Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
The immediate spending is in the middle of a deep, global recession. So there is no serious risk of a demand-driven inflation component.

And once the infrastructure that is being constructed comes online, the result is an increase harvest of domestic energy supplies and reduced energy consumption, which is an increase in aggregate supply that is the only serious prospect for countering massive cost-push price inflation from imported energy over the next two decades.

Where is the inflationary impact?

Government spending creates fiat currency, as always, and that fiat currency is used to mobilize currently unemployed resources, which is not an inflationary use of newly created purchasing power, and the portion that is recirculated and used to finance consumption spending also mobilized unemployed resources, which is not an inflationary re-used of that newly created purchasing power.

Certainly any effort to get the same effect primarily through monetary policy might be inflationary, but then that would be because of the extreme ineffectiveness of monetary policy in the face of a strong recession, especially when it is a global recession so that neo-mercantalist exchange rate policy is unlikely to lead to any substantial growth in export demand.

As far as "create capital" ... it is hard to tell in reading this whether the "capital" is finance capital (claims on incomes flowing through going concerns) ... real economic capital (goods and services that expand the productive capacity of the economy) ... or a Three-Card-Monte conflation of the two.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Oct 12th, 2008 at 07:07:37 PM EST
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