Federal Government Spending

In the wake of Obama's budget/fiscal/whatever speech recently, I shared a stimulating conversation with one of my law school buddies. He and I were mainly focusing on how many in America don't know how to live within their means, and how we spend more than we have. In essence, it's poor accounting (moreover, common sense) skills. You just don't "spend" what you don't have in the tank.

In essence, it's what our President is in the business of doing - pledging money in the red. Some might say he "has" the money (referring to taxpayers), but in reality, it isn't in his hands. My friend then took this conversation in the direction of "infrastructure" and how too much is spent on it. Interesting thought. I wasn't sure at the beginning what it meant, but I think Mark Cuban, interestingly enough, has a great perspective on it from a businessman's standpoint. I'll just let him take over:

In the case of China, They spent . The economy grew. Correct, but very misleading, but also very informative. Infrastructure spending is VERY BENEFICIAL when the spending creates new commerce opportunities. So in China, when roads were built where there previously had not been a road, thats a good thing. It enables commerce. We have seen it in the US with Dams, Highways, Bridges and more.

With the possible exception of the enhancement and building of schools, the only infrastructure investment that makes sense is where COMMERCE THAT WAS NOT PREVIOUSLY ABLE IS NOW ENABLED BY NEW INFRASTRUCTURE.

The problem in the USA is that those opportunities are few and far between. We have been there and done that. The BIGGER PROBLEM WITH INFRASTRUCTURE is that in the name of creating jobs we actually inhibit commerce and possibly cost jobs. How ? When we rebuild or expand roads as a way of creating jobs, what happens ? We shut down or reduce the traffic on the roads to be rebuilt. The net effect is that during the construction period we CREATE PROBLEMS rather than solve them. We slow down commutes. Which costs people valuable time (and yes time is still money), wastes gas/oil/energy as we sit in traffic and forces traffic to streets not designed for the additional traffic. Not Good. The same could be said with building /bridge remodels or updates and other projects. We all want to see the potholes in our streets filled, but now is not the time to do it, and federal funding is not the way to pay for it.

The bottom line is that we have to understand the difference between Maintenance and Infrastructure. Infrastructure creates opportunity where there was none. Maintenance gets things back to where they were. You INVEST in infrastructure when you can see a return. You SPEND money on maintenance when you not only have the available funds to do so, but also the ability to withstand the downtime and negative productivity impact that comes with the impact of the maintenance work. Yes there are times when you need maintenance to return to a steady business state (ie your computer is broken or safety is an issue with a bridge), but again those have an obvious return.

We have to know the difference and the right time to spend . Otherwise a well intentioned availability of capital not only won’t generate a positive return, but could have a negative local impact.