Weâ€™re in a recession, and unemployment is high. Some level of government stimulus is a good idea. But how do we determine which programs are good? Is â€œCash for Clunkersâ€ a good idea?
I evaluate spending proposals by considering what long term value is being built. The government can inject cash into the economy, but after the short term injection, will value remain in the economy which can benefit us for the long term? Or is it just a short term spend?
Cars for Clunkers is a short term fix. It adds cash to the economy for a short period, and allows Americans to continue consuming more goods than we probably need. What happens to cars? They get consumed â€“ they get driven, used, and eventually (5-10 years later) get scrapped. So when the government signs up to spend $5B on cars, theyâ€™ve injected a temporary cash boost to the auto-industry, and helped consumers get some â€œstuffâ€. But in the end, Americans receive no long term value from this cash injection. And when the government stops spending, the auto makers will need to layoff the workers they hired to accommodate the short term needs of the boost.
A better use of money is to build things of value. If the government wants to create jobs, it should invest in building things. Building schools, improving roads, and building national or local infrastructure builds long term value. Unlike the car which will wear out in a few years and provide no value, building a school lasts for decades. Not only do the citizens building and running the school benefit now, but the school is still usable by our children and grandchildren in the long term.
Tell your congressmen to vote no on any short-term cash injections. All spending should build value. If your senator canâ€™t show long term value in their spending, it is not worth it.