Thursday, February 18, 2010

Example of how government spending contributes to private sector growth

I think economists purposely confuse people so as to increase their value. If no one can understand what it is they are talking about then we will need them to explain it to us.
I'm searching for ways to understand whether one or other theories are correct.
In that, I'm trying to formulate simple examples and go from there.

Many Conservatives talk about the evils of government spending. They say the money must be taken from taxes, borrowed, or created out of thin air (monetized); which in turn slows the economy. So they argue that on balance government spending can't help the private sector.

I'm thinking of examples that contradict this like the following:

There's a shopping mall with a grocery store and pizza place.
A big blizzard that hits the area and everything is shut down.
Let's assume that there is 3 feet of snow everywhere.
It is not in any particular person's interest to plow all of the streets.
If we let things occur naturally, we would have to wait until the snow melts before economic activity can resume.
This will happen eventually.

If the government hires people to clear the streets it might cost say $200,000.
This will allow resumed economic activity 48 hours earlier than otherwise.

So people who would "cut government spending" by this $200,000 would shrink the economy because they would lose the business from time the snow accumulates until it snows.

This is a local government example, I'm searching for large macro examples where public spending/investment either creates a new market, or reestablishes the infrastructure for a broken market. The end result would be economic growth.

...more later

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