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This deficit must be financed.

You mean the trade deficit impact of the spending? Well, yes, but in the middle of a global economic downturn is the time when it will be least difficult to finance that ... and it only needs to be finance, since it is self-funding, given that the eventual savings on the trade account will more than offset the original trade-account impact of the government spending on infrastructure.

On 5:

5. The amount of money printed is not going to be matched by an equivalent amount of goods.

Why not? I would argue the exact contrary: under strong recessionary conditions, the amount of money printed will of course be matched by something quite close to that amount of newly produced goods and services.

It is a major government spending program on infrastructure when the economy is booming, or at least well advanced in a normal recovery that the spending will not be matched by that amount of newly produced goods, but instead will in part shoulder aside existing production, which is an inflationary process.

You seem to be assuming that when faced with the orders from the government, suppliers will turn their backs on orders from other customers, rather than increasing production to meet the new orders without turning away existing customers. Which in a deep and global recession is presumption that I find to be absurd.


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 10:25:41 PM EST
[ Parent ]
Infrastructure is wealth.

It's indirect wealth - it doesn't live in warehouses, and people can't buy it directly.

But if breeds wealth in the same way that lack of infrastructure - including lack of banking infrastructure - destroys it.

If you're losing spending power, it doesn't matter if you're losing it to inflation or because items are piling up in the docks because no one can offer a credit line for it.

There's also the subtext that 'inflation' is often really just code for 'worker power.' But that's for another diary.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Oct 13th, 2008 at 05:42:45 AM EST
[ Parent ]
... when there are members of the Federal Open Market Committee who talk about wages increasing at half the rate of productivity growth as an "inflationary threat" that may have to be tamped down with a rise in the cash rate ... while asset-price inflation is always for the best ... its clear that the obligation to pursue a full employment economy is primarily honored in the breach.


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 Mon Oct 13th, 2008 at 05:28:50 PM EST
[ Parent ]

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