Spending your way to prosperity

There seems to be a consensus among independent conservative pundits like Pat Buchanan and Steve Sailer that Obama's plan to get the U.S economy out of recession through public spending programmes won't work.

In this situation I'm definitely inclined to agree, fiscal stimulation didn't really work in the U.S in the 1930s, and it's even less likely to work today. Infrastructure spending during recessions only works if it complements the growth of new industries and if the government actually has surplus funds it can afford to invest.

For example, between the 1930s to 1960s, infrastructure investment was a general success in Australia and New Zealand because, A, the government was fiscally solvent and B, it tied in with the rapid growth of agriculture and mining. Without roads, bridges, schools and telephones it was difficult to attract settlers to new areas and transport products to overseas markets so back then investment in these areas made a big difference.

Similarly, the development of a national highway system in the U.S after WW II helped fuel the demand for a raft of new domestically made products from trucks and cars to refrigerators and lawnmovers.

In the modern post-industrial U.S economy though, there aren't really any productive industries that are being seriously held back by lack of investment in infrastructure. Some of the high-tech sectors like biotechnology and robotics might benefit from greater investment in research and development, but in terms of basic transport, power and communications infrastructure, the U.S is in reasonably good shape. This kind of crude Keynesian stimulation can only really work in countries at a much lower level of development.

Nor does this kind of approach work if there is a shortage of markets for locally made goods and services. One reason the 1929 Depression dragged on for so long in the U.S was because the U.S was shut out of many overseas markets that were putting up tariffs at the time to protect their domestic producers.

In contrast, the Depression was much less severe in Commonwealth countries like Canada and Australia, which had access to a protected Commonwealth market.

Indeed, if it wasn't for the fact that more Americans had cars, relatively cheap housing, and land on which to grow food than in European countries, America could well have gone down the Fascist path of countries like Italy and Spain. Today the U.S also faces major problems exporting overseas. This is partly due to tariffs, subisidies and currency manipulation, but also because of global over-production in manufacturing and farming.

Then there's the fact that (as Ron Paul often likes to point out) America just doesn't have the money.

With a federal deficit of over $1 trillion, the U.S government should really be cutting federal programs, not increasing them. While getting out of Iraq should leave the government in a slightly better financial position, it still won't be enough to compensate for the massive increase in Medicare and pension costs that are set to occur over the next decade.

As least that's one good thing about the election of National last year - New Zealand's now one of the few countries going in the tumultuous 2010s with a reasonably fiscally conservative (albiet right-liberal) government at the helm.