How Stimulus Works

I’ve been chewing on this Forbes piece for a while.  Briefly and slightly oversimplified, it says that “deficit spending is bad and doesn’t stimulate the economy ever, unless it’s for defense.” Let’s run that theory to ground.

Suppose we spend some round but arbitrary number on, say, sending a soldier to Iraq. While some money goes to the rent on his stateside place, he’s not spending money here in the United States for the most part. Sure, we also have to spend money outfitting him, making sure he has adequate supplies. Nevertheless, he is not spending his whole paycheck here.

On the other hand, let’s say we spend the same amount of money building a road.  Perhaps we spend it merely widening an existing road and renovating an existing bridge. That seems kind of important, doesn’t it? The guys building that bridge are going to spend their paycheck here.  They are going to buy lunch near the jobsite. They are going to pay rent and buy steel-toed shoes right here in the United States. 

But wait, there’s more.

When that road project is done, it will continue to benefit the community. People will use that road to shorten their commutes and improve their quality of life — perhaps making a house a little further out economically viable. People will use that road to get to businesses, and spend money there. Businesses will move in to locations near the new road and take advantage of the improved traffic flow. Delivery vehicles will take advantage of the more efficient road to boost productivity. Someday in the future, that road will require maintenance, and then we will be able to put people to work all over again.

So no, tax cuts and military spending are not the cure-all for this or any other economy.

In closing: scientists recently dug up — separately of course — a prehistoric snake 43 feet long, a 635 million year old sponge, and an 18th century warship; it’s not a cliche, it’s a trope; look who slithered out of his undisclosed location to warn about pestilence and terrorist attacks; and the doctor whose Lexus blew up this morning?  Earlier the cops swore no, it wasn’t a bomb, the hybrid motor must have malfunctioned.  Mere hours later (and one must assume a few phone calls with Lexus later), they’ve decided it was a bomb after all.  No idea who planted it or why.  How old school.