Monday, December 1, 2008

Greg Mankiw's Blog: Passing the Buck

Greg Mankiw's Blog: Passing the Buck:
In my view, these arguments are cogent only under the maintained assumption that there is no good alternative to fiscal expansion. If our only choice is between (a) full employment with a large budget deficit and (b) depression without a large structural budget deficit, then by all means let's choose (a).
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One thing all economists agree on: If there are public investment projects that pay a high rate of return, those are worth paying for, even if it means more borrowing. But that is always true. Even if we were at full employment and there were no possible employment effects of fiscal stimulus, we should undertake public investments that pass a cost-benefit test.

In this regard, two observations come to mind. First, since most infrastructure is used locally, the proper level of spending is best determined by state and local governments rather than by the federal government. Earlier, I suggested that fiscal stimulus could be decentralized. Each state governor could be allowed to determine whether to take federal money as state aid or have it paid directly to his or her state's citizens as tax relief. I still think that makes sense.

Second, more public projects would pass a cost-benefit test if we repealed the Davis-Bacon Act. This law requires contractors on these public projects to pay "prevailing wages," which are typically union wages well in excess of what would occur in a free market. If the government paid market-determined wages for infrastructure projects, we could have both more infrastructure and less government debt. Without doubt, that legacy would benefit future generations.
Here is the good old Uncle Sam comes with job. Yes, state governments, all the projects put tenders – free market, create quality work, any agencies interested in the projects, bidding it. Project by project, but beware cheap price mean not necessary promise quality work. I am not really sure what is “Davis-Baco Act” but if the Act prevent free market wage then it has to change too.

Caring Update: all these “breeders” deeply caring their future grandchildren, they all want piece (not a peace) of mind in their underneath marble stone or air, they want their grandchildren visits their “no grave yard” to tell them “ thanks grandpapa, because of your caring I am a fat immobile, live in a air tank cage paradise”