Must-read: Paul Krugman: “The Cases for Public Investment”

Must-Read: I want to endorse this line of thinking from Paul Krugman because I think it is completely right. My initial worries about Sanders-Friedman was that it made promises about where we could get as far as economic growth over the next decade that were very unlikely to be achievable. More important is the Romers’ accurate critique that Sanders’s plan would not even come close to getting us there even in the unlikely possibility that things do break the way that Sanders-Friedman. And that generates the corollary that is perhaps most important: Sanders’s plans look seriously underpowered, and we should be trying to assemble a coalition to do even more than he envisions come 2017…

Paul Krugman: The Cases for Public Investment: “One of the annoying aspects of the Sanders/Friedman flap was the assumption of many Sanders supporters that anyone who doesn’t accept extravagant economic projections…

…is against a big program of public investment. Actually, it was destructive as well as annoying; aside from being an insult to progressive economists who believe in infrastructure but also believe in arithmetic, it created at least the possibility that other people would take the crash-and-burn of a particular piece of analysis as evidence that the whole case for spending more is wrong.

So let’s talk about the cases for a lot more public investment right now…. America has an obvious infrastructure deficit, and that it has never been cheaper to address that deficit…. We are still in or near a liquidity trap…. While unconventional monetary policy can and should be tried, one thing that we know works is increased public spending. So there’s an overwhelming case for a burst of spending while we’re in the trap…. ‘The boom, not the slump, is the right time for austerity.’…

Finally, there’s hysteresis: the proposition that demand-side weakness now breeds supply-side weakness later, so that there are big payoffs to boosting the economy through public spending. There’s now a lot of evidence for that proposition, with my only worry being that potential output isn’t an actual number, just an estimate that may tell us more about the dreary minds of international agencies than about real supply-side effects. More on that soon too. But it’s a further reason to spend more now, and to worry even less about any debt that we run up at today’s low, low rates…