating and only increased our borrowings from the Chinese, to pay for the tax cut.

A bold plan would have been more effective. To get us out of the Great Depression, Congress enacted the Works Progress Administration, Public Works Administration, and Civilian Conservation Corps. They build 24,000 miles of sewer lines, 480 airports, 78,000 bridges, 780 hospitals, 572,000 miles of highways and almost 15 thousand schools, courthouses, and other public buildings. That worked! Our current “stimulus” plan did not, unfortunately. It created no real, new demand for anything.

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