If We Build Three Really Large Pyramids…

This is the thinking of many when it comes to the stimulus spending. What we spend it one doesn’t really matter so long as we spend the money. Consider this argument for the stimulus spending from Prof. Brad DeLong. Implicit in Prof. DeLong’s argument is that it doesn’t really matter what the money is spent on just so long as it is spent.

Now we are attempting to do the same thing once again—but this time with the government as the leading spender. A boost to spending by the government should have the same effects as the boosts to spending by luxury consumers and the defense department and homebuilders in the early 1980s, as the boost to spending by the high-tech sector in the late 1990s, and as the boost to spending by homebuilders in the mid-2000s. The government’s money, after all, is as good as—is the same as—anybody else’s.

So, we should take the stimulus money and build three really large pyramids out in the middle of nowhere that will get the economy going again. “Jump start it” as the President says.

I suppose you could argue that we should target the spending, but then we start to run into the problem of timing. If targeting takes time, then what will happen is that in 6 months, 12 months, 18 months, etc. spending on various programs takes place. To the extent that spending takes place after the recession is over that spending is no longer stimulus spending to address the recession and probably shouldn’t take place given our fiscal outlook with regards to Social Security, Medicare, and deficits for the next several years as tax revenues initially fall and rise due to the recession.

Yes, in a theoretical world we could target spending by the government to not only help lessen the severity of the recession but also provide a boost to long term productivity. However, in that same theoretical world we also have an economy where the market produces an outcome where the only way to make one person better off is to make another worse off. In other words, we don’t live in a theoretical world.

FILED UNDER: Economics and Business, Government, , ,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. HiItsNino says:

    ….except we are not building 3 really large pyramids. We are paving roads, building bridges, providing infrastructure. Its commentary like the above that make me realize some people don’t care about anything but party lines.

  2. Steve Verdon says:

    Bridges to nowhere and roads to nowhere are precisely like building pyramids HiItsNino.

    Do you have any idea how long it would take to build a new freeway for example? You’d have to site it, buy up all the property (even under eminent domain), and then take bids. You’d be lucky to get that all done in 12 months. I’m guessing more like 24 to 36.

    Yes, some spending on existing infrastructure would extend the life time of already existing infrastructur which one could argue is productive…but it wouldn’t necessarily increase productivity. Still, this could be a good thing, so some spending is reasonable.

    But note I said “some”. In other words, read the third paragraph again. Then read it two more times.

    Oh and Nino…I’m not a Republican nor am I Democrat. In fact, I couldn’t even be arsed to vote in the last election.

  3. Rick DeMent says:

    If We Build Three Really Large Pyramids…

    … on top of the really really really big one we call capitalism?

    Thee is nothing about capitalism itself that doesn’t fit this description. Capitalism requires ever expanding growth in order to both make profits and pay interest on the debt that was racked up to fund the previous growth.

    Oh and Nino…I’m not a Republican nor am I Democrat.

    Hell Steve you not even coherent half the time … but we still love you just the same.

    I mean … you know the spending bill is over … history … law. I didn’t like it either but if you really think this “slowdown” is going to be over in less then 24 months you need to get you money back from the back of the comic book institution that granted your degree. If we’re out of it by the time OB is up for re-election (in his second term) I would be astonished.

    You, nor I, nor anyone has ever seen anything like the current situation ever in history due to factors way too numerous to go into in a short post. Any comparisons to any time in human history are completely off the mark and after it’s over all of the charts, graphs, and equations you have ever been taught in your dismal “science” will be s__t canned and rewritten because we are now entering the last days of the grand pyramid scheme known as consumer driven capitalism.

    It was a great time to be alive but history has only one lesson to teach us so heed it well. All systems fail, all civilizations collapse, and no one gets out alive.

