Friday, February 06, 2009

Stimulation Projects

“Stimulate the Economy” is the mantra of modern governments and economists. They see thousands of people unemployed and think that getting them working would increase production, making everyone better off. An endless range of programmes are developed for building roads, painting schools and storing medical records on computer files.

These stimulation projects have several problems.

  1. The people who are unemployed often do not have the skills needed by the stimulation projects. Creating jobs for road builders is pointless if the unemployed are burger flippers.
  2. Some labourers will be needed for many stimulation projects, but the success of the project will depend on managers and skilled staff that are not available among the unemployed. Competing for these may create problems for other viable businesses.
  3. Stimulation projects need capital equipment as well as labour. If the government purchases the capital equipment needed, other more efficient users of that capital might be squeezed out.
  4. Stimulation projects tend to channel resources to the more inefficient operations. The most efficient businesses are two busy to be worried about chasing after government projects. The ones that have the time to scream for government aid will generally be the more efficient businesses. Government stimulation projects often prop up the weaker parts of the economy.

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