The Stimulus in My Backyard
For anyone who wants to know what classical Keynesian stimulus looks like, you’re welcome to hang out in my backyard.
I live in Jefferson County, Alabama, which currently sports the highest municipal debt in the nation.
We started down that path through honest means, and time will tell how much dishonest means added to the debt.
A few years back, there was an environmental lawsuit which tagged the county for having sub-standard sewers, leading to nasty stuff getting into the creeks. The county went into an EPA consent decree, with a timetable for improvements.
It occurred to the county leaders they might seize this opportunity to go beyond the scope of the decree. After all, while you’re digging that old pipe up, why not replace it with something bigger and better? Why not expand capacity for future growth, and prepare large sections of the county for future industrial and residential expansion?
You know, invest in infrastructure. It just took a little bit of extra borrowing.
Well, now we’re sitting on a three-billion dollar debt. We’re a full year into servicing interest only. We’re more than a year past the point where bankruptcy made sense, and many of us quit counting after the first dozen emergency extensions. Think Orange County, California, and multiply it by three, factoring the population difference.
Granted, it wasn’t a three-billion dollar project at first. But that’s the nature of government projects, they tend to grow.
Granted, there was a decent amount of graft and corruption involved, and little deals here and there deciding who would get those lucrative contracts. That’s also the nature of government – there larger the amount of money on the table, the greater chance of money changing under that table. No fewer than 6 current or former commissioners have been either tried or are under indictment, a stunning number when you consider there are only five seats on the commission.
Granted, our county leaders tried playing the shell game of bond swaps and other money-moving machinations to keep the interest rates as low as possible. And it blew up in their faces, so now the insurers are trying to force the county to raise sewer rates to cover the shortfall. Average homeowner would see a $120/month increase if they got their way. Oh, and if you had a sewer hookup that was put close enough to your house that you had an option to use it one day, but never used, you’d be hit with a $40/month convenience fee.
No S#!t. Literally.
So, what do we have for all this debt? We have a half-completed sewer, mounting interest debt, and legal nightmares. We have de facto bankruptcy, and the prospect of laying off essential county staff. And we face a monetary reputational hit that is far worse than bankruptcy would have been.
What we don’t have is record employment and economic bliss.
Keynesian theory dictates that government spending can be a catalyst for raising aggregate demand in an economy. It does not factor at all what you spend the money on. All that amounts is the amount that is pumped into the system. Those dollars “turn over” in the ecosystem, and a magic multiple is announced that makes it sound like your economy made a profit on the extra spending.
By all accounts, there was a large amount of extra money spent in Jefferson County. But it came from somewhere.
That money that was “spent” did create jobs, but you can never calculate the opportunity cost — how well would those dollars have been spent, what kind of “Un-Keynesian” multiplier did we give up to buy half of a non-stinking sewer that we didn’t need, for ten times the cost of the original decree?
If Keynesian stimulus worked, then Jefferson County, Alabama, would be the subject of numerous national stories and articles. Other communities would be flocking here to collect the evidence they would need to justify new taxes and increased spending, all in the name of job creation.
I haven’t seen any of those articles, have you?
