Did Keynes ever talk about this ?

Can money made by the paychecks by the Workers working for Public Works be used to buy goods and services which would create Consumer Demand and Consumer Spending in the Private Sector Economy ?

President Obama’s $787 billion American Recovery and Reinvestment Act — “the stimulus” — originally offered nearly $400 billion for infrastructure projects until the republithugs threw another tantrum and hijacked $260 billion of it for tax cuts. That’s one third of the entire stimulus package. No wonder it hasn’t worked as well as it could have. Now they’re whining that the stimulus didn’t create enough jobs. Well, duh. That’s because tax cuts don’t create jobs. Only consumer demand for products and services does that.


Those things are new and repaired roads, bridges, dams, harbors, levees, tunnels, buildings, schools, parking garages, subways, railways, parks, sewers, stadiums, airports, and other public facilities. That spending creates jobs for construction companies and workers. Those projects create demand for the supplies, equipment, tools, and other materials that they need for those projects. It creates demand for the trucking companies to ship them and the warehouses to store them. That creates jobs in all of those industries. If the companies supplying the construction industry have enough work, they can spend some of their revenue to hire more employees or to upgrade their own facilities. See, more demand, more jobs.

Then all of those workers have paychecks that they can spend on groceries, clothing, furniture, cars, houses, utilities, entertainment, appliances, restaurants, vacations, and all sorts of things. That creates demand in those industries. And that creates jobs. If those companies have enough work, they can spend some of their revenue to hire more employees or to upgrade their own facilities. See, more demand, more jobs. And government gets its new stuff built and its old stuff fixed. See. Everybody wins.

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reply to post by mikejohnson2006

Preaching to the converted with me mate. Its also bleedin obvious isn't it. The best way of reducing a deficit is to increase the income of the debtor so they can contribute more to reduce the debt. So that means increase the revenue of the government which means more tax revenue ie more people in work This is a double edged sword in that benefits are reduced also.

I have friend who has worked in civil engineering for years. ALL the major work (multi million pound contracts) done by private companies is for public projects. Since these have dried up hundreds of thousands of engineering jobs have gone.

A small side note : inflation. low-medium level inflation also reduces the deficit. This occurs when demand increases and as long as things are healthy wages rise with inflation. The debt could be halved in 10 years by inflation of 4%!!!!

In the UK the government just fed the banks 75billion. It would only take 69billion to wipe clear everybody's credit card and bank loans (mortgages excluded). This would mean less money in interest to the banks, oh shame!, more income in peoples pockets who would spend it and thus create demand. So - Wipe clear personal debt for free with one condition : you are not allowed a credit card or loan for 5 years (this will also act as a brake on peoples credit habit, banks will hate that - oh shame!)

Originally posted by malcr
So - Wipe clear personal debt for free with one condition : you are not allowed a credit card or loan for 5 years (this will also act as a brake on peoples credit habit, banks will hate that - oh shame!)

This would # with small business start ups and consumer demand in general.

Also tax cuts can and do create consumer demand - especially if aimed at the lower and middle classes. Any Keynesian would tell you that lower taxes go hand in hand with higher government spending to raise aggregate demand and bring a nation out of recession or other times of low economic activity.

The problem has been that governments are reluctant to implement the other side of the theory - government spending is supposed to be lowered and taxes raised during the boom years to stabilise the economy so that it doesn't bubble, eliminate the deficit and pay down the debts incurred during the downturn. Most governments (such as the USA and the UK) were running large deficits even during the boom. Now these same governments are faced with having to both try to stimulate growth and reduce that deficit - not an easy task by any means as they require directly opposite approaches.

This is why fiscal policy has been tightened considerably (to try and eliminate the deficit) whilst monetary policy has been loosened considerably with QE (to try and stimulate lending and thus consumer demand in the economy). However the banks aren't actually lending the money, people are saving more money because confidence in the economy is generally #e and people are expecting to lose their jobs. A year ago (and until fairly recently actually) I was in the 'cut, cut, cut' crowd. At this moment in time I support greater government spending to try and prevent stagflation and to fuel another boom before we go cutting again.

Without lowering our deficit to GNP ratio, our economy is doomed. Moreover, with the global economy as it is, we are probably doomed no matter what our policies are here in the U.S. If the Euro fails as recent events indicate, it will be many years before the world economy, including ours, rebounds. So, most of your theories depend on a multitude of factors which you may, or may not, have considered