Why only “shovel-ready?” by mattsteinglass
January 23, 2009, 6:08 pm
Filed under: Uncategorized

So here’s something I don’t understand. Supposedly, long-term infrastructure investments are useless as countercyclical recession-fighting stimulus because the money takes too long to get flowing. Only “shovel-ready” projects work.

But let’s look at the market for, say, high-voltage transformers. Right now there’s very little demand for high-voltage transformers, I imagine. So workers at companies that make them are probably getting laid off. But let’s say the government declared that three years from now, after planning and review are complete, there’s going to be a massive reconstruction of the national electric grid. Wouldn’t the guarantee of that future demand be a stimulus to companies to keep production capacity in place? I mean, if you knew the government was going to be ordering 10,000,000 widgets in 2012, wouldn’t you take out a loan and go into the widget business? And if you were a banker and somebody applied for a loan to start a widget company, and you knew the government was planning to order a lot of widgets in a few years, wouldn’t you be inclined to extend credit to that company? And isn’t this how investment gets going and carries a country out of a recession? Or am I missing something here?

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