Must-Read: Paul Krugman: Prudential Macro Policy: Fiscal:
It was easy to say what U.S. monetary and fiscal policy should be doing...
the indicated demand policy was pedal to the metal all the way--no need to worry about inflation, no reason to believe that deficit spending would cause any crowding out (in fact it would almost surely crowd in private investment, because such investment depends on demand.)... The right kept warning about a debased dollar, while the Very Serious People were obsessed with debt and deficits, so that in practice we didn’t do the obvious. But it was obvious.
Now, however, we’re arguably not too far from full employment.... Has the macro case for strongly stimulative policy gone away?... [On] fiscal policy?... A similar [asymmetry] argument applies... in particular about infrastructure investment, which takes a long time to get going.... A little crowding out wouldn’t kill us, given how badly we need infrastructure investment. On the other hand, if we do slide back into a liquidity trap we would be badly hurt by not having the public investment we could have had.... Public investment, in addition to its usual benefits, would provide valuable insurance against the all too possible return of the zero lower bound. It’s not quite as slam-dunk a case as it was in, say, 2013, but it’s still very strong. It’s still time to borrow and spend.