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Editorials

Public Works: It’s Long Past Time to Reinvest in America

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“USA Work Program WPA” by an unknown artist in 1936. From the US National Archives.

(Editorial) We are now into a sixth year of high unemployment and poor economic performance. We have tried continuous monetary easing here in the US, and it failed to recover our economy (see chart below comparing US output in blue with its potential in red). In Europe, they are trying to increase economic competitiveness by reducing government deficits – austerity, and it is failing miserably. Japan has now suffered through two “lost” decades in terms of economic performance. It is long past time to do what everyone knows finally ended the Great Depression of the 1930s: spend federal government dollars on a very large scale – similar to levels spent during a major war.

NGDPpotAs our infrastructure crumbles – much of it originally built by public works projects way back in the 1930s, and business won’t invest and deliver full employment, there is one policy option that gets shortchanged: federal government spending in order to bring US economic performance up to its potential. It will serve to push the blue line in the chart up to the red line, thereby achieving our economic potential. The longer we wait to adopt this solution, the longer we will continue to live in a world of unnecessarily limited prosperity.

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WPA poster in 1940.

A report prepared at the close of the Works Progress Administration (WPA), one of several public works programs during the 1930s, states that over 8 million people received jobs through the projects managed by the WPA – giving support to nearly a quarter of American families at some time during its existence. The WPA’s projects didn’t just help those who needed a job, it also helped to build up a public infrastructure that allowed for post-war prosperity. As this infrastructure now crumbles right before our eyes, and we know that millions are out of work, public works programs could again offer much benefit to the country.

Other circumstances support adopting a large-scale public works program, too. One is that business currently fails to adequately invest in new technologies necessary to conserve the environment for future generations. If we want to pass on a planet to our children and grandchildren that they can live on and enjoy, many new technologies will have to be developed – unless we want them to live in a world with a lot less material goods. Public works projects could be specifically designed to both conserve the natural environment and research new environmentally-friendly technologies.

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Photo: “Fort Peck Dam (Montana) spillway construction” by the US Army Corps of Engineers.

Another circumstance that favors implementation of large-scale public works is the rising number of veterans with recent wartime experience, many of whom are unemployed. Possessing organizational talents and a can-do attitude, military veterans are a resource that is underemployed by the US economy. If the public works program of the 1930s is used as a template, then the military could serve as an on-the-ground organizer for many projects, making veterans with their military experience a natural fit. This might provide an additional benefit by helping some veterans with their transition to civilian life.

Opponents of public works programs say that a large-scale public works program is not fiscally responsible. While many of these opponents preach market solutions, currently the market forecasts no serious problem for the federal government to pay its debt. Because interest rates are so low right now, the long-term costs to finance public works for the federal government is actually very cheap.

Opponents will also say that government cannot operate efficiently, but in the face of business failure, there is no other economic actor with command over the necessary resources to act. Opponents will say further that government corrupts the market, but does anyone reading today’s business or financial news believe that markets are not already corrupted?

There is one reason opponents of public works have that is not mentioned in polite society: the income redistribution effects of government spending. Because income is very unequal in the US, funding for our federal government through income taxes comes largely from a very small, but very wealthy, minority. Any rise in government debt is regarded by many among this wealthy minority as a future claim on its income and wealth. This view is very shortsighted when it comes to economic recovery, however, because a long-term effect from pushing the economy back to both full employment and its potential output will be more government revenue at the current tax rates.

In the US, we’ve tried an interventionist monetary policy like none we’ve ever tried before. In Europe, countries have drastically slashed their government deficits in hopes of spurring economic growth though improved competitiveness. Both of these strategies failed to deliver either full employment or economic performance that reaches its potential. It’s time to try a true and tested method of restoring prosperity: large deficit spending by the federal government. Workers and their families should demand from politicians immediate implementation of a large-scale public works program to finally bring full economic recovery from the recession of 2008-9. The alternative is more of the same: poor economic performance and inefficient use of labor – college graduates working as baristas and unemployed high-school graduates.

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