    Oh and have a nice day 🙂

  4. HiItsNino says:

    Steve – there are many projects ready to go that just need funding. I live in DC (I don’t work in politics) and last night attended a meeting on Sherman Ave improvements that have been put off for 5 years, that are now expected to start moving specifically because of the recovery bill according to DDOT. My sister is an eng. who was about to be laid off in Pinellas Co fl because there was no money for road projects. My point is these are not bridges to no-where. In fact, if you can point out where these no-where projects are instead of ambiguously referring to them then maybe I’d take it a bit more seriously.

  5. Drew says:

    I see DeMent is off on one of his sophomoric rants again……..but I digress.

    One of the observations made by a Japanese economist with regard to their 90’s – 2000’s experience is that their stimulus spending programs (there were multiple ones) were garbage when they just created jobs (dig a hole, fill the hole…….or, say, a pyramid) but had a positive effect if they had some component of investment.

    But who are we mere mortals to opine….while in the presence of great men informing us that we are experiencing something bigger than anything in all of recorded history?

    Woooo.

  6. …there are many projects ready to go that just need funding.

    And yet, they just couldn’t manage to reach a priority high enough to get funded over the other one thousand and one things that did until Santa Claus arrived with trillions of freshly printed dollars to give away.

    Are the concepts of limited government and enumerated powers dead?

  7. PD Shaw says:

    We are paving roads, building bridges, providing infrastructure.

    Really? It strikes me that we are resurfacing roads and bridges. That’s not what I consider big “I” infrastructure. It’s pretty close to polishing roads; it doesn’t do much more than prevent government cutbacks from contributing to the downturn.

    The New Deal changed the shape and economics of the Tennessee Valley, created more productive farmland, new sources of electricity, and brought new industry to the region. We can’t build such things anymore given the National Environmental Protection Act. Not even pyramids without several years of planning, study and environmental mitigation.

  8. Michael says:

    So, we should take the stimulus money and build three really large pyramids out in the middle of nowhere that will get the economy going again.

    Is your argument that building 3 very large pyramids wouldn’t create a stimulus, or that it isn’t an efficient way to create a stimulus?

    Unless you have a way to directly convert $800B into pyramids, you will still need to by material, equipment, and labor, thus stimulating the economy to some degree.

    If you just think it would be a less than ideal method of converting $800B into economic growth, you’d be right, but then you’re either arguing that no conceivable project could produce a large enough growth to be worthwhile, or that the desired goal of the stimulus is indeed possible, but it’s implementation won’t accomplish it.

  9. PD Shaw says:

    Steve:

    Do you have any idea how long it would take to build a new freeway for example? You’d have to site it, buy up all the property (even under eminent domain), and then take bids. You’d be lucky to get that all done in 12 months. I’m guessing more like 24 to 36.

    I think you’d be wrong. The Arrowhead-Weston transmission project took over nine years to build 220 miles of transmission lines on largely pre-existing transmission corridors (that is, no eminent domain was needed). That’s measured from first submission for governmental approval to being in service.

    I don’t think most people realize how much planning is required of government projects today to avoid ethical abuses, environmental problems and property rights issues. The TVA project, which dislocated numerous residents and snail darters, strikes me as utterly impossible today.

  10. Dave Schuler says:

    What I think is missing from the discussion is the notion of minimizing downside risk. Nobody knows with metaphysical certainty whether the Keynesian multiplier is effective or what it will be under the circumstances. There are estimates from zero to 2.5 or higher. The best empirical study I’ve seen, bitterly contested by stimulus fans, suggests .8. What we’re about to do is actually a sort of poorly designed grand experiment, grand because of its scale, poorly designed because its supporters will argue that it worked whether it succeeds or fails.

    Minimizing downside risk means getting the most for your money in the case of a zero multiplier. Getting people to dig holes and then fill them back up again is the perfect example of ignoring downside risk. Steve’s example of pyramid-building ia actually a little better than that. At least pyramids are tourist attractions. Egypt’s pyramids have been tourist attractions for well over 2,000 years.

    I think that re-surfacing roads or even building new ones is one of the poor ways to spend the money because I think that we’re in the waning days of that kind of transport. We should be thinking about our world as it will be for the productive life of the investment rather than this minute’s needs.

