The Hoover Dam….UK Style

After the huge stock market break of 1929 and the subsequent poor management of the economy, Herbert Hoover did what many presidents and secretaries of commerce will do today…he engaged in massive public building works in an attempt to reflate the economy and provide desperately needed jobs to people who had lost their livelihoods as a result of the worsening economic climate which started with the 1929 crash.

The dam was a huge success and still provides a lot of hydro electric power today, almost 4 billion kilowatts per year. It provides electricity to California, Nevada and Arizona. Even today, it is still one of the crowning achievements of American engineering.

Today, Alastair Darling has indicated his version of the Hoover Dam. He will pull forward spending from future years to fast track the building of schools, hospitals and housing. This will provide jobs but will it really help the economy?

Many in the city think this is complete madness. The country, they point out, simply doesn’t have the capacity to carry the debt burden which will result from this spending. Instead of leaving the situation alone and leaving individuals up to their necks in debt facing a potential depression, the government is going to put a future generation into debt as well!

The government and society as a whole has over borrowed and overspent, mainly on consumption. This situation cannot be fixed with more borrowing which doesn’t expand the productive capacity of the country. Do schools, hospitals and houses increase the productive capacity? Only if we allow them to be used by foreign nationals who are willing to pay to use them. Otherwise, as our education and health systems are right now, this spending looks like a debt backed boom which will cost the country money, not make it money in the future. Tell your children to save their pennies in their piggy banks.

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Tags: Alastair Darling, Debts, Economy, Housing Market, Stock Markets, UK Banks