Friday, December 12, 2008

Infrastructure Spending

Reading that close to 1 million people are currently without power, a posting by Alex Tabarrok at Marginal Revolution came to mind. In his posting, he notes how when people typically think of government spending on infrastructure, new bridges and highways come to mind and he makes a persuasive argument for a different type of spending.
"Even more valuable than transportation infrastructure would be greater investment in electricity infrastructure, a smart grid."
This could include numerous national projects to put in place a "smart grid." This type of grid would be able to have "smart pricing" enabling prices of electricity to go up when demand is high, a basic economic requirement, reducing the maxium load on power stations at peak times. Additionally, this grid would be much more robust then the current system, allow at least some of the people currently effected by the ice storm to have heat and lights.

Mr. Tabarrok states that power outages cost the U.S. $100 billion a year, suggesting there could be gains if the incoming administration thinks outside the box. Additionally, a "smart grid" would be a requirement for the transportation of energy, a key pillar for the expansion of green power.

The validity of government spending and its effect effect (or multiplier) has been debated recently, including this interesting article that places the Multiplier at 1.0, but looking into the short term, I suspect there will be an expansion of federal spending, in an attempt to shorten the current resession.

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