Economy

Paul Krugman Destroys Every Conservative Argument Against Government Spending One by One

In every way possible, the time is right for massive infrastrurcture investment—hear that Hillary?

Paul Krugman, like may other pundits, is feeling pretty hopeful about the chances of a Clinton rather than a Trump presidency.  After Trump's colossally bad week last week, Clinton has 83 percent odds, according to the New York Times’s model, of being elected.

Presuming that her lead holds, Krugman has a few suggestions for Clinton in Monday's column about what she should do about the domestic economy. "The most important thing we need is sharply increased public investment in everything from energy to transportation to wastewater treatment," he writes, and proceeds to make the case that government borrowing is the way to pay for it. 

First, we have obvious, pressing needs for public investment in many areas. In Washington, the aging Metro is in such bad shape that whole lines may have to be shut down for maintenance. In Florida, green slime infests beaches, in large part because failure to upgrade an 80-year-old dike or to purchase more land as a runoff area is forcing the Army Corps of Engineers to release polluted water from Lake Okeechobee. There are similar stories all across America. So investing more in infrastructure would clearly make us richer. Meanwhile, the federal government can borrow at incredibly low interest rates: 10-year, inflation-protected bonds yielded just 0.09 percent on Friday.

Put these two facts together — big needs for public investment, and very low interest rates — and it suggests not just that we should be borrowing to invest, but that this investment might well pay for itselfeven in purely fiscal terms. How so? Spending more now would mean a bigger economy later, which would mean more tax revenue. This additional revenue would probably be larger than any rise in future interest payments.

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This is saying nothing about the jobs a massive infrastructure program would create, and everyone likes jobs, right? Still, it is a near certainty that some all-too-familiar objections will be trotted out to fight this common sense proposal that now is the time to borrow and invest. The first is the outsized fear mongering about debt, and the scary sounding number of 19 trillion dollars. Krugman puts that into perspective by pointing out that what really matters, "is the comparison between the cost of servicing our debt and our ability to pay. And federal interest payments are only 1.3 percent of G.D.P., low by historical standards." Another favorite conservative argument is that the government simply can't do anything right. If so, then how did the Erie Canal, the railroads and the Interstate Highway System get built, and didn't projects like these kind of make America great? Sure, there have been some failures (Solyndra, Solyndra!), "but overall, the Obama administration’s promotion of solar and wind has been a huge success, with a rough quadrupling of production since 2008. Green energy should be seen as an inspiration, not a cautionary tale," Krugman writes. The columnist takes heart in noting that the "elite discourse" finally does seem to be moving in the right direction. At long last, some of the hysteria about debt seems to be abating, at least. But to really act, he points out, Clinton and the Democrats would need not just to win, but win big.