13 Nov 2009

The efficient way to spend stimulus money

The current method is to look for shovel-ready pitchfork-ready* projects, but those projects were NOT underway for a reason -- their benefit-cost ratios sucked.

Although stimulus money may make those projects cheaper for the locality, it does not make bad projects into good projects.

Here's how I would have distributed the stimulus money.**
  1. Pay off existing debt on existing projects that, presumably, passed the benefit-cost test.
  2. That payoff will reduce debt (helpful when bond ratings are falling) and reduce debt servicing (helpful when 30% of tax revenue disappears).
  3. Communities that want to build more can then choose to do so, but they will consider 100% of costs when judging the benefits from a project.
Of course, none of this happened, because politicians want to wield golden shovels in front of NEW holes (Keynesian holes!) in the ground. They are not interested in standing in front of balanced budgets or sensible, operating projects. Such a pity.

Bottom Line: We manage our own finances in a completely different way than politicians manage "our" finances, bribing our current selves with some promise that our future selves will not have to pay. I guess we are just gullible in believing their hokum.

* Sounds about right for Friday the 13th, huh?
** And remember that this is OUR money, so we are basically borrowing from our future selves and spending now. My overall opinion is that stimulus money is wasted, but this is all about harm reduction!