"We Were All Keynesians Then"

Though the idea is likely far older, using public works projects to stimulate employment goes back at least to the mercantilists. For example, Sir William Petty (1623-1687) believed the government should employ the idle to work on roads, dredge rivers, build bridges, that sort of thing, though he did say in A Treaties of Taxes and Contributions (1662) that "tis of no matter if it be employed to build a useless Pyramid upon Salisbury Plain, bring the Stones at Stonehenge to Tower-Hill, or the like," so it was more of a traditional Keynesian view on stimulating aggregate demand than one devoted purely to construction of infrastructure. Thomas Malthus (1766-1834) believed that:

It is also of importance to know that, in our endeavors to assist the working class in a period like the present, it is desirable to employ them in those kinds of labour, the results of which do not come for sale into the market, such as roads and public works, The objection to employing a large sum in this way, raised by taxes, would not be its tendency to diminish the capital employed in productive labour; because this, to a certain extent is exactly what is wanted; but it might, perhaps, have some effect of concealing too much the failure of the national demand for labor, and prevent the population from gradually accommodating itself to regular demand. This, however, might be, in a considerable degree, corrected by the [low] wages given. [Political Economy, 2nd Ed., 429-430]

And, from 80 years ago, Calvin Coolidge echoes this theme:

We Were All Keynesians Then, Journal of Political Economy, Back Cover, Vol. 104, No. 5 (Oct., 1996):  The idea of utilizing construction, particularly of public works, as a stabilizing factor in the business and employment situation has long been a plan of perfection among students of these problems. If in periods of great business activity the work of construction might be somewhat relaxed; and if in periods of business depression and slack employment those works might be expanded to provide occupation for workers otherwise idle, the result would be a stabilization and equalization which would moderate the alternations of employment and unemployment. This in turn would tend to favorable modification of the economic cycle. . . The first and easiest application of such a regulation is in connection with public works; the construction program which involves public buildings, highways, public utilities, and the like. Most forms of Government construction could be handled in conformity to such a policy, once it was definitely established. . . This applies not only to the construction activities of the Federal Government, but to those of states, counties and cities.

More than this, the economies possible under such a plan are apparent. When everybody wants to do the same thing at the same time, it becomes unduly expensive. Every element of costs, in every direction, tends to expand. These conditions reverse themselves in times of slack employment and subnormal activity, with the result that important economies are possible.

I am convinced that if the Government units would generally adopt such a policy, and if, having adopted it, they would give the fullest publicity to the resultant savings, the showing would have a compelling influence upon business generally. Quasi-public concerns, such as railroads and other public utilities, and the great corporations whose requirements can be quite accurately anticipated and charted, would be impressed that their interest could be served by a like procedure.

[Calvin Coolidge, address before the Associated General Contractors of America; quoted in L. W. Wallace, "A Federal Department of Public Works and Domain: Its Planning, Activities, and Influence in Leveling the Business Cycle," Proceedings of the Academy of Political Science 12 (July 1927): 108-9] (Suggested by David Laidler)

Everything new is old again, and it's time to rebuild. Given the state of our infrastructure and the state of the economy, both of which have crumbling foundations, it's past time to start these projects. So what are we waiting for?

Comments

[Waiting]

"So what are we waiting for?"

Waiting for China et al to send more goods/services on credit to pay them with?

[OhNoNotAgain]

I never really thought about the impact of unemployment on the possible cost savings of such projects. Even a slight decrease in what one might normally page in wages during flush times would be enough to save the taxpayers millions of dollars. It's actually quite brilliant. Just let the business cycle occur, and when things hit the downside, bring on the public works projects that have been waiting to get done. :-)

[John]

Near the bottom of the business cycle, do the public works projects, and engage in deficit spending. Near the top of the business cycle, pay off the debt, engage in surplus spending. That was Keynes's idea. Unfortunately, the second half never (or hardly ever) occurred.

