Friday, August 28, 2015

borrow to build roads?

The latest media buzz surrounding the federal election is Trudeau's pledge to run deficits to finance infrastructure spending, echoing the Wynne plan in Ontario. Those in favour of "road socialism" (which is to say, everybody) really have no answer to this proposal except to echo it enthusiastically. After all once you accept that only the state can or should build bridges, highways etc. then how can you dispute that we need more of them? But do we? How exactly does one determine how much infrastructure should be created and where?

The etatist answer is to relegate this task to some central planning committee or bureaucrat, who will then diligently assess the situation and come up with some answer on the basis of traffic flows, political needs or whatever.  The answer of the anarcho-capitalist is that you should privatize infrastructure and then the price system will reflect consumer demand and direct scarce resources to their most efficacious ends. All goods are in competition with other goods for the requisite capital, labour and land which is required for their production.  More roads becomes less cars of factories or less whatever other good.

The 20th century witnessed the repudiation of the collectivist central planning ideology. The soviet union was perhaps the ultimate embodiment of this belief system and it collapsed because ultimately socialism does not work. But just as the market economy is more suitable for the production of housing, automobiles and food, so it is the best means of providing roads, medicine and security. Indeed, the more vital the industry the more important it is that it be privatized.  Let the state have a monopoly on the sale of alcohol, for example, but let education and health care be supplied by a market.

Given the present paradigm it could very well be that the federal government should spend more money on infrastructure.  The libertarian position on this issue is to be agnostic.  Without a legitimate price structure it's unanswerable.  The best guess of a bureaucrat is a poor substitute for the catallactic expression of consumer demand which would occur in a market. The libertarian position on infrastructure spending is simply to privatize the roads and highways. The advantages would be legion. Higher prices charged during peak times would work to ease the gridlock which plagues major urban areas and competition between road companies would serve to promote innovation in road safety. Infrastructure firms would have an incentive to monitor their roads and ban drunk or careless drivers since safer roads would be a strong advertising point. If a company were as blasé about potholes as municipal governments are they would quickly find consumers choosing to drive on more manicured pavements.

But on the question of whether or not deficits brought upon by an increase in government spending are good for the long term health of the economy there can be no question they are not. Public sector spending and the taxes it entails hamper economic growth. If the deficit is financed through bond sales to the banking system then it is inflationary as well, and this has it's own pernicious effect on the wealth of the nation. During both boom and bust the best approach for the health of the economy is to reduce spending and cut taxes to allow the private sector room to grow.

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