Waldman On Thinking Clearly About Expenditures & Investments

Last week we ran a post displaying several graphs of the 2008 bailout vs other government projects. Today, I realized we had one of my favorite writers, Steve Waldman from the Interfluidity Blog commenting on the graphs and explaining the differences between government expenditures & investments. I highly recommend reading his thoughts. (Hat Tip To Paul Kedrosky For The Original Graph Link) Click Here To Read Steve Waldman’s Thoughts On Expenditures Vs Investments

Article Excerpts (Interfluidity)

“All of the iffy securities that are weighing down the banking system represents money already spent on real projects or consumption. When the government purchases a security, it is taking the place of the party that originally fronted money for that expenditure. Every penny of government “investment” is retroactive expenditure on housing, real-estate, consumer credit, whatever.”

“If a government were to borrow funds in order to build a new stadium, we’d call that an “expenditure”, even if we fully expect use fees and incremental tax revenues to eventually turn a profit for the fisc. Politicians supporting the project would call it an “investment”, quite justifiably. But the project would still count as government spending.”

“So, in economic substance, the government is currently spending through a financial time machine on the exurban subdivisions and auto loans of several years past. We are retroactively turning in the entire mid-decade “boom” into a gigantic Keynesian stimulus project.”

“But if a power grid counts as an expenditure on government books, so should a security derived from a mortgage or credit card loan made two years ago.”

Click Here To Read Steve Waldman’s Thoughts On Expenditures Vs Investments