Tuesday, October 30, 2018

Infrastructure Or War Spending Creates Economic Illusion

Building New Bridges Creates Jobs But Is Not Free
With America's national debt and military spending soaring it might be a good time to revisit the idea of how a country can create the illusion of economic prosperity by spending. One way a country can kick their gross domestic product higher is to build a false economy based on infrastructure or war. When a country gorges at the trough of deficit spending it can easily manipulate a big temporary boost in its GDP. One of the best examples of building an economy on a foundation of military might or a massive move to militarization was demonstrated by how Germany was turned into a war machine during the 1930s. Unfortunately, such spending quickly creates a wall of debt.

While history clouds much of past events, Hitler is often seen as the guiding force behind Germany's resurging economy just prior to World War II, how much he contributed is a matter of debate. Hitler's views on the economy were mixed and of secondary importance to his more overriding goals. In a speech, he proclaimed "we are socialists", but he made it clear that his meaning "has nothing to do with Marxian Socialism". It is reported that in private he also said, "I  absolutely insist on protecting private property... we must encourage private initiative". Of course history shows that he had no problem with the government regulating the use of that "private property" for the good of the state.

China Is Boosting Economy By Building Military "Stuff"
Remember Hitler rose to power following the hardships of World War I and Germany's historic bout of hyperinflation in the mid-1920s. The crash in 1929 and the Great Depression that spread across the world created an environment where Hitler was able to become Chancellor of Germany in 1933. Under his leadership the Minister of Economics introduced the Mefo bills (Government IOUs) that existed alongside the Reichsmark, industries were allowed to trade these bills among themselves. This was a scheme that allowed Germany to rearm by creating a huge off the book deficit and massive national debt.  As a result employment soared and wages rose. The part of this story many people forget is the prosperity was false and temporary. The fast growth only masked real problems within the economy and resulted in rationing and shortages in things like poultry, fruit, and even clothing for many of the people.

A major problem of a war based economy is the issue of sustainability. It is expensive to maintain an army and war is a destructive force. Long gone are the days of conquering your enemy then raping and plundering your way to glory and riches. At least so it seems and we can only pray that part of mankind's history is fading into the rear-view mirror. In many ways, this lessens the appeal and lowers the risk-reward ratio of war. When after winning a war if you have to pay and invest money to rebuild the enemy you defeated, war becomes rapidly unappealing. The only real winners are those manufacturing the weapons and signing massive contracts to rebuild what has been damaged. Another problem is if society takes the position the lives of their soldiers have value, the cost of lives lost and the money spent to care for the wounded and other programs for those who have served quickly adds up.

Infrastructure also has the potential to slide into the area of wasteful spending driven by political motivations rather than necessity. Much of the money slated for spending generally winds up financing boondoggles with huge cost overruns and are just a waste of money. The real test comes when questions are asked about the need for a certain project and the quality of the vision on which it is based. We must also take a deep look into how we set priorities and the payback or savings that will take place over time as a result of our investment. When looked at closely this is where large public or government building projects often fall short of our goals. It is not uncommon to find poor decision making and corruption creates projects that are overbuilt, expensive to maintain or have a lifespan far too short to afford a reasonable payback on the funds spent or worse yet come back to haunt us for years or decades.

The reason infrastructure spending can sometimes be considered part of a false economy is the number of jobs we claim are created from such spending are often only temporary and can be easy to overstate. While infrastructure spending brings the illusion of solid growth it is generally a long-term investment financed by creating debt, this debt often last for decades and long after the project is completed. Often the jobs such projects create quickly fade away. This makes it important the money is well spent or the bill will come back to haunt society and the economy over time. Sadly, many people and politicians who devise such projects are more interested in a quick fix today or spurring growth rather than focused on building a better future.


  1. Your photo of "China Is Boosting Economy By Building Military "Stuff"" is not of China, but rather is a photo from North Korea.

  2. Nice catch, it is proof that no matter how hard we try things get by all of us. The picture has been changed and I must say finding a new one was less difficult than actually replacing it in the article. As I said, nice catch.