NCPA - National Center for Policy Analysis


May 9, 2008

Arizona's public universities have proposed issuing $1.4 billion in bonds for a university building program. The universities have asked the legislature for this money for a few years, but the construction downturn provides an opportunity to market it as a "Construction Stimulus Plan."  However, this plan is fundamentally flawed, says Byron Schlomach, director of the Center for Economic Prosperity at the Goldwater Institute.

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.

The commercial construction industry doesn't need stimulating:

  • The value of new commercial building permits in the state is only down 2 percent compared to a year ago.
  • Meanwhile, the value of industrial permits is up, according to Arizona State University's Realty Studies Department.

The plan is based on 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 destabilize the economy, most economists have given up on such notions, according to Schlomach.

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 overreaction and overcommitment of future taxpayer resources lays the groundwork for future economic downturns, says Schlomach.

Source: Byron Schlomach, "Borrowing To Build Universities Will Not Help Economy, Goldwater Institute, April 17, 2008.


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