DIGGING HOLES AND FILLING THEM UP AGAIN
From Krugmans blog
Time for bottles in coal mines
President Obama hails the fact that stimulus projects are coming in “ahead of schedule and under budget.” Yay — but boo.
Ahead of schedule is good. Under budget — well, ordinarily that’s a good thing. But the point of the stimulus is to increase spending! So if we don’t spend as much as expected, that’s less stimulus.
Paging Keynes, who pointed out the problem with projects that are of some use besides their role as stimulus. Such projects
because they are not wholly wasteful, tend to be judged on strict “business” principles.
He then went on to propose an alternative:
If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.
Seriously: if the projects really are coming in cheaper than expected, that doesn’t mean we should bank the savings; it means that we need more projects.
There is almost a recognition here of the difference between “currency movement” and production. There is still the belief that movements of small pieces of green paper are what makes people wealthy. Doing useful things is what makes people wealthy. The inability to see efficiency as value is ridiculous. If spending is all that is necessary than give everyone gift cards that have short term expiration dates. Why not propose that? Because it would expose the fallacy of spending as the economic engine. Creation (useful things, not just paper money) is what drives growth, not “spending”.