The President-Elect has announced plans for massive government spending on infrastructure projects reminiscent of FDR’s initiatives during The Great Depression.  The proposal is designed to put 2.5 million people to work on federally funded projects. 

The rationale for the program is as a proactive response to the economic recession.  The President-Elect expects infrastructure projects to stabilize the economy and contribute to a recovery.  Of course this logic ignores the fact that FDR’s spending was largely a waste of money and accomplished nothing in terms of getting us out of the Great Depression.

Unemployment was persistently high irrespective of federal spending until World War II started.  The United States directly benefited from the conflict as our country was called on to supply the allies every implement necessary to wage war.  Once the United States entered the war 11 million men were removed from the work force and shipped abroad but needed to be supplied by our growing manufacturing economy.  Federal spending was a woefully ineffective strategy in dealing with the challenges of the Great Depression.

Debt-financed, government-directed, infrastructure spending will not stabilize the economy nor will it be helpful in extricating ourselves from the impending depression.  This crisis is being driven by deflating asset prices, excessive debt, shrinking credit availability and collapsing consumer spending.  Inefficient federal projects which provide little incremental economic value will have no effect on the perpetuators of the malaise.

The real rationale behind adding 2.5 million federal jobs is to achieve political goals.  Such spending allows the government to directly manipulate the data used to evaluate the health of the economy.  The unemployment rate will appear to be relatively favorable as millions of people are artificially employed.  These individuals will spend their federal earnings and in doing so prop up GDP figures.  The government will claim to have “helped” the economy while in reality politicians will have simply distorted the data while the depression persists. 

Secondarily, adding 2.5 million federal employees, dependent upon the state to perpetuate their paychecks, effectively purchases a large number of votes for the Democratic Party.   Infrastructure spending will be a disastrously wasteful and inefficient economic policy, but an effective way to buy votes and perpetuate political power.