Creating the conditions for public investment to deliver full employment and environmental sustainability

The paper argues that a suitably vigorous approach to public investment is a crucial ingredient in the achievement of full employment. If directed appropriately, such a public investment program can also promote environmental sustainability. A precondition of any aggregate demand expansion, for it not to cause undue inflationary pressure, is a well-designed and properly-implemented incomes policy. With such an incomes policy in place, the next issue is the character of the demand expansion. The linkage we are looking for is not, for instance, an expansion of bank lending finding its way to heightened activity in the property market. Public investment in health, education and infrastructure programs is the priority. Expenditure on these items of public capital should not be constrained by a budget balance (surplus) requirement which has its only justification in relation to current expenditures. Deficit government financing, drawing on a surplus from the private sector, provides the means of achieving public investment in capital projects which yield a social rate of return.