Friday, July 1, 2011

Aerotropolis: Digging Holes Above Ground

While many have asserted that John Maynard Keynes said that the government should pay some people to dig holes and other people to fill them, those aren't exactly his words. He did write a lengthy, convoluted paragraph in his General Theory which conveys the same idea. Keynesian theory asserts that raising aggregate demand is critical to getting markets going again after a recession hits.

The problem with this is that the resources expended hastily in this manner can not be reclaimed in the future for better uses. The unseen effect of present spending is the loss of better future opportunities. Frédéric Bastiat illustrated this point with the broken window fallacy in his essay What is Seen and What is Not Seen. Nonetheless, paying some people to dig holes while others fill them will raise aggregate demand and satiate the short-sighted goals of Keynesian theory.

The St. Louis area has 18 million square feet of empty warehouse space. You can think of a warehouse as an above ground hole.

The Missouri legislature and Governor Jay Nixon are considering a special session for a St. Louis "Aerotropolis" and part of that legislation involves a $300 million earmark for the construction of more warehouse space. With 18 million square feet available, it's absurd to suggest that supply is constrained, so the purpose of these new holes must be a Keynesian boost to aggregate demand.

The irony is that many warehouses in north St. Louis city have been torn down over the past several years. Often eminent domain has been granted by the city and property developers have been given tax incentives to demolish these "blighted" buildings.

Demolishing a warehouse is the above ground equivalent of filling in a hole. Thus we see the completion of Keynes's value destroying, live-for-the-moment theory: tax dollars subsidize the demolition of warehouses as well as their construction and better uses for those tax dollars go unrealized and unseen.

1 comment:

Van Harvey said...

"While many have asserted that John Maynard Keynes said that the government should pay some people to dig holes and other people to fill them, those aren't exactly his words."

True, but that is precisely how FDR interpreted him, creating WPA programs which did exactly that.

"You can think of a warehouse as an above ground hole."

Perfect description!

"Demolishing a warehouse is the above ground equivalent of filling in a hole."

Or as Bastiat described those who attempt to 'break a pane of glass' while asking "What would become of the glaziers if no one ever broke a window?"

Bad economists seem to attract bad politicians. As I think Keynes did actually say “...even the most practical man of affairs is usually in the thrall of the ideas of some long-dead economist....”

I sure wish the 'good' politicians would pay more attention to good economists like Bastiat & Say, than trying to adapt themselves to the ideas of the bad ones.