Monday, April 21, 2008

Goldwater Institute: Borrowing to build universities will not help economy

by Byron Schlomach, Ph.D.

Arizona's public universities have proposed issuing $1.4 billion in bonds for a university building program. The universities have been asking the legislature for this money for a few years, but the construction downturn provides an opportunity to market it as a "Construction Stimulus Plan." This plan is fundamentally flawed.

First, any stimulating effect will come too late. Proponents of the program say it would "immediately create 14,438 jobs for construction workers." But the spending would be done over several years, so most of this work would occur long after the markets have corrected themselves.

Second, the commercial construction industry doesn't need stimulating. According to Arizona State University's Realty Studies Department, the value of new commercial building permits in the state is only down two percent compared to a year ago and the value of industrial permits is up.

Ironically, a quote from the plan says, "Arizona's economy is too dependent on construction." So what's the solution? More construction.

When I was a young economics student, I learned all about Keynesian economics--the idea that government can and should be responsible for stimulating a faltering economy. After decades of Keynesian policies that have proven to de-stabilize the economy, most economists have given up on such notions.

Research shows that cutting taxes and reducing regulation on business has a more stimulating effect on the economy than increased government spending. Perhaps the best thing the government can do in this down market is nothing. Cycles happen. Government over-reaction and over-commitment of future taxpayer resources lays the groundwork for future economic downturns.

Dr. Byron Schlomach is the director of the center for economic prosperity at the Goldwater Institute.

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