20 Feb 2009

Mario Rizzo on the Misdirection of Resources

All Posts No Comments

Folks, you don’t understand that my dissertation chairman Mario Rizzo is normally a low-key guy. He has been summoned into the policy debate much as Batman heeds Commissioner Gordon’s signal.

Anyway, here’s Rizzo’s talk to the Club for Growth meeting. It’s really good. An excerpt:

To create value, stimulus will have to steer clear of a number of problems.

First, it will have to attract resources that are currently producing less value than would be produced in uses engendered by the stimulus package. Given that more than 90% of the labor force is currently employed, and that leisure does have a value, this is not obvious. The areas stimulated by government spending will not conveniently use only unemployed resources.

Second, the actual activities promoted by new government spending would have to be of positive value, especially in the aggregate. This problem will be exacerbated by the political reality that areas in which misallocations are already greatest will experience the greatest pain, thus attracting compensatory spending.

Third, the debt created to finance this spending will require either higher taxes in the future or it will generate inflation. In either case, future wealth will be lost as productive activities will be penalized. Will the wealth created today, if any, be worth the cost of future losses in wealth?

Comments are closed.