There is a widely held belief that at times of economic recession, the government can engineer a turn-around by increased spending at the bottom. There may be a germ of truth in this if all of the following conditions could be satisfied:
- the government knew where the bottom was
- the money was spent on productive assets
- the government cut back its spending once private activity recovered, and
- the government activity was financed out of tax surpluses set aside during good times.
Judging from the record, the probability of even one of these conditions being satisfied is very low. The chance of all four applying is negligible. The reality is, government spending activities not only tend to increase the boom and bust cycle, but they also waste real resources and make society poorer. The biggest waste comes from diversion of resources from productive investments or even consumption to grand monuments not valued by most of the people.
From the dawn of history, mankind has been burdened by the cost of supporting pyramid-building politicians.
The Great Pyramid of Cheops at Gisa is one of the largest structures ever built. It contains over 6 million tons of rock and took over 100,000 men 20 years to build — one of the greatest government job-creation programs ever carried out. There are hundreds of other pyramids in the Middle East and in the Americas, some of which rivalled the Egyptian monuments in size and splendour. What can we learn from the pyramid builders of old?
Firstly, almost without exception, the pyramids were built by dictators with conscripted capital or labour. All dictators, even those selected by democratic processes, seem obsessed with the construction of monuments.
In fact, so common is the association that the converse may also be true — any government obsessed with building monuments has lost touch with the real needs of the people and is in danger of becoming a dictatorship.
Secondly, construction of pyramids involves great sacrifice by the people. For example, the Great Pyramid consumed 2 million years of human labour. Once spent, this labour is locked forever in a sterile asset. The people cannot consume what they have produced, it pays no dividends, and it never repays the capital. It is not even equivalent to a bank account — the lost value cannot be retrieved by unbuilding the pyramid. Labour and material which could have built homes, paved roads, irrigated fields and raised the standard of living of all Egypt were consumed by a useless heap of rock.
Thirdly, there are destructive multiplier effects which spread from the pyramid in ever-expanding ripples, distorting the whole economy. Around the construction site grows up an industry of subcontractors producing chisels, wedges, picks and stone masons’ tools. Further back in the forests, timber which would have become house beams or mine props is diverted to the construction of slides, rollers and levers for the army of slaves shifting the stone blocks. And for miles around, the magnet of 100,000 hungry and thirsty mouths draws food, drink and entertainment which otherwise would have nourished fertile activities such as farming and flax growing.
Even the great centres of learning are affected as the emphasis turns to civil engineering, rock mechanics, surveying and tomb-architecture. And the greater the tempo of pyramid building, the greater the distortion of the economy towards unproductive activity. All others activities become starved of men, money and materials until eventually poverty and famine stalk the land of the pyramid builders.
Finally, there is the great disruption when pyramid building ceases. It is not just the sudden dumping of 100,000 labourers plus their overseers, engineers, guards and cooks. It is also the closure of the scores of quarries, kitchens, rope factories, timber yards, tool shops and massage parlours which supported them. Far from being a stimulation to the economy, pyramid building produces unproductive activity and increasing poverty during construction followed by unemployment and economic depression when construction ceases.
For this reason, pyramid builders find they have a tiger by the tail. If they continue building pyramids the people will revolt as the falling standard of living becomes obvious. But if they stop building pyramids, the disruption to those involved in this “industry” will also cause unrest. So a second pyramid will be started as the rulers seek to postpone the painful adjustment to reality. But the price has to be paid, and it grows bigger with each day’s delay.
Pyramid building did not stop with the ancient God-Kings. Although they may not be easily recognised by the Pharoahs or the Incas, the modern world is full of pyramids.
Reduced to its essentials, every pyramid is a monument to the ego of the builder which is constructed with conscripted capital of labour and which, when built, provides little or nothing of value to those who provided the capital or labour.
Where are they, the modern pyramids?
The greatest modern pyramid in the Southern Hemisphere is Parliament House in Canberra. Initially quoted to cost $151 million, the eventual cost exceeded one billion dollars — enough to put 50 Apple computers into every school in the not-so-clever-country. And, unlike the stone pyramids whose cost ends when construction ceases, our Parliamentary Palaces will cost $200,000 per politician per year to run and service.
Another whole bunch of pyramids have been built as monuments to the Arts. There is the Sydney Opera House, whose organ alone cost more than the average public servant earns in a hundred years.
Then there is the Queensland Cultural Centre whose construction consumed resources sufficient to build a sealed highway from Brisbane to Mount Isa. The treasures being collected for this mausoleum, and for the National Gallery and its counterparts in the other States, are sufficient to put even the most culture-loving Pharaoh to shame. Unfortunately, most of it is wood, paper and canvas, not gold and silver, and it will have decayed to dust long before the capital and interest has been earned from the entrance fees.
What about the private pyramid builders? Of course there are private investments built with other people’s money which do not promise real return to those who provided the capital. Some of the monuments built by people such as Skase or Bond, or financed by the various State Banks, have certainly impoverished those whose savings were used.
But there is one very effective restraint on the proliferation of private pyramids. It is called “the cost of capital”. Because the private sector cannot conscript capital every investment must promise a return for the investor which, in his opinion, compensates him for the loss of use of his capital. Any board which consistently fails to do this will be sacked by their shareholders or their lenders.
What a pity this essential discipline is not allowed to operate in Australia Post, the Wool Corporation and the state rail monopolies.
Those aware of the poverty producing potential of pyramid building are thus concerned to hear Premier Goss and other calling for accelerated government construction activity.
If this was concentrated on essential productive infrastructure such as roads, railways and ports, there may (only may) be some net benefits.
Too much, however, will be spent on convention centres, casinos, Heritage Centres and extravagant government office blocks.
More plush government offices just provides an irresistable temptation to fill them. And with 36% of Brisbane’s Central Business District already owned by Governments, in addition to leasing space equivalent to six fifteen floor buildings, we surely have enough public servant pyramids.
If any government is determined to run a bigger deficit “to stimulate the private sector”, the deficit should be achieved not by increased government spending but by cuts in government taxes. This way, less of it will be spent on building pyramids. The general prosperity of any society depends not on the number of jobs it creates but on the amount of valued goods and services it creates.
Unless we learn this lesson, our job-creation pyramids will turn out to be not monuments, but tombstones, (especially for those who authorised their construction).
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