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Public works waste public dollars

Gregory Debogorski, Staff Contributor

Any student looking for explanations of the state of employment in this country would be wise to take a look at the American economy. If the U.S.A. catches a cold, Canada is at least guaranteed the sniffles.

This article is for all those readers thinking a big public works project will save the day as it did in the dirty thirties, stimulating their economy and ours. The United States’ attempts to use public works to stimulate the economy have been corrupt and ineffective, and in all likelihood will continue to be. A public works project will only tip the scale on the debt issue, and most of the funds will funnel back into the greasy hands of the top 10 per cent income earners.

As of Nov. 16, 2010, the U.S. Bureau of Public Debt website states total public debt outstanding at $13,795,134,710,938.49; where $14,294,000,000,000 is the limit before congressional authority is necessary to borrow another penny. In other words, the U.S.A. government is running out of time to fix its economy.

Any future public works projects attempted by the U.S. government under the current government contract procurement process will have limited positive spin-offs for employment and sustainable growth.  As the bank bailout showed,  public spending these days gets way less bang for its buck. This is due to concentrated ownership of the United States’ means of economic production.

First, we need a little Economics 101 boot camp. Do you remember the diminishing returns principle from Intro to Microeconomics? In case you don’t, it means for every extra good consumed or dollar one spends, one receives less and less personal benefit. For example, after your tenth house or car, you start not wanting more houses or cars—unless you’re David Letterman.

Next is the marginal propensity to consume (MPC) principle. MPC is the portion of money a person will spend for every bit more they make. For example, John’s MPC is 0.9. For every $1 more he makes, he will spend 90 cents and save 10. Typically, MPC will decrease the more money you make, because of the diminishing returns principle.

These two principles are important because consumption is a country’s largest portion of GDP. Yes, this even goes for Luxembourg.

The  people in the lower 70 per cent of the income bracket have the higher marginal propensity to consume. If they face the majority of the tax burden,  and this tax is transferred into corporate profits instead of increased wages or greater employment, then money is being redistributed away from those most likely to stimulate the economy.

Didn’t we say that was likely the common consumer?

Thus, government funds should be directed toward public employment, rather than subsidizing public works. Funding public jobs will increase employment directly and stop the decreased returns to economic growth associated with public-private partnerships.

If wealth & income are highly unequal, as is the case in US, creating greater inequality by subsidizing free-market profits — transferring even more income from those that consume the most — will only worsen the current economic crisis.

“Whoa! Wait a minute. What did that nut just write: free enterprise is its own worst enemy?”

When you drive through Toronto, what do you see?

Yeah, there are lots of small shops, but who are making the most money? It is not the small “no-name” stores carrying “no-name” products; it’s the “big box” brands owned by national or multinational capital.

What do these places pay their workers? Usually near provincial minimum wage.

Now consider the two principles I mentioned. These corporations are taking profits from our cities as we consume from them, but giving very little back in the form of wages for the people who would spend the most.

Like almost all nations, the US is so grossly unbalanced between the haves and have nots that it cannot handle more inequality *and* economic growth. The working class is tapped out. Credit cards are maxed-out & households are living check to check—if not forfeiting on their debts.

Government dollars should be minimizing this inequality, not promoting corporate welfare.

 Gregory Debogorski has a bachelor of management from Dalhousie and is in his first year of the MA program in economics. 

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