Paul Krugman, of the New York Times Blog, says the argument over how to pay for President Obama's modest infrastructure development plan is foolish, in The Folly of Prudence.
Many American roads are in pretty bad shape — I can attest to that, after driving up to Massachusetts and back for family business last week. When you combine that fact with the underlying macroeconomic situation, of which more in a minute, the case for spending substantial sums on repair seems obvious.
Krugman complains that Obama's modest infrastructure repair proposal is stuck while congress fights about how to pay for it. He doesn't mention that due Ryan's and he Republican's austerity policies they want offsetting reductions in social spending to pay for it which would defeat the Keynesian stimulative affects on the economy we need.
Which brings me back to something I started saying way back in 2008, which is still true: when you’re in a liquidity trap, virtue becomes vice and prudence becomes folly. Asking how we pay for infrastructure may seem prudent, but it is in fact deeply foolish.
Think about it: what would the true costs be of repairing our roads? It wouldn’t divert capital from other investments — capital has no place to go, and markets are practically begging the federal government to borrow funds and put it to work:
It also wouldn’t divert labor from other uses: unemployment among contraction workers remains high:
Krugman refers to these two graphs of interest rates and unemployment rates.
Therefore, Krugman thinks we are being irresponsible not to spend money on infrastructure repair and delay while worrying about paying for it.
I completely agree. The only problem I have with this essay is Krugman leaves too much to the imagination and presumes everyone will know specifically what he means, which I do not believe is true, unless the average person has quite a few courses in macro-economics and is familiar with debates about fiscal policy.
Let me go out on a limb and venture how I interpret what Krugman is implying and our many professional economists here can correct me if I am wrong.
What I hear Krugman saying is that our congress people should reject Paul Ryan's draconian budget proposal and unnecessary and even destructive demand that we balance the budget right now in an under performing economy, with too much long-term unemployment. Also the GOP demand that all new spending be offset by reductions of government spending elsewhere in the budget, (but not to defense spending which means social spending) comes at the wrong time and will undermine the stimulative affects this infrastructure program is designed to achieve.
My interpretation is that Krugman is suggesting congress should support Democratic budget policy and that as a nation we should be wiling to reluctantly run deficits for the the time being to make constructive infrastructure investments. Given that we are currently in a liquidity trap of low interest rates and high unemployment, we are no at risk of inflating wages, causing general inflation, or crowding our capital for private investment which might be the typical objection some anti-Keynesian professional conservative economists might have if our economy were running at full capacity, interest rates were high, and our labor force were fully employed. (Whew! Maybe this is why Krugman did spell it out.)
Because we are not at full employment, and interest rates are at historic lows we are in the ideal circumstances for a Keynesian economic stimulus. And, the circumstances advanced by one sub-school of economists that have opposed Keynesian stimulative policies do not apply now, so therefore this unused labor and this historically low interest rates and capital opportunities are being wasted.
We are wasting labor and capital that we could and should be using to create a large boost in the production of real goods and services.
Krugman seems to think all of his readers and even congressman immediately understand and think of this explanation in my last four paragraphs when he casually mentions we are being "irresponsible" and sarcastically concludes with a quip that he thinks we've learned nothing from five years of our "austerity-equals-depression" economic policies.
As much as I appreciate Krugman's thinking, his presumption that people automatically understand his logic here frustrates me.
Nearly half the members of congress don't believe in global warming and would probably be doubtful about and oppose gravity if President Obama had promised that Democrats were going to do our best to obey the laws of physics in his first inauguration speech. Why if Obama had praised gravity the Kansas state legislature would have already passed laws making it illegal to mention gravity in Kansas' elementary and High Schools.
This is my quote above I just put it in block quotes so people looking down from the top wouldn't think I was going on in one of my long speeches again. See old dogs can learn new tricks. Woof, woof!
So Krugman thinks because he shows a plot of interest rate and unemployment rates and says we are being irresponsible to delay infrastructure projects while we debate how to pay for them everybody is going to get what the heck he is talking about?
Krugman is great, he's probably my second favorite economist other than Joesph Stiglitz but we need to ask him to do a little more than just throw a couple paragraphs over the wall and call it a day.
Same goes for all of us advocates for Democratic policies and candidates. Polls show a really tight race coming us in November, and in off-cycle elections we tend to see high drop off in voter participation rates of some important parts of our base such as the young, AA, and Hispanics.
We are doing great work but what we are doing isn't quite enough. We are barely holding even with these Republicans, which frustrates the heck out of me, because on the merits we should have left them in the dust long ago. We can't really ask our people to work harder because we are all already working darn hard and doing our best.
Perhaps, the one thing we could all do is look at this Paul Krugman example an ask: ourselves
"are we doing the best job to explain the important concepts we think are the obvious reasons people should be supporting Democratic policies rather than Republican ones?
If not, what would it take to spell them out completely so everyone can completely get it?
Because I'm growing weary of these obstructionists GOP Luddites holding us back when scientists and other smart people are telling us we have such better ways forward on issues like global warming, the economy, renewable energy generation, the environment, education, health care, and so many other critical issues. We are wasting time fighting when many other nations are moving ahead. Let's get our acts together.