There will, though, be many industries "downstream" that will benefit from the massive public works program. Obviously when there is infrastructure in one area, for example, the small businesses in that area will get a boost from the new business. Workers will patronize the local eateries, coffee shops, grocery stores, etc. Suppliers of raw materials will get new business as well as the transportation companies that move things from one place to another. The money cycles through the economy.
One important aspect in building all the new infrastructure is to make it as environment and energy-friendly as possible from the start. One can repair roads in the ordinary way, or in a way that will decrease traffic congestion and maintenance costs, thus reducing energy consumption.
Properly planning such modernization puts good minds to work, minds that will be needed to tackle the challenges of the future.
Now if the government plans to pay for the whole thing by borrowing that could be counter-productive in the end. We are now in a credit crunch, nay, a period of peak credit. When the government borrows money it has to come from somewhere.
When Japan bailed out its banks, it was fortunate that Japanese citizens had saved the equivalent of tens of trillions of U.S. dollars in cash that they could loan to the government at extremely low interest rates. They basically sacrificed future dividends on a good chunk of their life savings to help out the governments. Now, Americans have a very low savings rate and we you balance it out against their debt, they actually have a negative savings rate.
So money borrowed by the U.S. government will to a very significant extent suck up some of the money that could be available to commercial credit markets. And of course the government, i.e. the taxpayer, has to eventually pay back the money with interest.
Therefore, the way to pay for the program is to increase taxes. Now, I don't mean increasing taxes for the poor or middle class. You can actually lower the taxes for these groups, as Obama promised to do, and still increase taxes overall significantly. This is due to the stark disparity in wealth and income that exists in America.
According to the latest statistics, 10% of the population owns 71% of the wealth, and the top 1% controlled 38%. The income disparity is equally wide.
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Of course, the federal government taxes the income and dividends of individuals. A lot of the wealth of the richest Americans sits in useless hedge funds and derivatives designed to simply increase the wealth of said individuals who endlessly hoard money.
One can tax these fat cats without in any way endangering their lifestyle. They will still be billionaires or high-end multi-millionaires.
The advantages of taxing rich folks include but are not limited to: 1) No need to pay the money back much less pay any interest rates, 2) Money languishing in complex, unregulated securities is recycled into the economy 3) Wealth disparity is lessened.
Wealth inequality is eased because when the government borrows money, it mainly borrows from rich folks and big financial banks and institutions. A good deal of the money also comes from pension funds, state governments and the like, but hardly any comes from ordinary people. However, in the end the payback is more evenly distributed among populace in general because of the present tax structure i.e., money flows from the poorer masses into those haywire securities of the super-rich.
Now since incomes taxes were reimposed in 1913, the tax rate on the richest Americans has generally been much higher due to the very inequality mentioned. Here is a chart showing the tax rates for the top bracket of taxpayers since 1913. Notice that for most of the time, that rate has been more than the current 30 percent.
Other than at the very beginning when the tax rates were eased in, the top marginal rates have been lower than today only twice -- before the Great Depression and before the recession of the early 1990s.
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