Making Keynesianism Work

The Hoover Dam, whose hydrolectric power arguably built Southern California and whose Irrigation makes fruitful much of the Southwest.

Source: National Parks Service and NARA, public domain.

DC Beltway, courtesy of Wikimedia user Jumpy, public domain.

Perfect example of a worthy, but expensive, Keynesian type construction project.

Obama's "Keynesian" stimulus has been a failure. To see exactly how much of a failure, let us just consider Obama's own statement that "there will be no easy fix" from a few months ago. Keynesian stimulus, is, by it's very definition, an easy fix. It is about "stimluating" the sagging demand instantaneously to put the economy back on level. If long-term is what we were concerned about, we'd have nothing to be concerned about, as currency movements and demand changes, like those we saw last year, cannot destroy the economy permaneantly as prices do (slowly) adjust. Thus, the goal was not met.

When you also consider the cost to the "businesses" we were trying to save through this stimulus, the picture is even bleaker, as they will end up paying nearly every cent towards the debt that was used to give them this "easy fix," and to no positive result. Still, it is not entirely Obama's fault, but the fault of a legislative system whose lengthy regulatory structure and impossible land purchasing requirements do not currently make Keynesian stimulus very hard.

When Eisenhower was facing a severe recession in 1952, he built the Interstate Freeway from city to city to clarify routes, shorten travel, increase capacity and further the city radius of all of America's metropoli. Though the bill was large (trillions in todays dollars,) the vast improvements to every kind of productivity and prosperity paid for the freeway many times over. In between the increased spending relieving the death pressure of America's industrialists and the promise of future returns that these larger cities promised for those same businesses and others, this stimulus worked. Of course, Eisenhower was both extremely popular and extremely capable at arm-wrestling what he wanted out of congress and pretty much anyone else, which is part of why this worked. Also part of how he got schools desegregated.

Similarly, in the 30's Hitler brought Germany out of its depression using the Audobohn and millitary and industrial economic stimulus. Of course, Hitler was a dictator. And FDR provided some relief (though not quite as effective) with his many WPA projects, including the triborough bridge in NYC and the very last subway tunnels to be built in New York, and the hydroelectric dams in the Pacific Northwest, Southwest and Tennessee River areas. Of course, FDR made himself a dictator.

One of the common themes of all these projects is that they promised future returns on the investment today to back the current consumption. Otherwise, business sees that, while they have more customers today, they are the skeleton on the banquet table, as tomorrow they will be taxed in full the bill for their prosperity today. What is there response? Well, continue operating today, and plan to shut down (partially or completely) before tomorrow. Or at the very least don't expand production. Best of both worlds and one of the easiest, cheapest shrewd maneuvers anyone can pull off. This previous article discusses the flaws in greater detail.

Only trouble is, we couldn't build effective projects as the planning would take too long and the regulatory and buying process too complex for the money to be spent when it is needed. As a result, we had to build "shovel ready" bridges to cheap easy to buy wilderness. This is a very common problem, a predictable problem, and one that can be easily solved ahead of time, but only ahead of time.

See, you make a list, a list of all the various projects that should be built in the near future but are too expensive to be built when times are good, like the Alaskan Way Viaduct Tunnel in Seattle, the Second Avenue Subway Line in New York, some new freight rail to handle additional capacity in Chicago, and maybe some new mountain passes or brand new interstates to link more of the countryside in to the metropoli.

First, you get all permits cleared years ahead of time. Have the town hall meetings, have the local voice, but do it while times are still good in the summer of comfort long before the decisions have to be made. Then, if it passes, you buy the land that the project requires, rent it out temporarilly until construction begins (and hold the rent money to pay for the project), and then, when the economy tanks, you evict the tennants within a week (they knew this from the moment they rented, and get a discount for their inconvenience), destroy the properties, and begin construction right away.

Lastly, you use non-traditional Ancient Egyptian style construction methods that exchange the efficiency of gradual construction for the speed of mass-building, erecting your structures in less time with more people employed, distributing the money more quickly and effectively. It is more expensive in accounting terms, but in economic terms is so much more effective as a stimulus that the books likely (though I have not worked out the numbers myself, so please do so before jumping off a cliff) balance. This last aspect was not done by Nazi Germany or Eisenhower, but was to a very mild degree done by FDR with the Hoover Dam, to his credit.

The rental helps with the keynesian process, as it is not the level of consumption but the difference in consumption that creates mayhem, and holding back some currency that tennants pay in rent to pay for the project later on shallows the wound. The speed, of course, also helps with the keynesian process, spending the money more quickly.

This way, the projects can begin within a week of the economy hitting the tank, and they will be the valuable kind that America needs, rather then "shovel-ready" bridges to towns with less then 200 people that spend plenty of money but build little long-term gain.

Uptown Platform, NYC, courtesy of Adam J. Sporka. In the opinion of some, the New York Subway built the city.