Government projects can help and hurt



Re: Thai economist urges gov’t to closely control Bt2 trillion spending (PM Saturday, 21 September 2013) – While government projects undoubtedly create some jobs, they can also create misery that is not seen until too late, and the causes of that misery is rarely recognized. For example, the high speed rail project means that the same 2 trillion baht cannot be used for other purposes that might well create more wealth, more jobs, more and better useful products, and generally will be more beneficial to more people if used in the private sector.

Politicians world-wide know full well that the results of their spending can be measured, but not the results of using the same 2 trillion baht if used in the private sector. Therefore, there is no way to compare the results gained for the money spent by the government versus the same money if spent by the private sector.

The government that undertakes mega projects is rarely the government that will be around when the real cost of those projects can be measured, especially since inflation and the ripple effects of government spending is rarely mentioned in determining the real cost to an economy. The impact of lost jobs in other areas of the economy is rarely considered, the most obvious is in the aviation sector, but the impacts on jobs can be in many areas.

From a little research it appears that most high speed rail transport in the world must be subsidized by governments at one level or another to remain in operation. Is anyone asking how many jobs and how much wealth the private sector could create with 2 trillion baht…without creating inflation?

Just about all government spending is inflationary, a tax on the wage earner, and if we look back a few decades we can see that it is pretty hard, if even possible, to still get a bowl of noodles for 3 baht today. Six baht now sounds inexpensive, but that is still 100% inflation; and inflation, rather than jumping up like the devil, sneaks up and bites slowly, yet still painfully. When inflation hits us, things begin to cost more, and that means that more money is needed to survive. The result is another call for action, like inflation causing, job killing rise in the minimum wage, which benefits no one but those already on the minimum wage, and the politicians that get votes from minimum wage earners and people less knowledgeable about economic effects.

There is little doubt that a mega-project will make contributions to the economy, but will those contributions have a positive or negative effect? If one considers inflation as a negative effect, then the answer is clear.

Howard Mirkin

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