Robert Shiller Joins the Build While It's Cheap Chorus
Nicely written, "Making the Most of our Financial Winter." The novel part:
In every depression the nation has faced, there have been proposals for the government to do just this: increase spending on public improvements to create jobs for the unemployed.
An article in The St. Louis Post-Dispatch, written in 1877, during the 1873-79 depression, argued that the government could create a great many infrastructure jobs. “There are many needed improvements: the construction of the Texas and Pacific Railroad, the widening of the entrances to the Mississippi, the diking of its alluvial blanks, the clearing of obstructions from the beds of the great rivers of the West, the improvement of the harbors and rivers in the East, the completion of the post offices, custom houses, seawalls, breakwaters and other useful works of a national character,” the article said.
Shiller goes on to argue for the balanced-budget aspect of infrastructure improvements in the President's American Jobs Act proposal. I would take that, as well as add a zero to the proposals -- they are an order of magnitude too small -- and borrow to get them done while we are in our financial winter. The minimal interest costs can be serviced over the life of the productive investment.
lack of patriotism
Common sense, a look at gov't borrowing rates, and Econ 101 suggest that the US should be spending right now to ameliorate unemployment. The Republican Party (perhaps as little as 97% of it) opposes this common sense approach with vague, irrelevant generalities.
Republicans are solely and entirely driven by partisanship in their approach to every major issue facing the country.
The main problem facing our country-- even worse than our economic and unemployment problems-- is the Republican Party's fundamental irrationality and indifference to America's well-being.
This is what it looks like when it's cheap
I've listened to politicians say that this or that infrastructure project is "too expensive" and the "we can't afford it." Well, this is what it looks like when it's cheap: high unemployment, low capacity utilization, low interest rates. We've got idle workers, idle capacity and people from around the world BEGGING to give us money at zero real interest rates. We should give them the bonds they want and use the money to hire people to build/repair/enhance economically useful things.
Anyone who claims to adhere to the wisdom of the markets yet ignores the fact that right now the bond market is screaming, "BORROW MONEY" doesn't deserve to be taken seriously.
Suppose we borrow a load more
Suppose we borrow a load more money and spend it on building infrastructure. What then? At some point we have to stop and relieve all those construction workers of their jobs again. Only by this time we are even deeper in debt. How is that helpful?
It's helpful two ways: 1) IF
It's helpful two ways: 1) IF we do it on a sufficient scale we will have jump-started the private sector economy by way of all that added demand, and the formerly government-employed construction workers will find new jobs. 2) As importantly, the upgraded infrastructure will increase future economic growth. Those things seem pretty darn helpful to me.
It's helpful in a number of ways
1. More people working means more tax revenue and less spent on safety net programs. So if we spend $500 billion, we get some of that back immediately.
2. People with jobs buy things. Boosting spending on infrastructure means more people with paychecks which means demand for goods and services rises across the economy. We pay people to repair bridges and upgrade the power grid and they buy a car, or a new fridge or get a bigger apartment.
3. People with jobs service their debts. More people employed means more people paying down their debts, which means more households can get to the point where they are not abnormally debt constrained that much sooner.
4. Seeing unemployment drop will give others confidence to start spending more normally. There are a lot of people out there with jobs who could be spending more but are not out of fear of job loss.
5. A strong surge of employment could trigger some (mild) inflation. This is a good thing at this point. Some inflation in wages and prices means a) existing debts become easier to service, b) it can put a floor under housing prices, c) it means more households can get to the point where they are not abnormally debt constrained that much sooner.
6. The US Government being offered money at negative real interest rates right now. That means the rate of interest is less than the rate of expected inflation over the given time period. Under those conditions ANY project with a positive return is worth doing.
7. If we spend the money on the right things like infrastructure improvements (roads, bridges, telecom, power grid, freight and cargo systems, energy efficiency of homes and businesses, etc.) we make the economy more efficient which means we get the benefit of putting people to work immediately to make the improvements and we get the benefit of lower costs of moving goods and people, more efficient energy use and more robust telecommunications services for decades to come.
8. If enough is spent, it boosts demand enough that the recovery becomes self-sustaining. The construction workers buy enough cars that the auto companies hire more people. Young people move out of their parent's basement, get married, get an apartment and take their parents' couch. The parents buy new couches. The furniture seller decides to buy a house. The home builder hires construction workers. The idea is that if enough economic activity is generated by stimulus, there are other jobs waiting for the workers as the stimulus projects wind down.
Too bad we spent the money on
Too bad we spent the money on the War on Poverty, Drugs and Terrorism. Oh, yeah, and Social Security is in hock.too. But those are just details, ah?
Anyone who claims to adhere
Anyone who claims to adhere to the wisdom of the markets yet ignores the fact that right now the bond market is screaming, "BORROW MONEY" doesn't deserve to be taken seriously.
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Please stop the insanity. Get real about the world screaming "BORROW MONEY". The largest holder of US debt is the Federal Reserve at 11.4% and most of that is the recent expansion of its balance sheet in the QEs.
The US is borrowing short with an average maturity of debt outstanding just over four years.