Must-Read: Jared Bernstein: The Macro-Economy Doesn’t Care Which Party Signs the Stimulus Check

Must-Read: If we think that the task of expansionary fiscal policy is to allow for tighter monetary policy and so raise nominal interest rates by 300 basis points to get asset prices back to what we think of as appropriate levels, then we need a big fiscal stimulus: $400 billion a year of increased deficits, largely via higher spending, seems called for.

That is a largely independent question of what the level and direction of national investment should be. There are two big issues here:

• How do we rebalance asset prices–i.e., how do we fund private and public investment?
• What should the level of investment be?

Jared Bernstein: The Macro-Economy Doesn’t Care Which Party Signs the Stimulus Check: “I yield to no one in my concerns about the damage…

…But… let’s separate out an infrastructure plan from a big, regressive tax cut, sky-high tariffs, whacking Obamacare, and other bad ideas…. Investment in neglected public goods–roads, bridges, water systems, airports, shipping ports, broadband, public schools, mass transit (DC Metro!)–would help generated needed demand in places that are still suffering from economic slack and could help boost lagging productivity as well. That argument is not rendered invalid because Republicans pass the plan….

The plan matters. During the campaign… characteristically muddled stuff from team Trump about leveraging private investment through tax credits, which implies infrastructure usage that spins off some kind of investor payouts–ie, user fees. Also, bridges to nowhere…. So if we’re talking about either of those, I retract my endorsement…. But a smart infrastructure plan could help. And if it did lead to greater resource utilization, as I suspect it would–that’s the Keynesian point–and that in turn boosted inflation and interest rates, that’s a feature, not a bug… very low levels… have not been a signal that things are great; they’re symptoms of secular stagnation….

Finally, on numerous grounds, I’d strongly oppose the highly regressive tax cut I believe is coming…. Its impact will be wasted on tax cuts for the rich. Since they’re not income-constrained in the first place, they’re less likely to spend…. Second, trillions in “permanent” tax cuts, infrastructure spending, and bumping up the defense budget (another Trump priority) will force strong pressure to cut spending in other areas that will inevitably ding the most vulnerable. We’re going to need more revenue in the future, not less…