From: bo275@cleveland.Freenet.Edu (Larry R Beam)
Newsgroups: sci.econ
Subject: Re: A Supply Side Call to Arms
Date: 18 Nov 1992 18:20:30 GMT
Organization: Case Western Reserve University, Cleveland, Ohio (USA)
NNTP-Posting-Host: slc4.ins.cwru.edu


    For the narrow consideration  of immediate impact on income

and employment, all government  spending is equivalent. Indeed,

all spending by all actors in the economy is exactly equivalent

in this sense. All spending in the domestic economy, whether by

consumers, investors, government,  or foreigners, has identical

impact on income and product, and so on employment. (Economists

will  recognize this  fundamental  identity of  national income

accounting: Y=C+I+G+(X-M).)

    This  analysis is  meaningful for  the current  time period

only:  in  any  longer   analysis,  real  investment  is  quite

different from  other spending. That's  because real investment

is  (by   definition)  an  increase   in  society's  productive

capacity.  Some government  spending  should be  thought  of as

investment.  The building  (or  repair) of  infrastructure, and

spending  on  education, are  examples  of  government spending

which tend to increase the society's productive capacity.

    In the  categories of  real investment  and investment-like

government   spending,  America   has   lagged  badly   in  the

Reagan-Bush years.  Supply-side policies  have resulted  in the

movement  of huge  amounts of  resources into  purely financial

investments--just   changes  in   the  ownership   of  existing

productive  resources,  as  in  leveraged  buy-outs  and  other

manipulations of paper. In real investment, the building of new

productive capacity, America has lagged  far behind most of the

other industrialized democracies. Which is  a large part of why

our growth has been so anemic.

    Also hugely  contributing to our  slow growth  has been how

Reagan  and Bush  spent government  resources. They  pushed for

spending  largely   on  military   build-up.  They  discouraged

spending  on   infrastructure,  education,   health  care,  and

research--all sorts of spending which would have contributed to

the potential for future growth.

    On the same page  of The General Theory  on which JM Keynes

tells the story (told in slightly distorted form by Mr. Howe in

article 31664) of filling  bottles with bank-notes, and burying

them in disused  coal mines, he  writes that "Pyramid-building,

earthquakes, and even wars may serve to increase wealth, if the

education  of  our  statesmen on  the  principles  of classical

economics stands in  the way of anything  better." [p. 129] Mr.

Howe makes the  mistake of reading  Keynes' sarcasm as straight

stuff.  Keynes  is  clear,  to  the  point  of  being tediously

repetitive, in  his preference for  spending on  such things as

housing, hospitals, and roads.

    Discretionary  government   spending,  with   the  explicit

purpose of economic stimulation, can be exceedingly productive.

Swiftly  after  the  publication  of  Keynes'  General  Theory,

deficit    spending    engaged     in    by    the    Roosevelt

Administration--the    WPA,    especially--resulted    in   the

construction of parks,  dams, public buildings,  and roads from

which immense benefits continue to flow to the American people.

No rational person can call it waste.

 

                                      ---Larry Beam.

 

 

 

 

 

 

 

 

 

 

 

 

 

Organization: Doctoral student, Industrial Administration, Carnegie Mellon, Pittsburgh, PA