Here’s Fareed Zakaria’s take on the case that the president has been making, I guess since 2009:
Obama has been making the case that the U.S. economy needs investment — in infrastructure, education, training, basic sciences and technologies of the future. Those investments, in the president’s telling, have been the key drivers of American growth and have enabled people to build businesses, create jobs and invent the future.
and, presumably, that investment must come from the federal government or federal government. How else to interpret it? Where has the emphasis been? On investment via federal works program and grant or on incentives to encourage private parties to do the investing?
From government as the employer of last resort to government as consumer of last resort and now to government as investor of last resort. I honestly don’t believe that John Maynard Keynes would recognize what’s being perpetrated in his name.
I don’t buy the infrastructure arguments. It is something people always say, but frankly I think it is bunk. If infrastructure is that bad, and that important to the economy how has the economy been growing more years than it has not been growing? This is something I recall hearing back 20 or 30 years, and nobody has apparently done much about…why isn’t it a complete wasteland out there.
As for education…no. Just no. Gammon’s law, don’t throw good money after bad.
That leaves basic science, but then lets jump down to the post on scientific mumbo-jumbo for that.
Steve: the counterfactual is relative, not absolute.
Dave: why do you think borrowing at insanely low rates for I spending would lead Keynes to spin in his grave? Infrastructure spending is both government consumption (the government buys goods and services to close the aggregate demand gap) and investment spending (the things being acquired are capital goods). Indeed, a major structural problem with US budgets is that we overspend on consumption goods and underspend on capital goods, and it has been that way for some time. Indeed, I remember being lectured about this by conservative economists in college.
Dan,
Its bullshit. This has been a rallying cry for decades. I think for the most part our infrastructure is okay to pretty good. Are there places we can improve it? Sure. But this idea that it will be a key to jump starting the economy is just errant nonsense.
That’s actually several different and divergent questions bundled together.
1. Today’s interest rates are a red herring. For one thing, the U. S. is a monetary sovereign. The federal government could, if it elected to, simply spend the money into existence. For another as a matter of accounting we do not pay off the debt. We refinance it. Interest rates may well be low today but we shouldn’t expect them to be low forever. The additional debt will, however, be forever.
2. In the General Theory Keynes wrote of government as the employer of last resort and that’s an idea to which I subscribe. Further, late in life he explicitly repudiated the interpretations of the Keynesians, of which this is an echo.
3. Around here I’ve been complaining about what I see as the imbalance between consumer spending and business investment for as long as this blog has existed and less publicly for 30 years. Government spending, the third leg on the consumption tripod, is the least efficient in producing economic activitiy because it is determined politically.
Note that Zakaria’s primary support for the highlighted contention is that federal spending as a percentage of GDP or as a percentage of the budget has declined in these areas. I find that a highly suspect metric. Is there some rule that as a society’s wealth expands, it must proportionately increase its spending to the same extent? Do we ever get to take new wealth and spend it on something else?
“From government as the employer of last resort to government as consumer of last resort and now to government as investor of last resort. ”
It’s ironic, but the system we’ve chosen to have virtually requires all of these things. Unemployment, under-utilization of resources only exist in an economy using money. There’s no unemployment in a barter system because all actors are employed in gathering the resources need to survive and trade. In a monetary system, to achieve the same conditions there must be sufficient money in circulation to purchase all available goods and services. But the preference of the private sector to save (spend less than its income), government taxation and in the case of the U.S., persistent trade deficits, the end result is insufficient economic activity to achieve the goal. That leaves government as the only sector capable of spending sufficiently to ensure full employment.
It boils down to a choice between an employment or an unemployment buffer. We currently choose the latter, and so have an economy incapable of providing work for everyone and leaving the unemployed to live off the hard work of everyone else. The social costs that come with unemployment and the accompanying poverty are also pernicious.