Tesla Shows Why Keynesian Demand Stimulus Through Infrastructure Doesn’t Work

Let us, just for the sake of argument, agree with Keynesian economists. It is possible for the economy to get stuck at a non-optimal equilibrium. Government can then – should then – shock the economy to an optimal equilibrium through intervention.

The underlying method here being to stimulate demand in the economy. This involves increasing the budget deficit (for MMT types, print more money and spend it) by either spending more money or cutting taxes. The usual preference is to go build infrastructure because multipliers.

You might, just about, get a Keynesian to agree that tax cuts could work but infrastructure’s much better. Oh Yes.

At which point, Tesla:

The government-run Xinhua News Agency reported that it had taken Tesla just 168 working days, about six months, to go from permits to hooking up the electricity to the brand new plant. “This is quite fast, even by Chinese standards,” says Ivan Su, an analyst at Morningstar Inc.

That’s the sort of speed at which you need to spend money on infrastructure if you’re going to be injecting that demand into the economy within the same business cycle.

Now, can anyone at all think that we’d be able to build infrastructure here at that sort of speed? Aren’t we still to break ground on HS2 after how many decades is it?

That is, we’ve so festooned the economy with permits and permissions that we’re shocked someone can put up a factory in 6 months. Which is exactly the reason that Keynesian demand management by infrastructure spending doesn’t work.

And doesn’t that just micturate all over the Green New Deal?

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Bloke on M4
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Bloke on M4

That’s a very good point. Much of the problem with 21st century communism is that it’s often at odds with itself. The Murphys, Corbyns, much of the Guardian want all the stuff built, but those people also include the people who want wildlife, listed buildings, architecture preserved and tend to stick the boot in when the evil Tories ignore that. All that stuff is pretty high on the Maslow’s Pyramid. China really doesn’t care that much.

Spike
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Spike

Calls to mind Victor Davis Hanson (10-Oct-19), “Members of Previous Generations Now Seem Like Giants,” on a coming Dark Age in California in which people will look at huge infrastructure projects and wonder how they ever got built.

Bloke in North Dorset
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Bloke in North Dorset

We don’t need new infrastructure, we need to fix and upgrade that which we already have. Multipliers only work, if they do at all, when you build the first road, railway, mobile phone network. After that it’s diminishing returns.