Sunday, July 6, 2014

Getting the Keynesians and Non-Keynesians to Agree on Infrastructure Spending

From the Noahpinion Blog:
"So there are at least two big non-Keynesian reasons to unleash a wave of infrastructure spending right now. The first is that interest rates are low. Interest rates represent the government’s cost of capital, and as every MBA knows, you invest when the cost of capital is low. Second, America has an infrastructure deficit, as this McKinsey report makes clear. Some countries, such as Japan, spend too much on infrastructure, but we spend too little, and our roads, bridges and airports are in disrepair.
Now, conservatives and structuralists will naturally worry that infrastructure spending will be distributed inefficiently, going to wasteful pork instead of productive uses. That’s a valid worry, and it’s a reason why we should also try to encourage private investment in infrastructure, as Summers suggests. It’s also a reason to have organizations such as the American Society of Civil Engineers help oversee infrastructure-spending decisions. Another worry is the high cost of infrastructure in the U.S.; bringing costs down will actually involve making a lot of reforms that conservative structuralists like Cochrane probably would like, such as shortening environmental reviews and administrative costs, and allowing infrastructure contractors to pay lower wages.
So there is the chance here for a bipartisan deal on a policy to help boost our economy out of its continuing doldrums. Infrastructure spending can appeal to both Keynesians and anti-Keynesians. Let’s do it!"

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