In his latest op-ed in the New York Times Tyler Cowen argues that for the federal government to engage in more fiscal stimulus will require lengthy confidence-building:
We often hear the argument that our government should borrow and spend more money because the real rate of return on government borrowing is so low, as evidenced by bond yields. Maybe, but those yields are low because alternative investments are perceived as so risky, and people want a haven for their money.
Should government double-down on these risks by borrowing more money and pursuing more investment? After all, such a policy is supposed to be self-validating because of the accompanying economic stimulus. But will it be seen that way? Will government protect us from the risks of its potential mistakes?
That’s not an easy debate to settle here, but suffice it to say that without more trust, it won’t happen on a large scale.
I’d like to go from the general, fiscal stimulus, to the specific.
Could someone explain to me how money from the federal government to enable the city of Chicago to give its public school teachers a 30% raise without laying off enough teachers to do it without raising taxes will solve Chicago’s economic problems?