Public Investment for a Balanced Economy: A Thermodynamic Perspective

Abstract

Public sector investment has traditionally been conceded a role in moving the economy towards full employment. This role has been exemplified to useful effect in the aftermath of the recent financial crisis. The contention of this paper, however, is that public investment has an important balancing role to play alongside private investment in an economy operating at or close to full employment. There are investments with long time horizons and positive externalities where call for realisation via the public use of funds. These matters, however, are not agreed upon with the primacy of private sector investment and the case for the retreat of government is still being pushed. In this paper, investments with long-time horizons and positive externalities are ultimately advocated via the adoption of a thermodynamic perspective. In this way, renewable energy and energy efficiency investments can be argued for to lead the public investment thrust in an attempt to break free of the constriction imposed by fiscal conservatives.