The Economy, Cone Zones and Public Spending

Some oddities of the American economy. 21, anyone?

I live in the state of Utah, in the Wasatch Front, a place where it is somewhat difficult to get anywhere on the road without passing a cone zone. You know, those little orange cones on the road that are used to guide drivers away from road construction projects? Many people complain about them, but I honor them. Why?

Because those guys working the roads are making something north of $25 an hour. They work hard all day in the sun (or all night), and then when they get their checks or direct deposit, they spend a good chunk of it locally, right here in Utah. They buy groceries, hardware, gasoline that was refined here in the state, they go to the movies, and they enjoy the local attractions. Those guys in the yellow vests, they’re spending public money. And when they spend public money, other people in the state earn it.

I’m inspired to write this article because of something I read in another article, “The Tea Party-Trump Decade”, from the American Prospect:

Conservative economists allied with the Republican Party argued that “public spending would be offset by a fall in private consumption and investment.” They argued too that fiscal restraint gives private businesses the confidence to grow investment.

Absent from that conservative logic is the conclusion. Where does the money go when the government spends it? Does it go into stocks and bonds? That might explain the rise in the stock market where the top 10% owns 50% of the market. Maybe it goes offshore in the form of a trade deficit. That could explain why wages have been stagnating for 40 years. My best guess is that when the government spends money, the people paid by the government spend it. That’s what I see when I see the cone zones.

Utah has weathered the Great Recession relatively well, partly because of the emphasis on infrastructure spending here. When traffic moves freely, people spend less money on gasoline and more money on local shopping. Every dollar spent earns a sales tax. Every local product bought means more money in the local economy. But to hear conservatives talk about it, they act like the government is a money pit and that the money never actually circulates through the economy once it’s spent by the government.

What is missing from their argumentation is an acknowledgement of a very inconvenient fact: Absent a loan from a bank, no one can spend money if the government doesn’t spend it first. Want proof? Check out this graphic showing the current federal public debt:

The total federal debt is now $22 Trillion according to the International Monetary Fund, the size of the economy or, Gross Domestic Product is estimated this year to be about $21T, while last year it was about $20.4T.

In June of this year, analysts at The People’s Policy Project pored over reports from the Federal Reserve and noticed an interesting pattern. They found that from 1989 (the year Taylor Swift was born) until 2018, the top 1% increased their wealth by $21 Trillion while the bottom 50% went negative by $900 billion. Is that a matter of skill, public policy or luck? Did the top 1% really create all that wealth, or did someone else do it for them?

Maybe that’s just a coincidence that the economy is estimated to be $21T, that the amount of wealth pocketed by the wealthy over 29 years is $21T and that the federal public debt is more than $21T (now $22T). It seems like an uncanny valley, doesn’t it?

Write on.