Morning Must-Read: Ken Rogoff on the Need for More Expansionary Fiscal Policy--of a Form That Pays for Itself via Higher Tax Revenue in the Long Run
Summers is certainly right that productive infrastructure investment is the low-hanging fruit.... Productive infrastructure investment that generates long-term growth pays for itself, so there need not be any conflict between short-term stabilization and risks to long-term debt sustainability. With today’s ultra-low interest rates and high unemployment, public investment is cheap and plenty of projects offer high returns: fixing bridges and roads, updating badly outmoded electricity grids, and improving mass-transportation systems, to take just a few notable examples.... Those... [with] faith that Keynesian multipliers are much bigger than one... [think] even wasteful government spending is productive. But... with so many options for the productive use of resources, this seems like a titanic ideological distraction.... Barack Obama suggested the creation of an infrastructure bank to help promote public-private partnerships. It is still a good idea, particularly if the bank maintained a professional staff to help guide public choice.... Even if Keynesian multipliers are truly at the upper end of consensus, mobilizing private capital for investment has most of the advantages of issuing public debt.... The case for expanding productive infrastructure investment does not rest on one narrow ideological viewpoint or economic theory.... it is time to break the political gridlock and restore growth.