Infrastructure spending was a hot topic during the US election campaign. It is typically seen as a valid way to boost economic growth while providing real benefits to the people. However, government spending is always a zero-sum game. Anything the government spends must be taken from the private sector economy. Whether it is financed by money printing or by taxes, it is always less effective than when undertaken by the private sector.

The following three cartoons from the excellent Red Panels say it all.

redpanels_39

redpanels_142

redpanels_240

Some Lessons From Australia

At the time of the global financial crisis in 2007-2008 Australia’s Rudd government initiated a $16B program called “Building the Education Revolution”.  An idiotic title for a program of waste and failure. Most of the money was spent on building school halls, no matter what the schools themselves may have wanted. Costs are estimated to have been about twice what they would have been under the private sector.

Here in Sydney we have the government financed “Westconnex” infrastructure boondoggle. On signs around construction areas it is proudly announced that the project will create 4,500 jobs. At a total cost of more than $20B, that is over $4M per job. They must be good jobs I guess.

The project is effectively creating more freeways, mostly underground. This will, of course, lead to even more traffic, as always happens when more roads are built. Alternatively, if the tolls are high enough, people use alternate routes.

Sydney already has an excellent example of the latter in the Cross City Tunnel. It is very short, costs $5.43 each way for a car, and often dumps you in heavy traffic at each end. It is usually virtually empty because alternate, free routes take very little extra time.

 

 

 

 

 

 

 

 

29 November 2016 Macro