  11. Steve Verdon says:

    PD,

    I work for an investor owned utility, while I don’t deal with federal regulators I do deal with them at the state level and talk to the guys who deal with the federal regulators. I was being charitable in my assumptions on time to get something sited, licensed and ground broken.

  12. Dr. Schuler, I’ll ask again, only because I’ve never got an answer from anyone, before we calculate the benefits of whatever multiplier effect we may get from this government spending, what is the effective divisor effect that must be offset from all this deficit spending? How can we determine if this deficit investment is worth the cost? What is the return on this investment?Any cost benefit analysis must include the real costs, not just a discussion of the relative merits of the benefits.

  13. With respect top building or rebuilding roads, if I remember correctly, a lot of the damaged major roads in California after the 1994 Northridge earthquakes were rebuilt in something like three months. This was unheard of and quite unexpected. I remember it because the contractor was heavily incentivized to complete them quickly and when he did people started bitching about his unfair profits. I’m quite certain the government entities that let the contracts never imagined that the contractor would ever actually earn all the time-based bonuses they provided. But it was actually a great deal for the state to get the roads done quickly.

    Just a data point.

  14. PD Shaw says:

    Steve, I bow to your expertise. I’ve just seen the Arrowhead-Weston transmission project discussed in the context of the need for significant infrastructure improvements to be accompanied by federal waivers from Environmental Impact Statements. I assume that a road shares many of the planning/approval issues as transmission lines: multiple properties, multiple territorial governments, and multiple layers of government. So at least ten years seems like a good point of reference.

  15. How about we don’t build pyramids, but instead build a really big fence somewhere, like maybe our southern border. That’s “shovel ready”.

  16. It’s a temporal oddity, every solution seems to be ten years away. Damn, we’re in a tight spot.

    Ok, enough with the cinematic diversions. By the way, ten years keeps coming up in a lot of context about why we shouldn’t do something, e.g., drill in ANWR. The only real question is whether this will still be a relevant observation in 2019 as it was in 2009, or 1999.

  17. Steve Verdon says:

    I assume that a road shares many of the planning/approval issues as transmission lines: multiple properties, multiple territorial governments, and multiple layers of government. So at least ten years seems like a good point of reference.

    I think that is about right.

    With regards to the Northridge earthquake I believe alot of the normal “red tape” was bypassed since these were roads that aleardy existed prior to the earthquake–i.e. these were brownfield projects not greenfield projects.

  18. Dave Schuler says:

    Dr. Schuler, I’ll ask again, only because I’ve never got an answer from anyone, before we calculate the benefits of whatever multiplier effect we may get from this government spending, what is the effective divisor effect that must be offset from all this deficit spending?

    Not to mention the effects of deadweight loss. I’ve asked the same question myself.

  19. rodney dill says:

    If We Build Three Really Large Pyramids…

    … or at least a wooden badger….

  20. Rick DeMent says:

    I see DeMent is off on one of his sophomoric rants again……..but I digress.

    This rant is positively lucid compared to such popular ideologically fueled pieces of horse hockey like “tax cuts increase revenue” which I heard a Republican senator from Iowa spot just this morning.

    But I digress as well.

    Are the concepts of limited government and enumerated powers dead?

    Well if you mean as envisioned buy a bunch of 18th century farmers of whom around half opposed both central banking and the modern corporation, sure. The concepts are still there and should be supported but we live in a reality where we have already stripped states of the one economic power that would have been truly meaningful (if not completely counter productive) which is control over incorporation. If I seem intemperate it’s only because it’s imposable in such a short space to have anything like a meaningful dialog, so I bait the gullible and those of you who are a taste hipper will know exactly what I’m talking about.

    cheers 🙂

    BTW I’m impressed with Steve’s restraint when it comes to my snark sometimes. If he doesn’t know it I agree with much more of what he prattles on about then he might think.

  21. G.A.Phillips says:

    I say we pump the stimulus money into the military, invade the middle east on some trumped up charges like they got WMD’s or their terror states or some bu-lsh-t like that and steal their oil and their damed pyramids too!