The Oldest and Most Trusted Real Estate News Magazine

Krugman: “Infrastructure Delusions”


From Professor Krugman: Infrastructure Delusions

Ben Bernanke has a longish post about fiscal policy … Notably, Bernanke, like yours truly, argues that the fiscal-stimulus case for deficit spending has gotten much weaker, but there’s still a case for borrowing to build infrastructure:
When I was Fed chair, I argued on a number of occasions against fiscal austerity (tax increases, spending cuts). The economy at the time was suffering from high unemployment, and with monetary policy operating close to its limits, I pushed (unsuccessfully) for fiscal policies to increase aggregate demand and job creation. Today, with the economy approaching full employment, the need for demand-side stimulus, while perhaps not entirely gone, is surely much less than it was three or four years ago. There is still a case for fiscal policy action today, but to increase output without unduly increasing inflation the focus should be on improving productivity and aggregate supply—for example, through improved public infrastructure that makes our economy more efficient or tax reforms that promote private capital investment.

But he gently expresses doubt that this kind of thing is actually going to happen:

In particular, will Republicans be willing to support big increases in spending, including infrastructure spending? Alternatively, if Congress opts to reduce the deficit impact of an infrastructure program by financing it through tax credits and public-private partnerships, as candidate Trump proposed, the program might turn out to be relatively small.

Let me be less gentle: there will be no significant public investment program, for two reasons.

CR Note: Just after the election, I noted that members of Mr. Trump’s team had been talking about a trillion infrastructure plan. However the infrastructure proposal really was a proposal for about 0 billion in tax credits to spur private investment in infrastructure. The trillion in infrastructure investment was the projected size of the private investment, not the proposed government spending. This proposal is actually very modest in terms of a fiscal boost. Also, if this becomes a privatization scheme, then there might be a modest short term boost, but the long term impact would be negative.
Calculated Risk

Tags: , ,

Sitemap Madbadcat Graphics