Question from a reader:”Why is spending money on infrastructure better than just getting cash? I miss not getting the stimulus check like we did in previous years. I don’t get it. Love your column, Kim.”
My answer is that you did get a form of the stimulus check if you were working, it came though in the form of having less income taxes taken out of your paycheck. There is a strong chance though that if you are part of a two income family that you may end up owing some of that back when you file your income taxes for 2009 in 2010. The theory behind giving us cash directly or lowering our taxes is that we will take our extra money and spend it on the economy. The reality is that we will take that money and either save it or spend it on paying down bills so we can continue to have a shelter over our heads and food on our tables.
Infrastructure is a good investment if the money actually goes into the project, be it repairing highways, building dams, reinforcing bridges, etc, because you can’t counterfeit, bootleg or offshore something that is being worked on in the material world. What does that mean? It means if the money went to software development, that work could be outsourced outside of the USA. You can’t outsource easily building a bridge. People will look at your workers and if they see that you are trucking in prefabricated bridges from overseas you will have a problem.
We need a lot more infrastructure projects to get more people working. The more that people make money, the more that they will spend and once people feel comfortable that they are working and won’t be laid off, or at least for a few years, they can return to spending, buying homes, etc.
The numbers show that in some distressed markets that things aren’t recovering and it isn’t a good idea for our leaders to keep saying that things will get worse before they get better too long. The reason we elected our officials was to have them help us make things get better.
To be fair to them, nobody has been through this type of a Depression before and it may take a decade till things flatten out and we are out of it. People still need to eat, sleep somewhere and make a living over the next ten years till we get a positive business cycle in the mean time.
If you think of currency as water (and that is an excellent analogy), you want to have enough money for droughts and have enough of it liquid so you can cover your expenses and plan for expansion. What is weird is that there is a lot of money out there and as I have said before, a lot of it is blocked or stuck in constipated mode and it isn’t making it down to the average American as well. The real change will be when the average American can start feeling comfortable enough to spending his or her money again.
Hope that answered your question and thanks for being around and being a reader.
May 27 2009
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Kim Isaac Greenblatt
Why Is Infrastructure Better Than Just Getting Cash