It has been well-established that the creation of money, in and of itself, does not stimulate economic growth. In order to stimulate the growth and quality of life of a population, output or production must increase. There are two ways to accomplish increased output. The first, which is widely accepted today, is lowering taxes. A lower tax creates more incentive to invest and work because you get to keep more of what you make. An incentive to work and invest will increase output. The actual increase in the money in consumer’s hands is irrelevant in this eventuality. More money held by all is called inflation. Inflation simply increases prices and does nothing to output. It is the motivation to increase output based on larger expectations of return that is fulfilled by lowering taxes.
The second, and more controversial method of stimulating output, is an investment in the “business.” For example, a few years ago, McDonalds reported losses for the first time in its celebrated history. In an attempt to rectify this, they decided to reinvest in existing stores. Previously, they had been throwing money at developing new stores and neglecting existing infrastructure. By cleaning up the image, products, and business model, McDonalds quickly returned to profitability.
How can the U.S. invest in their ‘existing stores?’ The answer, as has been danced around in Congress, is infrastructure improvements. The determination of what investment will obtain a satisfactory return is the catching point. Democrats want to invest in museums and Republicans don’t seem to know what to invest in. Some have the idea of the great public works projects of the depression era. Personally, I would like to see the day the un-employed, former Lehman associate joins the road department, but I do not think this is necessary today. What we need today is a very large investment in nuclear power. If the intent is to wean ourselves from foreign oil (which is going to happen whether we want it or not), we need to begin to increase our ability to produce energy. As sunny as it is in Arizona, and as windy as it is in the mid-west, we need a real solution to energy, and nuclear is the one we have. This will take a herculean effort, however it is a solution that addresses both infrastructure improvement and national security.
Tuesday, February 3, 2009
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I agree wholeheartedly that it is a good idea to invest in nuclear power. Actually, if the government wants to stimulate nuclear power, all it needs to do is to remove some impediments to the building of new plants. Today it is far too easy for local governments to bog new plants down in endless bureaucracy. This, combined with perhaps a long-term storage solution for nuclear waste would lead to a renaissance of nuclear power.
ReplyDeleteAnother area that should be considered for investing in the US's "existing stores" is basic research. How much is the invention of the transistor worth? The Internet? Even one or two ideas like those coming out of basic research would pay for all of the other unsuccessful projects that were invested in many times over.
With all of that said, I'm still in favor of basic tax breaks. Why? Because the government tends to do a very poor job of allocating resources where they're most needed. If we want to invest in nuclear or basic research as companies and individuals, that's fine, but it should be the government's job to get out of the way, not telling us what we should be doing. The market is the most efficient method man has ever developed to match consumers and producers. Regulation and control tends to produce a snarled bush where a proud tree should stand.