Unfortunately, the stimulus at the bottom is less likely to work now, because we import so much of our routine purchases. Instead of the purchases made by workers employed in the public works stimulating the US economy, they would stimulate the Chinese economy or perhaps the Chinese dictators.

[save_the_rustbelt]

Infrastructure is no longer a matter of a bunch of guys with picks and shovels, it is complex designs and complex construction involving lots of expensive equipment.

Good news, most states should have blue prints on the shelf close to bid ready.

[Richard H. Serlin]

As usual, for enough Republicans to be voted out so that we can do the intelligent thing. Hopefully that will happen tomorrow.

[Nicolae Tufar]

I guess the first "keynesians" were the Pharaohs of Egypt. Their pyramid building projects were perfect solutions to keep people busy between periods of sowing and harvesting and occasional wars.

Fits perfectly. Keynes just took the idea and improved on it.

[Winslow R.]

"Though the idea is likely far older, using public works projects to stimulate employment goes back at least to the mercantilists."

Too bad we haven't learned to make public investment an 'automatic' stabilizer.

[Gegner]

STR nails it. Building the original interstate network employed tens of thousands...but crews repaving this same network number a mere handful. The guys doing the actual work are outnumbered by the number of state troopers sitting in their cruisers on detail. (qualifier I live in MA.)

The guys driving the dump trucks full of asphalt outnumbered the guys running the pavement spreaders and steamrollers by 3 to 1.

And we're still only talking 40 people (not including state troopers.)

Not exactly what it will take to spur an 'economic recovery' by a long shot.

We need not tens of thousands of good paying jobs, we need tens of MILLIONS of jobs that pay a living wage!

And there's only one way to do that. We need to institute a work sharing program via a reduction in the workday/week.

Eight hours isn't 'etched in stone'...not that we currently have a majority of people that work eight hours anymore.

The workday/week needs to be redefined to maximize employment.

says...

That's just silly. You guys need to get off the internet and go walk around a constuction site. Oh, and all that stuff that they are using, the materials, equipment, etc. That comes from somewhere and there are jobs there too.

Finally, it's just plain dumb to wish we were as unproductive as we were back then. All it means is that for the same amount of money we get a lot more, and that the jobs are in different places. Why is that a problem rather than a benefit? That's simply not an objection that withstands even a little bit of thought.

[a]

Either we pay for infrastructure projects by borrowing, or we pay for them by taxation. If it's the former, then what Waiting said - we'll have to ask the Chinese first, since they will be the ones lending. If it's the latter, great, all for it.

[mark belo]

Hmmmm... just thinking out loud.

What difference does it make when government wastes money on "useless" things and when private individuals wastes money on "useless" things?

If the government creates jobs with a white elephant project vs a private individual creating jobs by buying "useless junk" (insert your prejudice here, I'll go with tabloids).

I'd say the difference is that private individuals still need to freely and willingly work to satisfy other people's genuine desires (that we may not consider "useless") to earn the money to create such "useless" jobs. Government can just take away your money (product of your labor) to spend on something you don't necessarily want. And when people don't feel properly rewarded for their labors, they work less and the value of money lessens (inflation).

I'm willing to concede fiscal stimulation may help. But should only be used when monetary policies fail (because of fiscal policies' inherent risks). And only to try to give private consumers the confidence to start spending again on "useful" or "useless" stuff. Then the government should step back (though this is next to impossible).

[PCLE]

Nobel prize winner William Vickrey was an advocate of an employer of the last resort program as part of a civilized society's economic policy. Here is a post about it:
http://www.cfed.org/ideas/2007/07/good_jobs_part_3_is_there_a_ge.html

[halbhh]

Roadwork should be paid for by permanently increased gasoline taxes, beginning right now. This gas tax increase can be temporarily offset by a immediate rebate, as stimulus. The point being to help make roadwork costs evident, and encourage efficiency thereby, while also improving incentives regarding oil use, and internalizing more of the costs of oil use. Generally, Americans will be willing to pay for roads, and this will not use up too much political capital if done in this manner.