Spending by governments, either federal, state or local, has two purposes. The first is, of course, to obtain for the purchasing agency a desired good or service. The second, first emphasized in the New Deal, is employment.
We are entering an era where we need a new New Deal. Not that we need more government spending - we’ve probably got more of that than we can afford. Rather, what we need is an open admission that a significant reason for all government spending is employment, and concommitant laws and regulations to implement such a policy.
The reason why is simple: rapid changes in technology make it possible to move much more work out of the country than ever before. Businesses, because they must always work to minimize costs, will always pursue low wage resources, even if the advantage is temporary or illusory. This is resulting in major, rapid, and relentless restructuring of the US economy. Rapid change like this can result in social upheaval, as well as the permanent loss of technological and intellectual advantages that have enabled our high standard of living.
The writing of the Constitution makes it clear that two of the core tenets of government policy are to “promote the general welfare” and “insure domestic tranquility”. The best way to do this is to make sure that people are employed, preferably at jobs they deem worth having.
The New Deal worked because it put money in the hands of the people. Back then, that money stayed in this country mostly, recirculating multiple times, probably generating more in taxes that the original outlay. That doesn’t necessarily happen with government spending anymore. Because so many “domestic” corporations have foreign offices, subsidiaries, and suppliers, government money can quickly flow out of this country.
While it might seem on the surface that this is ok, because government should get the best value for its money, it fails to recognize the employment purpose of government spending. Government spending that goes out of the country without recirculating actually makes the our country poorer. It makes us poorer by taking our tax dollars and shipping them overseas. We don’t get the trickle down that results in multiple jobs, and we don’t get the tax revenue that those jobs would generate to pay off the spending.
Given this, what are we to do? If we are to have a new New Deal, we don’t need more spending. Rather, we need a different approach to spending. What we need to do is simply enforce a 100% domestic content rule for all government purchases. In this scenario, no good or service could be purchased by the government unless it could be certified that ALL the labor, parts and tools used to build it have 100% domestic content. Futher, the labor, raw material and tools used to create the parts and tools should also have 100% domestic content. And so on. The only exception to this would be raw materials that simply do not exist in this country - but only in raw form - all processing would be required to have 100% domestic content.
While this might result in a rise in the cost of government goods and services, any rise should be offset by the recirculation effect on the US economy. Further, there are enough people in this country motivated by money that competition will keep prices from rising very much if at all. Juxtaposed of this one potential negative is the creation of jobs and the creation of domestic markets for all sorts of goods and services. And it is the creation of both of these that is the primary benefit resulting from that spending.
These benefits are critical because they enable and sustain the creation of Centers of Excellence. It is well known in economics that nearly every industry tends to focus in a few key locations. The companies are there because the skilled workers are there. The skilled workers are there because the jobs are there. This positive feedback loop causes these Centers of Excellence to continually widen their lead over their rivals. Further, the higher the barriers to entry in a given field, the fewer Centers of Excellence there will be worldwide for that field.
States know this well and often provide seed funding to foster CoE’s in fields they view as growth industries. Until recently, States only had to compete with each other. Changes in communications technology have now made that competition worldwide. Given this, any seed funding an individual State could provide is inconsequential when compared to the funding that other national governments give to selected industries. And if corporations help to move technologies to other countries (whether in search of cheaper labor, foreign markets, or any other reason), they contribute to creating CoE’s in other countries. And these foreign CoE’s compete not just against current American jobs - but future ones as well.
The long term impact of this is that the brain gain that the US had experienced prior to 9/11 could easily turn into a brain drain, making it increasingly difficult for US based companies to keep up with rapid innovation going on in other countries. Once the balance tips in favor of foreign CoE’s, it could easily become a death spiral for American innovation.
And that not a deal that’s good for US.