Tuesday, August 18, 2009

Stimulus Spending reaches Seneca SC

I was a happy resident of Seneca, SC for a short time. Current resident Professor Matt Lindsey describes some stimulus impact there; the good people of Seneca deserve better.

"It has taken a while, but the stimulus package has reached [Seneca]. Over the last weekend Walnut Street was resurfaced and widened with a center lane for turning (into???). The important aspect is the widening which was undertaken with such zeal that the sidewalks had to be moved and repaved leaving the power line poles in the middle of the outside lanes. It is this latter aspect that provides the much vaunted multiplier effect of the spending. Now the power company will have to come move the poles out of harms way. Very soon, too, because it is only a matter of time before someone takes the outside lane and mows down one or two poles. More multiplication of stimulus effects will result when the state has to come back and resurface the holes left by the pole movement. This Obama team is full of clever tricks!"

It is easy to forget that "GDP" stands for "Domestic product, GROSS of depreciation." Thus, one shortcoming of GDP as a measure of economic value is that measured GDP can go up merely because the government pays workers to destroy something (or render it less useful, like those sidewalks and telephone poles in Seneca). The destruction is not subtracted, but every dollar of the government salaries are counted in GDP (regardless of whether anyone ever turns left in that new left turn lane!).

You might hope that NDP (net domestic product) would correct for this, but it does not. NDP does subtract depreciation, but only anticipated depreciation (with an occassional exception when there is mass destruction like a hurricane). Thus, those telephone poles and sidewalks in Seneca are assumed to depreciate at a fixed rate regardless of whether the government actually destroys them or makes them less useful.

The national GDP accounts are a wonderful tool and are thoughtfully and diligently maintained by the Bureau of Economic Analysis. But sometimes they need some tweaking, and can potentially be exploited by those who would like to exaggerate the value of public spending.

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