In the long run, won’t spending on infrastructure reduce the debt?

Rules of the game: I calculated a net deficit reduction. If you disagree with my calculation, you have to point out the mistake in facts or logic. Otherwise, you are a dialogue-hating, non-communicating blowhard.

To compete with Asia and Europe, we will need to replace wasteful long-haul trucking with maglev freight trains that zip through low-pressure tubes from coast-to-coast in one hour. To battery-power our entire automobile fleet, we will need a smart grid and dozens of safe, thorium-based nuclear energy plants. To eliminate fossil fuels, our energy-independent homes will need complete insulation, solar panels, and geothermal wells. Our communication systems will need a national underground fiber network.

Who says we can’t finance infrastructure? Bond holders are begging us to keep their money safe at a negative (inflation-adjusted) interest rate. And we can buy bonds ourselves as we did in WW II. And money can be generated on computer keyboards, as the Fed is doing for European banks.

How much can we afford to spend annually on infrastructure? With a 2.5 multiplier (see KeynesForum.com), $ 1T of annual government spending on infrastructure induces about $ 1.5T of consumer spending, about $ 0.15T of consumer savings in bank reserves, and more than $ 1.5T in new bank credit. If industry likes the rebirth of construction enough to borrow and invest $ 0.5T, the total annual spending would increase to $ 3T. And the GDP growth rate would reach 20%, as during World War II.

So what would be the deficit? Zero!! Because the spending has huge benefits, we could actually reduce the debt by spending $ 1T annually on infrastructure. First, we would employ ten million jobless workers, each of whom would stop drawing the equivalent of $ 25,000 in annual relief benefits of all kinds. Also, the improved infrastructure would produce at least a 1% productivity increase in a growing $ 15T economy.

But that’s only the beginning. Since the federal tax averages 20% of GDP, federal revenue would increase accordingly. And since the states collect about half as much, that permits the federal government to eliminate much of its aid to the states. This is serious money:

Reduced unemployment benefits = $ 25K benefits x 10 million people = $ 0.25T
Productivity improvement = $ 15T (and growing) economy x 1% = $ 0.15T+.+.+…
Federal tax revenue increase = $ 3T increased spending x 20% = $ 0.60T
Reduced federal aid to states = $ 3T increased spending x 5% = $ 0.15T
Total annual budget gain = $ 1.15T
Less cost of stimulus – $ 1.00T
Net deficit reduction = $ 0.15T = $ 150B

Deficit spending always reduces high unemployment. When Hitler took office in 1933, he ended Germany’s depression within two years by deficit spending on the autobahn, the Volkswagen, and television as well as on prisons and munitions. “Heil Hitler!” really meant “Thanks for the job!”

FDR also took office in 1933. With the same amount of deficit spending as he spent during WW II, he could also have built, in the period 1934-1938, interstate highways and modern railroads, airports and seaports, levees and dams, as well as munitions factories and arsenals. And within the same budget, he could have paid 16,000,000 youth to learn trades, engineering, and science for four years at free schools and universities instead of paying them to go to war.

What would have been the result?

The Great Depression would have ended by 1935. By 1938, the ratio of national debt to GDP would have been the same as it was at the end of WW II (120%) with the same post-war boom. Consumers would have had as much savings, enough to buy cars and homes and turn old farms into new suburbs. We would have been better set for the war and many of our dead heroes would have survived and returned to a far richer nation.

Only the blind stupidity of conservatives kept much of that dream from being real.

And despite high tax rates and annual budget deficits during 35 post-war years, deficit spending on veterans’ education and housing, on the Marshall Plan, the Korean War, nuclear energy, the Interstate Highway System, NASA, Cold War rearmament, the Vietnam War, and a dozen proxy wars produced such GDP growth that the ratio of National Debt to GDP declined to 25% of its wartime peak. Stimulus!

Deficit spending created our middle class and Reagan destroyed it. He doubled the debt ratio with tax cuts and unnecessary military spending, ripped Carter’s solar panels off the White House roof, and killed a thorium-based, experimental, nuclear energy plant that could have given us safe energy independence and avoided Bush’s wars. He froze infrastructure spending and sent our manufacturing industry to China.
John E. How is the Interstate Highway system working out for you?
acid: read the rules of the
whiskey; Having trouble with the arithmetic?
Warning: You can’t repair something that isn’t there: a fossil-fuel free civilization.

More Pages:

1. Solar Power: Did You See This Great Washington Times Article By Victor Davis Hanson? (3/4/2012)
2. Solar Power: Do You Really Think Obama Would Have Been Elected Last Fall IF He Had Give A Truthful Speech? (2/23/2012)
3. Solar Products: Would You Vote For Me For President? (11/5/2011)
4. Solar Energy: Are The Big Oil Companies Really Spending Enough On Developing Alternative Energy? (3/28/2012)
5. Solar Energy: If They Can Give Loans To A Few Solar Companies Totaling $4.75 Billion, Why Not For The Infrastructure? (1/9/2012)