The growth recession that is taking place has affected millions of Americans. It was brought about by high commodity prices and the credit crunch. Should the Government intervene? Sometimes they should, but their intervention should be prudent and they should not waste borrowed money for political gain.The fiscal stimulus that occurred seemed nice but at what cost, it was a three month shot in the arm that Americans will have to pay back in the future.Now another round of stimulus is being planned and what will the Government do?The Congress should not pan handle to voters, which is what politicians do, but it is not beneficial to the people.If a stimulus should pass then it should be in the form of infrastructure spending. This would put people to work and increase productivity.However in doing so, the government borrows money from the private sector and corporations find it hard to find capital. This is known as crowding out, which raises the interest rate. This would be beneficial because it would slow down inflation.Spending on infrastructure would not be reflected on Wal-Mart’s balance sheet, it would increase the productivity of the American worker, and decrease unemployment.
It is estimated that traffic alone costs the American economy 25 billion in lost productivity.Los Angeles was designed for 2 million people and the over crowding has forced Angelites to lose 3 hours of their day on the road. This is disastrous to business and could easily be addressed by a 21st century infrastructure plan. I will not propose a solution, I’m not an engineer.However as an economist I need to point out that productivity is being lost by out dated infrastructure. This is an election year and the economy is in the doldrums, so another stimulus in imminent. The responsible thing for Congress to do would be to increase government spending for infrastructure not stimulus checks. The increase in interest rates would make American deposits desirable to foreigners and influx of foreign capital would drive up the dollar’s value. Congress does not get many things right, however by funneling the stimulus to infrastructure instead of rebates they would kill two birds with one stone. By increasing government spending on infrastructure, the Government would be able to decrease unemployment and decrease inflation. The dollar would appreciate and oil would fall as a result. These projects would take a long time and keep citizens employed for years.In todays supply-side inflationary environment it is the only government intervention that I condone. On the other hand they could do nothing but in an election year don’t count on it.
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