How To Fix The US Economy

All the kerfuffle about the American Jobs Act, Stimulus 2, etc, has me wondering why there’s no movement in the US to fix the economy, which I’m starting to think really isn’t that complicated when you really consider it.

Today, I read a Politifact piece on the “infrastructure deficit” in the United States, that is, the cost to do all of the infrastructure work currently needed to maintain current infrastructure. They put it around $2 trillion dollars. In a time when businesses are holding on to cash and not investing, there is no real danger of crowding them out if government starts spending on needed projects, such as rebuilding bridges that are currently condemned because of their condition.

Where to get the money? Jack up corporate taxes, perhaps? If corporations aren’t investing in expanding, then hit them for more taxes, and put that money into infrastructure projects. It’ll still grow the economy in the long run.

How, you ask?

Think back to Macroeconomics 101. Remember aggregate demand functions? Well, if you dump $2 trillion into the pockets of highway workers, concrete and asphalt producers, and so on, a curious thing happens. They spend that money. On all sorts of things. They create demand in the economy which then incents businesses to hire. That then puts money into more workers’ pockets who in turn increase aggregate demand. Remember this? The multiplier? It’s simple, and it’s brilliant.

These infrastructure projects have an advantage – they often require relatively low skilled labour, meaning that many unemployed people could transition into these jobs, and they could be made to pay decent wages. That will get many of the unemployed at least in an even keel, and as the economy comes back to life, those jobs will wind up and new ones will emerge.

It’s not that complicated. It really, really isn’t. But sadly, it seems there’s more political will to interfere with things like reproductive rights than there is to actually improve the lot of millions of Americans. It won’t get the GOP votes to let things get fixed on President Obama’s watch, after all.

That’s the problem. That’s what needs to happen. And waiting until next November to bounce the GOP out of Congress to do it won’t cut it.

So, where do we go from here, then?

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2 comments so far

  1. Curt Mayer on

    how exactly is this going to rebuild the american manufacturing base? if you don’t repatriate those jobs to the US, it’s still all going continue to fall apart.

    here’s an awesome, awful idea: declare war on china. seize chinese assets, make all that chinese-held paper worthless, effectlvely default on a huge proportion of our sovereign debt. a decent pretext could be manufactured with the help of taiwan. we will have to manufacture all that chinese crap here.

    let’s do it. let’s lower the boom on our greatest enemy in the world.

    • Nick on

      Thank for the early morning laugh. The idea of going to war with China is probably the most ridiculous thing I’ve read in a long time.


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