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In three weeks, one of them being short, Rep. John Yarmuth [D-Ky.] has announced $50 million in federal monies headed toward Louisville. Lets talk about this.

To get it out of the way, here is what the money is for. Follow the links for details.

$22 millionHOPE VI housing revitalization effort in Smoketown
$26 millionRecovery Act investments at Valley High
$1.1 millionJob training at Youthbuild Louisville
$900,000Brownfields funding for Park Hill Industrial Corridor

Some people will look at this money, in these desperate fiscal times, and roll their eyes in disbelief that this sort of spending is still happening. They shouldn't. In the hardest of times and the darkest of hours, government must continue to govern, and projects such as these are very much one of the important functions of government.

I'm going to use some lingo here and link liberally to helpful definitions. So by all means, click to clarify. Links will open in new browser windows.

The case for free market economies is that so long as competition is robust and there are no "externalities", free markets optimize the allocation of resources. The catch to free markets is in that phrase "so long as...".

Competition is never perfectly robust, and externalities are always present to one degree or another. Economists use the term "market failures" to describe a small set of conditions in which, for these reasons, free markets do not optimize the allocation of resources.

Lighthouses are classic examples of market failures. The need for lighthouses is obvious but because there is no way to prevent "free-loaders" from benefiting from a lighthouse there is no incentive for anyone to pay for use of the lighthouse. That means there is no incentive to build the lighthouse. With no incentive to build one, no lighthouse gets built... even though the need is obvious.

One of the key justifications for government is that it has the unique ability to allocate resources where markets fail.

It is fair to expect that when government steps in to allocate resources some of the benefits of free markets will be lost. Resource allocation will not be optimized and this will create some drag on the economy. To the degree that free markets serve their purpose, therefore, government allocation of resources should be resisted. But in the instance of market failures, which prevent optimal allocation of resources, government allocation can actually increase optimization. For example, if the existence of the lighthouse makes trade possible, and this trade brings enormous benefits to the entire community, then government allocation of some resources to the lighthouse improves optimization. It makes the economy healthier.

That taken into account, something that caught my eye was a statement Mr. Yarmuth made to WFPL when interviewed about the Youthbuild program. He said,

I tend to support programs that have long-term payback to the country and the economy. And when you invest in people and take people who are statistically going to be drains on society and make them productive citizens that’s a huge turnaround in terms of the federal budget, not to speak of the lives you’ve helped.

This statement speaks loudly to exactly the justification of government I have described. All four of these projects are lighthouses. All four will bring economic benefits to the community that far exceed the direct and immediate effects of $50 million spent in the local economy, but all four fall into areas where free markets structurally fail.

This is exactly what government is supposed to do.

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Keith Rouda's picture

About Keith Rouda

I'm a news junkie and politics addict. I stay up way past my bedtime to watch election returns come in. My free time is spent with MoveOn.org advocating for progressive policies. I have an MBA from Sullivan University and have worked in small businesses and large, in fields ranging from advertising, to health care, to information technology, to talent acquisition, to industrial quality. I moved to Louisville in 1995 and haven't looked back.

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