I’m not sure that George Melloan has thought his recent remarks in an op-ed decrying “monetary stimulus” in the Wall Street Journal through completely:
After the 2009 slump, economic growth from 2010-17 averaged 2.2%, well below the 3% historical average, despite the Fed’s drastic measures.
Low interest rates certainly stimulate borrowing, but that isn’t the same as economic growth. Indeed it can often restrain growth. The national debt doubled during the Obama years and now stands at more than $22 trillion. Congress got the idea that credit somehow comes free of charge. So now the likes of Elizabeth Warren and Bernie Sanders think there is no limit to how much Uncle Sam can borrow.
Easy money not only expands debt-service costs but also encourages malinvestment. Hence America’s productivity growth rate has averaged only 1.3% since the recovery began, until its leap to 3.4% in the first quarter of this year on a resurgence of business confidence and productive investment.
The emphasis is mine. I agree with the assertion that borrowing or, indeed, credit expansion is not synonymous with economic growth and the reason (“encourages malinvestment”) is deadweight loss. That, too, is the reason I’m skeptical about infrastructure spending, defined as building roads and bridges. Some of it is investment, some is just throwing money into a hole. The exigencies of politics result in some of each but the balance between them is important. IMO nowadays we’re throwing far too much money into holes. Heroic measures to preserve a few weeks of additional vegetative life for the elderly? More people with degrees in journalism, art history, or interest studies? Throwing money into a hole. A better electrical grid is worthwhile infrastructure investment and it’s not something that private enterprise will do on its own. How do I know that? Because that’s not the direction in which the incentives point. But the electrical grid never appears on the list of infrastructure projects, possibly because no politician ever put her or her name on the electrical grid.
IMO the lowest hanging fruit for economic growth is to stop subsidizing people who don’t need subsidies and behaviors we don’t want to encourage but every subsidy has its political constituency.
Howsomever, if borrowing isn’t economic growth, what is economic growth?