The countercyclical use of public works projects, like this one from the early New Deal, enjoyed bipartisan support in the years leading up to the Great Depression.
President Obama’s plan for $50 billion in new public works spending has brought Coolidge into current political debate. As econ blogger Mark Thoma has pointed out, not-so-silent Cal endorsed the use of public works to help smooth the business cycle. Here’s a selection from a 1925 Coolidge speech to the Associated General Contractors of America:
The idea of utilizing construction, particularly of public works, as a stabilizing factor in the business and employment situation has long been a plan of perfection among students of these problems. If in periods of great business activity the work of construction might be somewhat relaxed; and if in periods of business depression and slack employment those works might be expanded to provide occupation for workers otherwise idle, the result would be a stabilization and equalization which would moderate the alternations of employment and unemployment. This in turn would tend to favorable modification of the economic cycle. . . The first and easiest application of such a regulation is in connection with public works; the construction program which involves public buildings, highways, public utilities, and the like. Most forms of Government construction could be handled in conformity to such a policy, once it was definitely established. . . This applies not only to the construction activities of the Federal Government, but to those of states, counties and cities.
More than this, the economies possible under such a plan are apparent. When everybody wants to do the same thing at the same time, it becomes unduly expensive. Every element of costs, in every direction, tends to expand. These conditions reverse themselves in times of slack employment and subnormal activity, with the result that important economies are possible.
I am convinced that if the Government units would generally adopt such a policy, and if, having adopted it, they would give the fullest publicity to the resultant savings, the showing would have a compelling influence upon business generally. Quasi-public concerns, such as railroads and other public utilities, and the great corporations whose requirements can be quite accurately anticipated and charted, would be impressed that their interest could be served by a like procedure.
[Quoted in L. W. Wallace, "A Federal Department of Public Works and Domain: Its Planning, Activities, and Influence in Leveling the Business Cycle," Proceedings of the Academy of Political Science 12 (July 1927): 108-9.]
Such opinions can seem surprising, at least on the lips of a stalwart defender of the free market like Coolidge. But in fact, the countercyclical use of public spending was broadly popular in the 1920s. As I argue in a forthcoming article for Law and Contemporary Problems:
Many political and business leaders of the 1920s—Republicans, as well as Democrats—believed that government had a useful role to play in fighting recessions and curbing unemployment. They placed particular faith in the efficacy of increased spending on public works. New dams, roads, and tunnels might prove to be long-term public assets, but in the short run, they also promoted recovery by supporting wage levels, which in turned increased consumption and encouraged growth.
In particular, President Harding’s blue-ribbon commission on unemployment suggested that public works might be used to ameliorate unemployment and encourage recovery during economic contractions.
Holding back public works and private construction for periods of depression not only gives employment to large numbers of workers when it is most needed but creates a demand for raw materials for construction which in turn stimulates other industries to offer employment. It maintains the buying power of those directly or indirectly employed, it creates a market for goods, and it enables the workers directly or indirectly employed to buy the products of other industries. Finally, construction work in a period of industrial depression, when costs are lower, is economical.
When the world plunged into the abyss of the Great Depression, politicians of both parties called for increased public works spending to help slow the fall. President Hoover and Congress soon obliged. Then, as now, there was plenty of argument about how much to spend, with some arguing for more and others for less. But a remarkably broad consensus supported the notion that some amount of new spending on public construction was was both prudent and desirable.
