"Recessions are also a good time to build needed infrastructure or engage in other good investments, properly funded by borrowing. For all these reasons, it is good economics to see deficits in recessions – and surpluses in booms."Noah Smith, an economics professor at Stony Brook University and writer of a great macroeconomics blog, has a post explaining the crux of this argument. Smith writes that U.S infrastructure is in a desperate state of disrepair, cheap unemployed labor is just lying around, and right now we can borrow for up to ten years at negative real interest rates. That's right, people are paying us for the privilege of lending money. If there is a Keynesian multiplier, that's just icing on the cake!
Do you think the government should spend more on infrastructure right now? What adverse effects do you think more infrastructure investment would have? Does Smith's post change your view of the fiscal policy debate?
I find this very convincing, "In recessions, interest rates are low. Governments can borrow cheaply to finance infrastructure. Just like any investment, you want government to build infrastructure when its cost of capital is low."
ReplyDeleteThe government should really invest now, its kinda sad that may prove to be hard because of the sequester and all.
I do believe the government should spend more on infrastructure during recessions. There was a lot of government-funded building during and at the end of the great depression and I'm under the impression that it did a lot of good then. This is not to say that there should be more housing units constructed, of course; rather, that it is a good time to invest in repairs first and foremost. Rather than going for the "flashy" new buildings that tend to get political support and ribbon cutting, get what we have fixed up so there is no need for this new--and thus more costly--work to be done.
ReplyDeleteIn a study done in 2009 at the University of Utah:
"Repair and maintenance projects spend money faster and create jobs more quickly than building new. Repair and maintenance projects are open to more kinds of workers, spend less on equipment and more on wages, and spend less time on plans and permits. New capacity projects also require more funding for buying property, which has little stimulative or reinvestment value."
"Fixing infrastructure produces a higher return on investment than new construction because repair prevents the need for reconstruction later, which costs four to 14 times as much."