…public investment must do so.
I published this piece in today’s WaPo arguing that based on recent global dynamics–very low interest rates, strengthening dollar, capital flows, larger US trade deficit–the Fed must be very careful about raising rates. What they intend to be a tap on the brakes could end up being more than that.
To their credit, they decided not to raise in their meeting this month, citing weak inflation and a slower “pace of improvement” in the job market. Surely the possibility of Brexit and the significant interest rate divergence I cite in my commentary are also weighing on their thinking.
At the end of the piece, and in tons of other writings I’ve recently posted, I stress the need for infrastructure investment, including transportation, schools, water systems, and all the stuff Elizabeth McNichol talks about here.
Here’s a slide I’ve been touting in this regard.
Without even trying, I can think of three good reasons to invest in public infrastructure right now. First, as the figure on the left shows, real private investment is stuck way below its pre-crash trend (the figure takes logs of an index of real spending on business investment and draws a trend using data through 2007).
The post-2007 gap is clear, but it’s also pretty remarkable when you consider that the price of investment capital has been so low for so long. For whatever reasons–hangover from the Great Recession, inequality, stagnant incomes–private investment ain’t steppin’ up even at bargain-basement prices (the Fed commented on this too today: in the near term “business fixed investment has been soft”).
Second, as the figure on the right shows, the need is there: the funding gap–the gap between what we spend and what we need to spend–on transportation, schools, and water systems is large.
Third, like I just said, borrowing is so damn cheap. Under the assumption that these investments are at least mildly productive–and I’d argue that not poisoning kids with lead-infused water is a lot more than that–to not make these investments at today’s borrowing costs is economically…well, we’re not allowed to say “stupid” in my house, so let’s just say “shortsighted.”