Spending our way out of recession

Money, lots of it, will have to be spent in order to kick-start the economy back to life. Monetary policy - manipulating the money supply through interest rate policy -is of little use when the rate apporches zero, and the demand is weak or non-existant. The Keneysian methods of direct intervention in the economy by job-creation schemes will work better, though it is not instantanious, and will take time to percolate thorugh the economy.

Whatever method is used to generate jobs and economic activity, the extraordinary monetary expenditures required to make a difference is going to create inflationary pressures down the road. Yet, not every job-creation scheme is equally efficacious and beneficial. In the fifties – in both Canada and the US – huge sums were expended on road building and other infrastructure projects (such as the US Interstate and the Trans Canada Highway system; the Welland Canal and ports as well as expressways and subways in the cities). Capital projects such as these provided long term benefits to the domestic economy and national and international trade. However, the upkeep of our roads, highways and bridges has fallen behind, and our whole road network has suffered.

Concomitantly, we need innovations and development of more ecology-friendly transportation methods, including train travel in the more densely populated areas. A high-speed, dedicated track, train in the Windsor - Quebec corridor would be a good start. Job creation money spent in such way is effective, because of the multiplier effect: the jobs created are precisely those in the area of the most vulnerable –amongst the unskilled and semi-skilled workers. They also spend a higher percentage of their wages, and what they do save is also subject to the multiplier effect through the banking system, where a dollar saved is about twelve dollars loaned by the bank for other economic activity. It’s a win-win situation, since infrastructure (capital) investment, in contrast to current consumption, has long lasting benefits of smoother and more efficient communications in all areas of the economy. When the inevitable inflation returns, at least we can see what our money bought.