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Tuesday, September 29, 2009

A Road to Stimulating the Economy?

The September 29 Wall Street Journal ran an article titled “Road Project Tests Power of Stimulus.” It focused on a $128 million federal grant to widen a seven-mile portion of I-215 in San Bernardino, California. It’s the nation’s “fourth-largest stimulus investment in a road project.”

The Journal reported: “The project will test whether a dollop of government stimulus can make an impact in a region hit hard by the housing crisis and where more than half the home sales are foreclosures.”

The argument in favor of such projects is that they will employ people, who will then spend their earnings, and it will improve transportation in the region, which will be a positive for the region’s economy.

Of course, the people that get jobs from government stimulus projects will have money to spend, and a wider highway, especially in California, is a positive for drivers. But the problem, of course, is the following: Is this the best use of these resources? After all, those dollars – whether acquired via taxes or borrowing – are being diverted from the private sector.

Are we really expected to believe that politicians taking more resources out of the private sector to spend on widening a few lanes of highway over a short distance is really going to stimulate the economy? Of course not. In fact, even those interviewed by the Journal who backed the project did not seem all that enthusiastic that it will make much difference to the area economy.

Hey, here’s a thought for the California economy – cut taxes, deregulate and let entrepreneurs, investors and businesses drive real economic growth.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

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